Duplicate records of a property in the Unified State Register of Real Estate (EGRN) do not, at first glance, look like a serious problem. Any errors and inaccuracies in the cadastral records can, however, get in the way of completing a transaction. How can that be prevented, and how can claims from the tax authorities be avoided?
Every property whose particulars are entered in the EGRN is assigned a cadastral number that does not change and is not repeated anywhere in Russia (Article 5 of Federal Law No. 218-FZ of 13 July 2015). In practice, however, one property is sometimes assigned several cadastral numbers. That can be called duplication.
A systematic record of properties, and of the transactions made with them, is needed for several reasons:
- It is a convenient control tool for the fiscal authorities, and it allows the tax base for the various taxes to be formed.
- Without strict identification of properties, civil dealings would be substantially more difficult, because it would be hard to tell which property a particular transaction concerned. It would also lead to uncontrolled abuse by unscrupulous participants: if there is no strict identification, several mutually exclusive transactions can be made in respect of one and the same property.
Where did the duplication come from?
Until 2013 Russia had no single database of properties common to every constituent entity. Each region dealt with identification on its own. A single list began to be compiled only after the reform. From 2013, for that purpose, the technical inventory bureaus (BTI) and Rostekhinventarizatsiya began to transfer to Rosreestr, and to the Federal Cadastral Chamber of Rosreestr, the particulars of the properties they had described and recorded: technical passports, floor area schedules and floor plans. The function of recording all immovable property was transferred to those bodies.
During the reform, one and the same property was sometimes recorded in different configurations in the databases of Rostekhinventarizatsiya and of the Moscow City Bureau of Technical Inventory (MosgorBTI). Because Rosreestr could not check on every occasion which of those particulars were the correct ones, the property was entered in the state cadastre twice. One building could therefore be recorded under different cadastral numbers. Sometimes the difference was not only in the numbers but also in the area, and it came down to a discrepancy of a few square metres. There were more substantial differences as well: a different number of storeys was stated, the building volume changed, and so on.
Between 2013 and 2017, cases of duplicate cadastral numbers were occasional (there was no large-scale merger of the databases), and after the reform of 2017 they began to arise regularly. The new reform brought into the EGRN a large number of databases that had existed separately from one another. They were kept by different public institutions, and by different methods. That is what led to the discrepancies,
- notes Sergei Pivovarchik.
The data brought together in this way came from:
- the State Real Estate Cadastre, which recorded particulars of all immovable property in the Russian Federation;
- the Unified State Register of Rights to Immovable Property and Transactions with It (EGRP), which recorded registered rights in properties included in the state cadastre;
- the technical inventory records of the federal BTI, which set out the technical characteristics of real estate in each constituent entity of the Russian Federation.
An example of duplication from practice
An owner applied to MosgorBTI or to Rostekhinventarizatsiya after a redevelopment that had been carried out in accordance with all the rules. The property was described and the layout was recorded in the technical inventory, but the information never reached Rosreestr. The cadastre then contained particulars of a property described in line with the EGRP, and a duplicate showing the new layout.
Why merge the numbers?
If duplicate cadastral numbers in the EGRN are not removed in time, the following problems can arise:
- a local government body may dispose of the duplicate property as it sees fit, for example by registering its own rights in ownerless real estate;
- Rosreestr may suspend cadastral registration and the registration of rights when cadastral works are carried out, or when a transaction with the property is registered;
- a bank may refuse a mortgage, and a notary may refuse to formalise the transaction;
- the City Property Department (the DGI) will most likely refuse to extend a land lease.
How can the error be corrected?
To deal with a duplicate, it has to be removed from the cadastral register. Technically this is done by giving the duplicate the status "archived". The process depends on dealings with Rosreestr and is called "harmonisation and verification" of the database.
Rosreestr has a department which, of its own motion or at the request of an interested person, identifies such records and removes the "surplus" data. If the properties are identical in every characteristic, the duplicate is removed from the register at once. If one characteristic differs, whether area, number of storeys or year of construction, harmonisation and verification is either refused or the question is referred to a working group. A right-holder may challenge an unlawful refusal by Rosreestr in court,
- clarifies Sergei Pivovarchik.
In Moscow, harmonisation and verification takes from three weeks to two months. That is so only where the duplication really did arise by mistake. If Rosreestr finds unauthorised construction, it notifies the State Property Inspectorate, and the property is placed on the list of unauthorised buildings.
Tax consequences
The tax consequences of duplicate cadastral numbers can arise only for properties on which corporate property tax is payable by reference to cadastral value. Where the duplication concerns real estate on which the tax is calculated by reference to average annual value, it has no consequences.
From 2020, real estate taxed by reference to cadastral value does not have to be recognised on the balance sheet as a fixed asset. That follows from the new rules of Chapter 30 of the Tax Code. In that case the object of taxation is real estate that belongs to an organisation by right of ownership or of economic management, and real estate received under a concession agreement (subparagraph 2 of paragraph 1 of Article 374 of the Tax Code).
Let us look at an example:
Company "A" owns real estate at 25 Smirnovskaya Street, Moscow, cadastral number 77:04:0001014:1071. At the beginning of 2020 the cadastral value of the building is 583,676,174.34 roubles. In working out its property tax, the taxpayer multiplied that cadastral value by the rate of 1.7% and, in paying the advance payments, proceeds on the basis that the tax for the year is 9,922,495 roubles.
In 2019, in the course of verification and harmonisation of the Rosreestr database, an identical building with a cadastral value of 725,145,669 roubles was entered on the cadastral register at the same address, and the records of the property previously on the register were given the status "archived". To calculate the tax, the right-holder must therefore use the "new records" entered in the EGRN.
Under the Tax Code as it now stands, from 1 January 2020 the tax base of the owner of the building at 25 Smirnovskaya Street became a cadastral value of 725,145,669 roubles, and not 583,676,174.34 roubles. The tax therefore rose from 9,922,495 roubles, as the owner of the building had calculated, to 12,327,476 roubles, that is, by 2,404,981 roubles. Such "harmonisation and verification" produces an additional assessment of property tax of 2,404,981 roubles, and late-payment interest.
The reverse also happens, when the cadastral value of the building under the new cadastral number is lower than the original value. The taxpayer must then identify the change and pay the tax on the new cadastral value, attaching the grounds for applying it.
- Sergei Pivovarchik, managing partner of Consul Group.
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