Question 1

What is a combination deal (iskat kombinatsia)?

Accepted Answer

A combination deal (iskat kombinatsia) is an arrangement where a landowner transfers land (or a portion of its development rights) to a developer, in exchange for a percentage of the completed apartments rather than a cash payment. It is commonly used where the landowner lacks the capital to develop but wants to benefit from the land's development potential.

Question 2

What percentage of apartments does the landowner typically receive?

Accepted Answer

The landowner's share depends on the land value relative to the construction costs. As a rough guide, in Jerusalem and high-value areas a landowner might receive 35–55% of the apartments. In lower-value locations the percentage is lower. The deal is negotiated case by case, and the percentages are critically dependent on valuation assumptions that must be independently verified.

Question 3

What are the main tax implications of a combination deal?

Accepted Answer

A combination deal triggers capital gains tax (mas shevach) and betterment levy (hitkum hashbacha) for the landowner, calculated on the market value of the land at the time of the deal. The developer pays purchase tax on their share. Careful structuring — particularly the timing and method of the transfer — can significantly affect the tax outcome. Tax advice is essential before signing.

Question 4

What are the main risks for the landowner in a combination deal?

Accepted Answer

Key risks include: (1) the developer failing to complete construction or becoming insolvent; (2) the apartments delivered being lower quality or specification than promised; (3) delays significantly beyond the agreed timeline; and (4) disputes over the valuation that determines the split. Proper bank guarantees, construction insurance, and well-drafted agreements are essential protections.

Question 5

What protections should the landowner insist on?

Accepted Answer

The landowner should insist on: (1) a bank guarantee covering the value of the land transferred, in case the developer defaults; (2) a detailed specification for the apartments to be delivered; (3) contractual penalty provisions for delay; (4) registration of a warning note (he'arat azhara) immediately; and (5) independent legal advice from a lawyer acting only for the landowner — not the developer's lawyer.

Question 6

Can a combination deal be structured to defer the tax trigger?

Accepted Answer

Yes — the tax timing in a combination deal depends on when the transfer of rights is legally effective. Various structures can defer the tax event until apartments are actually delivered, potentially improving cash flow significantly. Adv. Elmaliach advises on the most tax-efficient structure for each combination transaction.

Combination Deal (Iskat Kombinatsia) in Israel

What Is a Combination Deal?

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