Who Pays for an Unexpected Tax? – part I | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The plaintiff (=pl) and the defendant (=def) were interested in selling pl’s house to def, but the sale could not be completed because def was not yet a member of the yishuv in which the property is found. Def moved into the house under a rental agreement, which was replaced by a sales contract months later, when the yishuv approved def. After the second contract was signed, it became known that a recent change in urban planning rules made it possible to add three rather than two housing units to the house. This fact added significantly to the mas hashbacha (betterment tax at the time of sale), which pl lowered by negotiation to 72,672 NIS. Pl argues that for all practical purposes, the sale took place before the tax was levied, and it is unfair that this tax, which was levied due to a technicality caused by def, should fall on pl when only def will benefit from the regulation change. Def responds that since the original arrangement was indeed a rental, the tax falls on pl, and, in any case, there is no reason for he who is not selling to pay a sales tax. Def adds that he does not plan to build the extra unit and might not have bought the house if he would have to reimburse pl this extra amount.

Ruling: Was the first agreement a sale or a rental? Pl claimed that in three ways it is evident the rental was an unofficial sale. 1. The rental contract mentions the planned sale and lists a price for it. 2. The "rent" will be reduced from the sales price if and when the sale happens. 3. Pl agreed to not sell the house to anyone else during the time def was working on getting accepted to the yishuv. Def points out that the "sales price" in the contract was not followed, as def agreed to not count the rental payment toward the sales payment because of another tax that cropped up unexpectedly. Since pl saw the price as not fixed, the agreement was not a full-fledged sale but a statement of hopes for the future.

The question is not what the plans were but whether the sides ultimately built it as a sale or a rental, and the latter is clearly the case. Both its basic terminology and many specific elements of the agreement relate specifically to rentals. Even the matter of the price of the sale did not end up being a sign of sale, considering that it changed. Therefore, there was no sale, and there is no reason that pl, to his misfortune, should not have to pay the mas hashbacha.

Can there be claims of mekach ta’ut (nullification of an agreement based on misinformation)? Factually, it is agreed that the urban planning rules were final and available before the legal sale but that neither of the sides knew about it. This raises the possibility of mekach ta’ut. Although mekach ta’ut based on mispricing does not apply to real estate, if there was a mistake on a factual point, such as the size of the property, then there is mekach ta’ut (Kiddushin 42b).

We continue next time about nullifying (elements of) the agreement based on misinformation.