News
02.09.2016
Cadastral value: current rules and forthcoming changes
02.09.2016

Cadastral value: current rules and forthcoming changes

Disputes on challenging the cadastral value of realty have become one of the most common in the Russian courts in the recent years. Not surprisingly, though: cadastral value is a basis for taxes calculation. Supposedly in the response to that a new law on cadastral evaluation has been adopted this summer providing a different procedure and standards for the cadastral evaluation.

 

Please see the Mosgo & Partners newsletter for more details.

Please also refer to our new review "Cadastral value: FAQ and What's New in the Law" (2017).


1. DEFINITION OF CADASTRAL VALUE AND SPHERE OF ITS APPLICATION

The current Evaluation law[1] defines cadastral value as a value of a real estate object determined in the course of cadastral evaluation or judicial dispute on challenging the cadastral value. Cadastral value comprises a part of data about a real estate object included in the State Real Estate Cadaster (State Cadaster[2]) – the state register of the real estate which contains information about individual features of real estate objects, such as area, description of the borders, permitted use, etc. The importance of the cadastral value, however, goes far beyond the pure recording purposes.

Application of the cadastral value (non-exclusive list)

 No.     Application      Reference
1 Tax base basis for the property tax of legal entities, if the real estate is listed in art. 378.2 of the Tax Code (mainly office buildings, shopping malls and the premises within the above or other premises used for offices, stores or food service) art. 378.2 of the Tax Code
2 Tax base for the land tax art. 390 of the Tax Code
3    Tax base basis for the property tax of natural persons in certain regions of the Russian Federation art. 402 of the Tax Code
4 Buyout price basis for publicly owned land plots para. 3 art. 39.4 of the Land Code
5 Basis for the rent payments of the publically owned land para. 5 art. 65 of the Russian Land Code
6 Value of land plots during the privatization of state unitary enterprises  para. 3 art. 11 of the Federal law No. 178-FZ dated 21.12.2001 “On the privatization of state and municipal property”. 




2. CURRENT  PROCEDURE & STANDARDS OF CADASTRAL EVALUATION

Real estate objects recorded in the State Cadaster – land plots, buildings, premises, etc. – are subject to cadastral evaluation, which can be conducted not more than once in three years (once in two years for Moscow, Saint-Petersburg and Sevastopol).

Cadastral evaluation is different from market evaluation and cadastral value is often different from the market value, sometimes exceeding it.

Cadastral evaluation is based on a mass evaluation of several real estate objects with similar price factors[1]. For instance, land plots are grouped together based on the designated role and permitted use. Only public encumbrances of zoning, environmental protection, national security and cultural heritage are taken into consideration by the cadastral evaluation. Other encumbrances, lease rights or easements, even though influencing the price of the real estate, are not counted for the purposes of the cadaster value.

To conclude, some individual features of a real estate are often disregarded, which not uncommonly leads to erroneous results challenged by interested parties.


3. CASE LAW ON CHALLENGING THE CADASTRAL VALUE & STATISTICS

In order to challenge the cadastral value, a legal entity must first file an application to the regional commission of cadastral disputes (commission). If the commission resolves against the applicant, a court claim can be filed. Natural persons can refer their claims directly to court.

 

There are two grounds for challenge of the cadastral value in the commission[1]:

 

  1. inaccuracy of data about the real estate object used in the cadastral evaluation;

  2. request to even the cadastral and market values of the property.

 

In addition to the grounds above, the decision, act or omission of the commission can be challenged in the court[2].

 

According to the statistics of the Federal Service of the Registration, Cadaster and Cartography (Rosreestr), applications in regard of 64 413 real estate objects were filed with the commissions in 2015. Applications in regard of 7 773 real estate objects were filed with the courts in first nine months of 2015. In 96 % of cases applicants requested to determine the cadastral value on the level of the market value.

 

The number of disputes lets conclude that the general discontent with the results of cadastral evaluation and the demand towards the change of the evaluation rules exist.

4. FORTHCOMING CHANGES

On January 1, 2017 a new Federal law dated 03.07.2016 No. 237 “On the state cadastral evaluation” (Cadastral evaluation law) will enter into force. Practically at the same time the new Guidelines on the cadastral evaluation, which will enter into force on November 1, 2016, were adopted (Order of the Ministry of the Economical Development of the Russian Federation dated 07.06.2016 No. 358).

Summary of the main changes

 Type     New rule

Current rule 
Definition of cadastral value Cadastral value is defined as the most probable purchase price of the real estate object, if the factual use of the real estate object will be continued, irrespective of the encumbrances on its use.

(art. 1.2 of the Guidelines)

Substantive (non-procedural) definition is not provided.
Frequency of evaluation Not more than once in three years (once in two years for Moscow, Saint-Petersburg and Sevastopol), but not less than once in five years.

(art. 11 of the Cadastral evaluation law)

Not more than once in three years (once in two years for Moscow, Saint-Petersburg and Sevastopol).       
Evaluator Employees of a state-financed entity, which will be created in each region of Russia specifically for that purpose, will conduct cadastral evaluation. State-financed entities will be liable for damages caused by violations during the cadastral evaluation. 

(art. 6-8 of the Cadastral evaluation law)

Evaluators are chosen within the requirements of the state procurement system.
Supervisory body Rosreestr checks the draft evaluator report and may require evaluator to make changes to it.

(art. 14 of the Cadastral evaluation law)

No supervisory body exists.       
Rights of owners during evaluation Owners of the real estate objects can file a declaration with the features of the real estate object during the stage of collection of materials for evaluation by evaluators (the obligation of the evaluator to take the declaration into account is however not provided).

(para. 3 art. 12 of the Cadastral evaluation law)

Similar right is not provided.   
  Extraordinary reevaluation If indexes of the realty market change for more than 30% compared to the previous quarter of the year or if the cadastral value was challenged and determined as a market value for more than 30% of the real estate objects in one region of Russia cadastral reevaluation must be conducted in that region.

(art. 19 of the Cadastral evaluation law)

Extraordinary reevaluation is not provided.
Challenging the cadastral value Applications can be filed either to the commission or to the court. Referring dispute to the commission is not mandatory.

(para. 2 art. 22 of the Cadastral evaluation law)

Pretrial resolution of dispute in the commission is required for legal entities.       

5. BRIEF CONCLUSIONS

Overall, both the new Cadastral evaluation law and the Guidelines provide a new mechanism of cadastral evaluation that is aimed on bringing cadastral value closer to the market value of the object. Mass violations made by (private) evaluators now are supposed to be left in the past, because only state evaluators will be used. All that should result in the decrease of the number of judicial and administrative disputes on challenging the cadastral value.


Please also refer to our new review "Cadastral value: FAQ and What's New in the Law" (2017).

 
All newsletters of Mosgo & Partners are available on our website and LinkedIn.

This newsletter shall not be viewed as legal advice. It is prepared for educational and informational purposes only. Mosgo & Partners is not responsible for any consequences of reliance on the information contained in this newsletter without specific professional advice.

© Mosgo & Partners. Moscow, 2016.



[1] Art. 24.18 of the Evaluation law.


[2] Para. 2 of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 28 dated 30.06.2015.





[1]Para. 6, 16 of the Order of the Ministry of economical development of the Russian Federation No. 508 dated 22.10.2010.








[1] Art. 3, 24.13 of the Federal law No. 135-FZ dated 29.07.1998 “On the evaluation activities” (Evaluation law).


[2] Starting from 01 January 2017, State Cadaster will be “merged” with the Unified State Register of Rights to Real Estate and Transactions Therewith, forming the Unified State Register of Real Estate.



Elena Cherkasova
Elena Cherkasova
Senior Associate, LL.M.
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