03.07.2015 — The Russian Supreme Court Explains the Procedure for Contesting Cadastral Value

On 30 June 2015, the Plenum of the Supreme Court of the Russian Federation adopted the Resolution on disputes concerning the contestation of cadastral value of real property.

In the recent years, the number of cases for contesting the cadastral value has dramatically increased. This is due to the amount of cadastral value being the basis for the calculating the land tax, the tax assessed on certain real properties (office premises, administrative buildings, etc.), rent and the buy-back price for land plots in public ownership. This value is approved by public authorities and can be revised every three years (or once every two years in Moscow and Saint-Petersburg). Each revision of the cadastral value causes a new wave of cases for contesting it.

In a situation such as this one, businesses are unable to carry out long-term financial planning and estimate the profitability of investments. For example, let us assume a certain company decides to build a shopping mall in Russia. To this end, it leases a land plot from public ownership (it cannot be purchased before construction is completed) and commences construction. Upon completion of construction, it is entitled to redeem the land plot or continue leasing it. Within the period of construction, however, the competent authority may revise the cadastral value causing the buy-back price and rent to grow. At that, the property tax for shopping malls is also calculated based on the cadastral value, so its increase will also result in an increase of the property tax. In such a case, the company will incur costs it did not expect or take into account when assessing the investment project’s appeal. To avoid an increase of the said costs, the company may try to contest the cadastral value.

Such a contestation claim may be based on the fact that the market value of the property is lower than its cadastral value, which the owner or another person shall prove by presenting an independent appraiser’s report. Such cases represent the majority of claims. Nevertheless, producing an appraiser’s report in court does not guarantee that the court will determine the cadastral value in the amount calculated by such an appraiser, which was exactly what the Supreme Court noted in the aforementioned Resolution. A court may establish a different amount based on all evidence and submissions of the participants of the proceedings.

Furthermore, the fact that the value ignores certain individual characteristics of the property may also serve as a ground for contesting it. This is because the cadastral value is calculated as an average for a group of properties. In reality, however, there are circumstances that affect the property’s value. Such circumstances, in particular, may include the location of the property under evaluation, its designated purpose, the land plot’s permitted use, the emergency condition of the property, the location of the property within the boundaries of zones with special terms of use.
In order to challenge the cadastral value, an interested party should first address a special committee. If the committee does not agree to revise the value, the applicant may go to court. The party may exercise its right to contest the value within 5 years upon the inclusion of such value into the cadastre.

The Resolution importantly specifies the list of persons entitled to contest the cadastral value. According to the laws, the right to contest is vested with an interested party. The courts have been the ones to decide which persons were to be included into this category in each particular case. Their positions were not uniform. Namely, it was disputable, in which cases the lessee could challenge the cadastral value. Given the clarifications of the Supreme Court, the lessee can now challenge the cadastral value, if the rent is calculated based on it (which is characteristic of leases of property in public ownership), and if the property leased is held in private ownership, the lessee has to receive the owner’s consent to challenge the value. There are other cases, where a lessee has a legal interest in contesting the value. For instance, if the lessee of public land builds a building thereon, it is entitled to purchase the land plot at the price depending on the cadastral value. For this reason, such persons were also deemed to have a right to challenge the cadastral value.

The Supreme Court Resolution discusses many issues of the procedure for filing and examination of claims seeking to contest the cadastral value, including which circumstances shall be verified by the court and which documents will need to be produced. These clarifications will help litigants to better prepare for contestation; moreover, where each party knows what is expected from it, the chance of successful contestation will be higher.

The term for examination of a claim for challenging the value in court is 2 months. However, given the enormous workload dealt with by courts, it is likely that such terms will not be complied with in practice, which is the situation now.

Since the process of contestation usually runs over a significant time, it is important for companies to be able to apply the new value established as a result of the challenging towards past periods. The aforementioned Resolution of the Supreme Court recognizes this possibility. In particular, the new value can be applied for the purposes of tax payments starting from the 1st of January of the year when the owner applied to court seeking to contest the cadastral value. For instance, if the owner filed a claim to contest the value in December 2014 and the court rendered a judgment revising it only in the year 2015, the owner will be entitled to re-calculate the tax based on the value established by the court for the past period of 2014.

The companies that succeed in having the cadastral value revised by a court will be able to shift their legal costs to the authority that approved the cadastral value. Given the latest positive general trend of shifting legal costs, companies have a chance to reimburse their costs in full. However, since the costs will be shifted to a public authority and reimbursed from the budget, there is a risk that the courts (that are financed from the budget themselves) will tend to lower the amount of costs recovered.

Moreover, the Resolution has excluded the possibility of recovering legal costs where the court establishes the cadastral value in the amount equal to the market value and the authority that approved the cadastral value does not object to the claim being granted. Since state authorities are interested in assessing higher taxes, rent and other payments, they generally do not admit claims for challenging the value.

Therefore, the Resolution of the Russian Supreme Court is, unquestionably, a crucial document for businesses that makes the contestation of cadastral value more predictable

01.07.2015 — Methodical guidelines on the analysis and assessment of the risks of accidents at hazardous industrial facilities

The Federal Service for Environmental, Technological, and Nuclear Oversight (Rostekhnadzor) has approved Methodical guidelines on the analysis and assessment of the risks of accidents at hazardous industrial facilities (see Rostekhnadzor Order No. 188 dated 13.05.2015). 

Although this document is not obligatory it can be useful for all organisations operating hazardous facilities. The Guidelines contain detailed recommendation on how the assessment of risks on hazardous facilities should be made and what measures could be carried out for safe operation of such facilities.

Rostekhnadzor recommends to use these Guidelines during construction, operating of hazardous facilities and in case of accidents. In particular the risk assessment is needed in the following cases:

  • preparation of the design documents for the construction, reconstruction, repair, conservation or dismantling of hazardous facilities;

  • preparation of the industrial safety declaration and the safety justification of hazardous facility;

  • approval of measures for liquidation of accident consequences and minimisation of the risks of future accidents.

Also Guidelines contain the requirements for the methodology used in the analysis of risks and for the final report on risks assessment. This report should contain detailed description of hazardous facility, explanation of used methodology of analysis, as well as general assessment of risks of hazardous facility (or its parts) and necessary measures to reduce the accident risk.