The Tenant Protection Law: Why do lease agreements specify that it is inapplicable?

Before delving into the detailed explanation, let’s start with the conclusion: The Tenant Protection Law aims to regulate the contractual relationship between a landlord of a residential apartment or business premises and a protected tenant. Among other things, the law restricts property owners from evicting a protected tenant or raising rent.

Due to these restrictions, property owners have a clear interest in clarifying as much as possible that the Tenant Protection Law does not apply to the lease agreement. However, it is important to understand that tenants considered protected under the law will benefit from it despite any other contractual stipulation. Thus, if a tenant is considered a protected tenant under the law, they will still benefit from the law’s provisions, regardless of the wording of the lease.

Background to the Enactment of the Tenant Protection Law

This is an evolution of mandatory legislation from the 1930s, enacted in response to two significant global changes: Firstly, the World Wars (I and II) resulted in a halt to the construction of residential and business properties; concurrently, a massive increase in new immigrants to Israel occurred. The result was an overpopulation relative to available properties, creating a severe housing shortage.

Property owners exploited this imbalance between supply and demand, significantly increasing property prices and acting arbitrarily. Those who did not succumb to the soaring housing prices found themselves easily evicted from one property to another.

The British Mandate authorities then governing the land sought to curb this phenomenon and enacted the “Landlords and Tenants (Eviction from Premises and Rent Restriction) Ordinance, 1934“. The ordinance’s name speaks for itself. Indeed, its two central provisions are the restriction of an owner’s ability to evict a tenant from a property; and the restriction of the rent that can be charged to tenants.

For example, Section 4(1) of the Ordinance stipulates that “no court or judge or officer of enforcement shall give judgment or order for the eviction of a tenant from his dwelling even if the term of the tenancy of that tenant has expired,” except under special circumstances (such as non-payment of rent; breach of the lease; willful damage to the property; etc.). A whole section is dedicated to maximum rent according to the type of property.

Upon the establishment of the State of Israel, the Israeli legislature inherited the ordinance and gave it an Israeli version. It began with the Tenant Protection Law, 5714-1954 and culminated in the “Tenant Protection Law [Consolidated Version], 5732-1972“.

Key Provisions of the Tenant Protection Law and Why Landlords Are Concerned About its Applicability

Firstly, the law created a list of tenants who would be considered protected tenants. For example, a tenant who: paid key money; did not pay key money but entered the property before 1940; was entitled to hold the property until August 20, 1968, and the lease did not explicitly state that the law did not apply to them; entered the property after August 20, 1968, but the lease stipulated that the law applied to them; a “continuing tenant”—that is, a family member to whom the rights of the original protected tenant were transferred; and others. Today, there are almost no “original” protected tenants, but mostly continuing tenants.

Secondly, similar to its predecessors, the Tenant Protection Law restricts the property owner’s ability to evict a tenant considered protected. For example, the law stipulates that despite any other contractual provision, a protected tenant cannot be evicted from the property except in the events detailed in Section 131 of the law. For example: if the tenant has not paid rent; the tenant has not fulfilled a condition of the lease that constitutes grounds for eviction; caused significant damage to the property through willful misconduct; habitually harasses and annoys their neighbors as a “way of life”; etc. The restriction on the eviction of a protected tenant is very stringent. Even a property owner wishing to evict a tenant for their own use is obligated to notify the tenant in writing of their willingness to provide the tenant with alternative housing. Further, the law also sets a ceiling on the rent that can be charged to a tenant in a residential or business property, according to the property’s characteristics.

It is already clear why almost every lease agreement states that the Tenant Protection Law will not apply to its provisions. A protected tenant has additional rights that a “regular” tenant does not have. Landlords want to remove any doubt that the rights of their new tenant are limited to a “non-protected” reality. Of course, if the specific tenant meets the definition of a “protected tenant,” a clause negating the applicability of the law’s provisions will not help the landlord. However, there are very few such tenants left, and landlords routinely negate the applicability of the law’s provisions, sometimes without even knowing why.

The Law’s Lack of Relevance to the Current Reality

Undoubtedly, over the years, the economic and legal realities have changed. The supply of housing has increased; tenants are no longer the “distressed tenants” that protected tenants were at the time of the state’s founding; and property owners are no longer those “powerful landlords” whose entire wealth was concentrated in real estate, but hold diverse assets. In addition, the Basic Law: Human Dignity and Liberty was enacted in the 1990s, establishing the right to property as a fundamental constitutional right.

This combination of factors, along with the new status of the right to property, has blurred the legitimacy of infringing on the property rights of property owners through additional rights for tenants. This change has been widely noted by the courts, which have repeatedly pointed out the diminishing necessity of the Tenant Protection Law; significantly reduced its scope; and even called for its repeal, arguing that the reasons for its enactment are no longer relevant.

However, some argue that the housing shortage has not disappeared, but has merely changed its form, resulting in exorbitant housing prices that are not curbed by regulatory price caps. Laws have been enacted to balance the status of tenants and landlords, and the government has initiated various real estate projects. However, tenants are still forced to pay high prices for apartments that are often far from justifying them; and the housing market has become a symbol of Israel’s high cost of living.

Weak Winds of Change: The Social Protest and the Fair Rent Law

In 2011, the well-known “social protest,” also known as the “Million Man March,” erupted. Its focus was on the dire state of the Israeli housing and rental market. About a million Israelis took to the streets of Tel Aviv, set up tents, and raised their voices to awaken the government. Following the protest, then-Prime Minister Benjamin Netanyahu established the Trachtenberg Committee, a committee of 14 public figures whose purpose was to examine aspects of the high cost of living and provide solutions to reduce it. In September 2011, the Knesset approved some of the committee’s conclusions. Regarding the housing market, tax breaks were approved for those eligible and tax increases for owners of multiple properties.

About four years later—and as a further result of the protest—a bill to amend the Rent and Loan Law, 5731-1971 was submitted to the Knesset. The purpose of the amendment was to update the old law and tip the scales in favor of tenant rights. The approval process was slow, corresponding to the sluggishness of political stability, but in the summer of 2017 the law was approved and entered into force. Many refer to the amendment as the “Fair Rent Law,” although it is not a separate law but an amendment to an existing law. Among the innovations of the law: the obligation to execute a written lease agreement; detailing the provisions that must appear in the agreement; limiting the amount of deposits a landlord may demand; specifying the defects that are the responsibility of each party to the contract; and more.

Understanding the provisions of this law is crucial for property owners and tenants alike. For a guide for landlords and tenants in light of the Fair Rent Law, click here.