Lawyer Buying and Selling Malaga: difference between cadastral value and market value of property purchase and sale.

There are many clients who consult us as a Lawyer Buying and Selling Malaga: difference between cadastral value and market value of property purchase and sale.

This issue was the subject of the case decided by the Audiencia Nacional spanish Court, Chamber for Contentious-Administrative Proceedings, in a judgement of January 2024.

In these proceedings, a well-known business group in the automotive sector challenged the dismissal of an appeal against the decision of the Regional Economic-Administrative Tribunal of Madrid, against the rejection of the economic-administrative claim filed against the cadastral valuation of a property located in Madrid, with a market value of more than 85 million euros and a cadastral value of more than 42 million euros.

The background to this case is as follows:

• In 2012, a declaration of demolition of the existing building on the plot of land in question, of more than 150 thousand square metres, was submitted to the Cadastre in order to register the new situation of the property.
• The Madrid Tax Agency agreed to register the cadastral alteration produced by the demolition of the existing building, establishing a new cadastral value of more than 42 million euros, corresponding entirely to the land.
• The owner of the land appealed against the decision of the Madrid Tax Agency that the surface area of the plot had been modified, as well as the cadastral valuation method used, having been overvalued in its cadastral value in relation to the market value of the industrial land in that street, both issues being rejected by the Administration. The owner of the land alleged that in 2012 the total cadastral valuation was 29,572,735 euros, of which 19,715,175 euros corresponded to the land and 9,857,578.50 euros to the construction, arguing that the simple demolition of a building could not cause the increase in the value of the land to 42,582,680.00 euros in the Cadastre.
• Against the cadastral value of 42,582,680.00 euros, the owner of the property lodged an appeal against the decision of the Regional Economic-Administrative Tribunal of Madrid, which was rejected by administrative silence, and against this, the aforementioned contentious-administrative appeal was lodged in court. The plaintiff requested the nullity of the valuation of the plot of land carried out by the Cadastre for not being in line with the market value, as well as to establish in the judgement that the market value of the property is the one established at the time of the sale to third parties. In addition, the nullity of the IBI receipts issued and the IIVTNU settlement carried out was requested, as they were based on a null and unconstitutional cadastral value.

The owner of the property claimed that if the cadastral value of the plot had been set by Cadastre at 42,582,680.00 euros in 2013, then the market value of the property should be double, 85,165,360.00 euros, as the claimant considered the cadastral value to be 50% of the market value. And the plaintiff claimed that in 2016 it sold the said property for a value of 15.000.000,00 euros, therefore being that its market value, alleging that the market value that Cadastre established for the property was 85.165.360,00 euros, but that the real market value was, in the transaction of sale of the property and on the basis of the appraisals carried out for that purpose of 15. 15,000,000.00 euros, there being therefore a very significant difference of more than 70,000,000.00 euros between the two calculated market values, with the result that the Administration’s determination of the property’s land value was erroneous, being 27,000,000.00 euros above the market value.

Thus, the plaintiff was able to claim that the IIVTNU (or capital gains tax) had been paid for the sale made on a cadastral value of the plot of land amounting to more than 42 million euros, which resulted in the amount to be paid for the tax of 7,502,197.92 euros. 197.92, which was more than half of the sale value of the property, whereas if the IIVTNU had been based on the market value of the plot (sale value), then the tax payable would have been only 2.510.820,00 €.

But is the market value of a property the value established at the time of sale to third parties?

Royal Decree 1020/1993, of 25 June 1993, approving the Technical Valuation Standards and the Framework Table of Land and Building Values for determining the cadastral value of urban real estate, establishes in article 23. 2, second paragraph, that ‘the cadastral value of real estate may not exceed the market value, this being understood as the most probable price for which a property may be sold, between independent parties, free of encumbrances, for which purpose a market reference coefficient will be established by Order of the Ministry of Finance for properties of the same class’.

The claimant also argued that the cadastral value must not only be lower than the market value, but that it can reach, at most, 0.5% of the market value in accordance with the Order of 14 October 1998, on the approval of the value module M and the RM coefficient, which would have established a market ratio coefficient (RM) of 0.5.

Jurisprudence of the Audiencia Nacional: Lawyer Buying and Selling Malaga: difference between cadastral value and market value of property purchase and sale.

However, the Audiencia Nacional Spanish Court clarifies in its ruling of November 2014 that, in order to examine the nature of the cadastral value, it is necessary to refer to article 23.2 of Royal Legislative Decree 1/2004:

‘2. The cadastral value of real estate may not exceed the market value, this being understood as the most probable price for which a property could be sold, between independent parties, free of encumbrances, for which purpose a market reference coefficient shall be established by order of the Minister of Finance for properties of the same class. In the case of properties with an administratively limited sale price, the cadastral value may in no case exceed this price’.

And in this judgement, the Audiencia Nacional clarifies that the value of the property is what constitutes the taxable base of the transfer tax, and that this value of the property is determined by the value established as the cadastral value. The cadastral value is, therefore, a valuation of a relevant asset for legal purposes, which is carried out in a pre-established manner by legal regulations, and this cadastral valuation operates as the taxable base for IBI insofar as it reflects the value of the asset. The cadastral value assigned to the property cannot exceed the market value.

Furthermore, the National Court clarifies in its ruling that, although the claimant, in order to justify that the cadastral value exceeds the market value, argues that the deed of sale is the one that best reflects the market price of the property, and refers to the appraisal report provided in the proceedings, this is not correct.

In other words, the (Audiencia Nacional Spanish Court) National Court states in its Judgment that identifying the market value with the price reflected in the deed of sale of the plots of land subject to valuation is not correct, nor is it obligatory: because, one thing is the price that both parties, buyer and seller, set in the deed of sale, and the determination of the sale value can be influenced by many factors other than the real value of the property, such as any accessory or complementary agreements between the contracting parties not reflected in the sale contract, and quite another is the market valuation of the property, which must in any case obey objective and generalisable criteria.

CONCLUSION: The cadastral value of the property cannot be determined by the sale price fixed in the purchase contract.

In other words, the Audiencia Nacional rejects that the market value can be identified with the price reflected in the deed of sale, because one thing is the price set by both parties in the deed of sale, a price which can be influenced by many factors unrelated to the real value of the property, and quite another is the market value of the property, which has to be adjusted to objective and generalisable criteria.

In this ruling, the National Spanish Court reaffirms its doctrine on the tax valuation of real estate based on article 23.2 of Royal Decree 1020/1993, which establishes that the cadastral value of real estate may not exceed the market value, understood as the most probable price for which a property can be sold, between independent parties, free of encumbrances, for which purpose a market reference coefficient will be established by Order of the Ministry of Finance for properties of the same class.

And the Audiencia Nacional clarifies in its ruling that the RM factor to which the plaintiff refers does not require half the market value, since the law requires that the cadastral value does not exceed the market value, so that once the technical rules of the value assessment have been applied, the RM coefficient is applied in order to adjust the resulting value to the market value, with the effect that the resulting value does not have to be calculated at half the market value, but rather to bring the value established for the subsequent calculation of the tax settlement closer to the real property value. In other words, the RM coefficient complements the technical formula to adapt the resulting value to the market value, and this RM coefficient is not applied to the market value, but to the individualised values resulting from the Value Assessment. And once this application has been made, it is when the limit that the cadastral value does not exceed the market value must be taken into account.

Lawyer Buying and Selling Malaga: difference between cadastral value and market value of property and sale: in short, the National Spanish Court rejects that the market value can be identified with the price set in the deed of sale of the plots subject to valuation, because one thing is the price set by both parties in a deed of sale, which can be influenced by many factors outside the actual value of the property, and quite another the market value of the property, which must always obey objective and generalisable criteria. Therefore, the cadastral value of a property cannot be determined by the sale price fixed in the property purchase contract.

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