15 DECEMBER 2017
Land tax on developed properties...
The exemption for buildings that are "unusable in their entirety" on account of works or dilapidation is now confirmed!
In its 2 decisions of 16 February 2015 (nos. 364676 and 369862), the Conseil d’Etat established the principle that land tax on developed properties would not apply to buildings that had become “unusable in their entirety”, either on account of structural works to the building shell or because they were dilapidated to the point of ruin.
This principle of case law has helped strengthen the argument in favour of relief from land tax on developed properties where the real estate in question is subject to major restructuring operations (with land tax on non-developed properties thus due, but at a considerably lower rate).
The new decision by the Conseil d’Etat:
In its decision of 8 November 2017 (no. 400607), the Conseil d’Etat overturned the ruling of the Administrative Court of Caen of 14 April 2016 (which was therefore subsequent to the 2015 decisions), which had held that the fact that a building was dilapidated did not affect its liability to land tax on developed properties, without establishing whether it was entirely unfit for use.
The Conseil d’Etat has therefore reaffirmed the principle that “a building rendered unusable in its entirety can no longer be regarded as a developed property” and thus subject to land tax on developed properties: it will instead be liable to land tax on undeveloped properties. Moreover, this is not conditional upon the shell of the building being affected.
- The Conseil d’Etat has therefore reaffirmed the principle that “a building rendered unusable in its entirety can no longer be regarded as a developed property” and thus subject to land tax on developed properties: it will instead be liable to land tax on undeveloped properties. Moreover, this is not conditional upon the shell of the building being affected.
This decision illustrates the fact that there is still in practice a degree of resistance on the part of the tax authorities to claims for exemption from land tax charged on developed properties that are based upon the condition of the building, a position that may be upheld by the administrative courts.
This is now therefore an opportunity to refocus on the measures needed to maximise the chances of success of claims for exemption from land tax on developed properties, especially in the case of major works.
Actions required to ensure exemption from land tax on developed properties:
Demonstrate the condition of the property on 1 January of the relevant tax year:
- Exemption from land tax on developed property is subject to proof that the building is “unusable in its entirety”.
- Any means of proof is permitted for this purpose.
- In practice, for buildings undergoing works, this will mean the documentation describing the works and their impact upon the condition of the building (memo issued by architect/main contractor, technical specifications of the contract, cost estimates, etc.).
- In all cases (i.e. for buildings affected by works or dilapidation), a report by a court process server (huissier de justice) should be obtained: this should contain a description of the entire building including photos proving that it is indeed unusable and, if possible, of the works affecting the building shell. This report should be produced as close as possible to 1 January of the year following that when the works began (provided that the works are of such impact on this date that the building is already unusable) or from when the building began to decay. It must be renewed until 1 January of the year that the works are completed. As land tax becomes due as of 1 January each year, exemption is possible from the year following that of the beginning of the works until the year of completion of said works.
Demonstrate that the building is unusable in its entirety, not merely in part:
- To benefit from the exemption from land tax on developed properties, the building must be “unusable in its entirety”.
- In practice, where buildings are undergoing works, there can be no doubt that this condition is met in cases of the complete removal of the building façades and the gutting of the various floors of the building.
- The position is however less clear where interior restructuring only affects part of the building shell (installation of lift shafts, alterations to load-bearing walls, etc.). In such cases, proof should be provided that, while the works may only affect part of its shell, the building is nonetheless unusable in its entirety as no occupation of even part of the building is possible on account of the lack of electricity and/or water throughout the building, closure of lifts or staircases, safety regulations prohibiting access to personnel not in charge of the works, etc.
- By way of example, a decision of 10 May 2016 (no. 1304575) by the Administrative Court of Cergy-Pontoise rejected a claim for exemption from land tax on developed properties in a case where the structural works (demolition of floors, partial or total demolition of certain bearing walls and installation of reinforcing beams) had only affected a very small part of the building. Ruling that the works did not affect the building in its entirety, the Court also held that there was no proof that access to the various floors of the building was prevented by the absence of lifts or staircases.
File a claim no later than 31 December of the year following the land tax demand, i.e. on 31 December 2017 at the latest for the 2016 tax year:
- The deadline for claims in respect of land tax is quite short.
- Article R* 196-2 of the Manual of Tax Procedures states that, to be admissible, claims relating to local taxes (including land tax) must be submitted at the latest on 31 December of the year following the notice of assessment.
- Finally, a similar claim may be made in respect of the annual tax on offices, although the lack of precedent in this case means that the chances of success are rather less certain!
By Pierre Appremont & Samuel Drouin