Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

The Parity of Cadastral and Market Values of Land Plots in Government Cadastral Appraisals

UnknownElena Kovalchuk
investment and construction. Consulting Group M&P Mikhailov & Partners.

Estimating the value of assets is a worry for owners of practically every company. But the price valuation of land -- an important and fundamental resource -- is often the very foundation or platform for building a business.

Serious difficulties do not occur in cases where the price of land is determined by the market, because the value is determined by the general parameters of supply and demand.

It is a different business when the immediate participant in the land transaction is the state. (It ought to be mentioned that despite more than a decade and a half of reform, the majority of land resources still belongs to the state.) In this case, the cadastral value of the land takes on an important meaning because the rental price depends directly on the cadastral value in cases where the land is rented from public organizations. The same is true when calculating the redemption value of a land plot.

Moreover, the amount of land tax is directly dependent on the cadastral value. According to the Land and Tax codes, cadastral value is used to determine the tax base that is then used to calculate land tax.

It is necessary to note that rules governing the cadastral appraisal of land have been detailed by the state. These government regulations are followed by the federal agency overseeing cadastral real estate projects (Rosnedvizhimosti) and its territorial branches. Results of a Rosnedvizhimosti appraisal are confirmed by state administrative agencies. Then the cadastral value of the land plot is sent to the tax authorities and used as a basis in the calculation of a land tax value. It is also a basis for rental rates or redemption price when renting or purchasing the land plot from the state or municipal owners.

Additionally, according to the aforementioned regulations, for each category of land the Economic Development and Trade Ministry has developed and approved methods and recommendations for state cadastral appraisals. Within these recommendations is a list of factors to be used in appraising the area of land specially stating that the market value should be considered in the appraisal.

However, frequently cadastral values resulting from the state appraisal are not at all associated with their actual market value, and more often than not they significantly exceed the market price. As a result, the land user is forced to pay a clearly overstated land tax as well as larger sale or rental payments.

How can this be disputed?

At this time laws and regulations do not define a clear out-of-court procedure for disputing state appraisals of land or reducing cadastral value. Because of this, the land user has no choice but to dispute the results through the court system.

However, court decisions are inconsistent and laws are changing. A growing number of court rulings are not in favor of the land user. More specifically, courts as a rule are refusing petitions for changes in cadastral value because they are irrelevant and outside the rules of dispute jurisdiction. Nevertheless, it is necessary to note that there are relatively few rulings in this sphere and that everything is still in the process of formation. This could possibly account for certain inconsistencies in court decisions. For example, in cases where the market value is defined, the cadastral value may be stated as a percentage of the market value according to the Land Code of the Russian Federation. However, the Northwest Arbitration Court indicated that market value in this case is not an appropriate determinate, as the regulations within the Land Code had not yet been formally adopted and therefore, an exact percentage had not been determined by Russian laws and regulations.

Less than a month after the ruling in the northwest, the Western Siberian Arbitration Court ruled that similar appeals were relevant, as the Land Code regulations relating to the determination of the cadastral value using the market price exist and are valid. The court then granted the appeals of the land user for a change to the cadastral value.

In conclusion, practice shows that the court has made decisions on reducing the cadastral value of land. The land user must decide for himself whether disputing the cadastral value in court is in fact advantageous considering the court costs and time spent. Possibly, the process of disputing the results of a state appraisal will be simplified in the near future. Currently legislation is being considered in the State Duma that creates an out-of-court procedure for reviewing state land appraisals. However, it is well known that in the process of law making, a bill goes through a number of legislative bodies that introduce a variety of amendments that often render it unrecognizable.