It is common knowledge that in recent times issues related to appraising the cadastral value of real estate for tax purposes have caused much discomfort to property owners. The growing number of disputes on adjusting the cadastral value that, in addition, were recently transferred from the commercial arbitration courts to the jurisdiction of the general courts evidenced a need for clarifications from the supreme court. This need was satisfied in time – on June 30, 2015 the Supreme Court of the Russian Federation adopted Ruling No.28 (hereinafter the “Ruling”) covering disputable issues arising in practice in the course of contesting the results of appraisal of the real estate cadastral value.

In particular, the following provisions deserve attention:

> The Ruling clarifies who and in which events can be the plaintiff in cases on contesting the cadastral value.

The opportunity for tenants to contest the cadastral value, which previously was hardly possible, should be particularly noted.

In particular, the Ruling establishes the right of a tenant of state or municipal property to contest the cadastral value if the rent is calculated based on such value. The tenants of private real estate are also entitled to contest the cadastral value if the rent depends on it, but only if the owner’s consent to such procedure is expressed in an agreement or otherwise in writing.

> The Ruling provides that the information of the invalid cadastral value (“archive information”) that is not subject to change according to the general rule, can be contested if this information can still be used, for instance, for calculating the tax for a period when this information was valid.

> The Ruling establishes that the court is not obliged to satisfy the applicant’s claim on establishing the cadastral value equal to the market value in the particular amount requested. The court can digress from the claim in this regard and establish the cadastral value in a different amount based on the evidence of the market value in the case.

> The Ruling resolves the issues related to reimbursement of the court expenses. In the events when the procedural opponents do not object to the claims on establishing the value in the amount of the market value in regard neither to the merits, nor the amount, the court expenses of the plaintiff are not subject to reimbursement, since filing a court claim in this event represents enforcement of the right to establishing a cadastral value equal to the market value in the absence of a dispute.

> The Ruling clarifies what is meant by using invalid information about the object of appraisal in the course of calculating the cadastral value. In particular, this includes the appraiser’s incorrect determination of the conditions influencing the value of real estate property (location, purpose, emergency state of a facility, etc.), incorrect use of data in the course of calculation, incorrect specification of information in the list of real estate property subject to state cadastral appraisal.

It is worthy of note that almost simultaneously with adoption of the Ruling, the Ministry of Economic Development of the Russian Federation in Decree No.388 dated June 22, 2015 amended the Federal Valuation Standard “Establishing cadastral value of real estate property” (FSO No.4) as regards establishing the cadastral value. Now in terms of appraisal, the cadastral value means not a market value established by certain means, but an independent value established based on market and other information related to economic features of using real estate property.

Taking into account that up until now taxpayers have addressed the commission or court based on the need to establish the cadastral value identical to the market value, now according to these new rules, it is extremely difficult to prove such identity. Furthermore, it is not clear how to build the evidence base in such disputes.

Considering the foregoing, it is difficult to predict whether quite reasonable and clear clarifications of the Supreme Court of the Russian Federation will be effectively developed in court practice, or if contesting the cadastral value will be completely pointless if the approach initiated by the Ministry of Economic Development will be further developed and the cadastral value will be considered as an exclusive and independent value, during calculation of which the market value will be just one of the elements for such calculation.

Ruling No.28 of the Plenum of the Supreme Court of the Russian Federation “On issues arising in the course of courts examining cases on contesting results of establishing the cadastral value of real estate property” dated June 30, 2015 

Igor Gorokhov    Senior Associate   St. Petersburg   igorokhov@cls.ru   Tel.: +7 (812) 346 79 90

Anastasya Kuzmina   Associate   St. Petersburg       Tel.: +7 (812) 346 79 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Igor Gorokhov or Anastasia Kuzmina, St. Petersburg Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.