How to avoid State aid when selling public land

European Commission DG Competition1 April 2014

Purpose

Set out the legal framework, the Commission's practice and the case law of the European Courts with regard to public land sale.

Provide guidance to avoid unnecessary cases: the Commission receives regularly complaints, often because public authorities do not follow the principles of the land sale communication or are not sufficiently transparent!

Introductory remarks

• Market economy operator test - whether a buyer/ seller/renter has bought/sold/ rented the property in question at a price which they would have been able to obtain rented the property in question at a price which they would have been able to obtain under normal market conditions.

� If this is not the case, then the transaction by public authorities takes place on preferential terms and may constitute state aid

Legal Framework

• Article 107(1) TFEU: prohibition of State aid, e.g. sale under market value, purchase above market value, overcompensation of costs re-location etc. location etc.

• Communication on State aid elements in sales of land and buildings by public authorities ("LSC", OJ C/209, of 10.07.1997, page 3)

• In the context of SAM the LSC will be replaced by the Notice on the notion of State aid (NoA)(to be adopted before the summer break) – same principles for assessment

Article 107(1) TFEU, 4 criteria:

• Granted by state or through state resources: often local public authorities

• To certain undertakings (selectivity): buyer of the assetsthe assets

• Advantage: the difference between the actual sale price and the market price (private investor/operator test)

• Effect on trade and distortion of competition: case by case assessment, e.g. real estate potentially EU markets

Land Sale Communication (LSC)

• Purpose:1) Guidance to MS on the general approach

2) Reduce the number of notified cases to be examined by the Commissionexamined by the Commission

• Scope: Sale of public land & buildings only (based on experience until 1997). BUT- it follows from the Commission's decisional practice that the principles of the LSC apply by analogy to:• Rental/lease of land/building by public authorities (see e.g.

Thüringen (2003); Reebok (2001))• Purchase of land/buildings by public authorities (see e.g. Aircraft Services (1998)).

LSC: two options to automatically preclude state aid

1. Unconditional bidding procedure, accepting the best bid (preferred option); orbest bid (preferred option); or

2. Independent expert evaluation prior to the sale negotiations.

Option 1: unconditional bidding procedure

• Sufficiently well-publicised: advertised over a reasonably long period (two months or more)

• Unconditional: when a buyer, irrespective of whether or not he runs a business or irrespective of the nature of his business, is generally free to acquire the land and use it for his own purposes (restrictions for e.g. environmental protection, urban or regional planning may be imposed).

Option 2: Expert evaluation

• Before the sale negotiations begin (ex ante)

• Expert should have appropriate competence and experience and be independent: public authorities should not be entitled to issue orders as regards results of the evaluation. orders as regards results of the evaluation.

• Evaluation should be sufficiently detailed and based on objective and verifiable criteria, e.g. location, proximity infrastructure, intended use (Valmont).

NoA and LSC - Ex-ante MEO test

• - Empirically setting the market price through open, transparent, non-discriminatory and unconditional tender procedures in compliance with the principles of the Public compliance with the principles of the Public procurement Directives

o - When there is no specific market data to establish the market price o benchmarkingo generally-accepted, standard assessment methodology based on the available objective, verifiable and reliable data at the time at which the transaction was decided (Scott Paper, Valmont)

What if the LSC conditions are not met?

• Not automatically State aid: procedures are not exhaustive, but method must lead to a price as close as possible to the market value (Seydaland)(Seydaland)

• MEO test: does the sales price correspond to what a private investor, operating in normal competitive conditions, likely would have been able to fix?

• Possible indicator: costs of acquiring land if resold within three years, but only one of the factors (Scott Paper)

Risks when the MEO test is not met

• Litigation before national court; national judges can rule on the existence of state aid within the meaning of Article 107(1) TFEU and order recovery (see Commission Notice on the enforcement of state aid law by national courts).state aid law by national courts).

• Commission can open proceedings which may lead to a negative decision, ordering recovery (if aid was not notified and already disbursed).

• Note that a negative Commission decision cannot declare the sale transaction contract null and void. (but Residex case C-275/10).

Land sale cases in practice: complaints

• Relatively large number of complaints

�From citizens: often in relation to urban regeneration projects (shopping malls, garages, construction of new buildings).

�From competitors, who have not been selected.

�BUT: legal interest and complaint form

• Often lack of transparency: why a particular company was selected, how the sale price was determined etc.

• Many complaints could be avoided by adhering to the MEO principles and by being transparent!

Land sale cases in practice: notifications

• Often land sale is part of wider real estate development projects, involving public private partnerships between local public authorities and private project developers.

• In general for reasons of legal certainty (e.g. • In general for reasons of legal certainty (e.g. Haaksbergen, Mill en St Hubert, Oosterhout).

• However, some a-typical cases in which Member State argues itself that transaction did not take place at market value

• Possible state aid issues:• Partial coverage of losses of the project (Haaksbergen, Oosterhout, Mill en St Hubert, Apeldoorn)

• Compensation for re-location of factories (Akzo Nobel, Steenbergen).

• Grants and guarantees (Haaksbergen).

Conclusion: 4 key messages

• The safest way to avoid State aid is to adhere to the MEO principles

• To avoid unnecessary complaints: as transparent transactions as possible

• To avoid unnecessary complaints: as transparent transactions as possible

• In case of doubt: contact State aid country co-ordinator at an early stage

• In case of regular land sale transactions embedded in urban development programs: set up a scheme for reasons of legal certainty and avoid many ad hoc notifications

Most important Commission decisions• Delfzijl, decision of 21.01.1998, OJ 1998, L 171, p. 36

• Draiswerke, decision of 25.11.1998, OJ 1999, L 108, p. 44

• Demesa, decision of 24.02.1999, OJ L 291, p.1

• Scott Paper, decision of 12.07.2000, OJ 2002, L 12, p.1

• Ojala, decision of 21.12.2000, OJ 2002, L 105, p.19.

• SCI, decision of 13.02.2001, OJ 2001, L 186, p. 43

• Valmont, decision of 18.07.2001, OJ 2002, L 48, p. 20

• Reebok, decision of 25.07.2001, OJ 2002, L 25, p.40

• Thüringen, decision 09.04.2002, OJ 2003, L 66, p. 36

• Dutch Harbours, decision of 29.10.2003, OJ 2004, L 34, p. 63

• Aircraft Services, decision of 14.12.2004, OJ 2005 L 247, p. 32

• Haaksbergen, decision of 04.04.2006, OJ 2006 L 307, p. 207

• Konsum, decision of 30. 01. 2008, OJ L 126/2008, p. 3

• Oosterhout, decision of 17.06.2008, OJ 2008 C 250, p. 3,

• Mill en St Hubert, decision of 14.10.2009, OJ 2009 C 294, p. 1

• Apeldoorn, decision of 05.10.2011, OJ 2011 C 343, p. 11

• Vänersborg, decision of 08.02.2012, OJ 2012 L 150, p. 78

• Leiden, decision of 21.03.2012, OJ 2012 C 119, p. 2

• Leidschendam, decision of 23.01.2013, OJ L 148, p. 52 – under appeal

• Konsum, decision of 16.04.2013, OJ 2013 L 202, p. 25

• GRW land development (SA.36346), decision of 27.03.2014, to be published

Main judgments European Courts

• Demesa, judgment of 06.03.2002, joined cases T-127/99, T-129/99, T-148/99

• Valmont, judgment of 16.12.2004, Case T-274/01 274/01

• Scott Paper, judgment of 02.09.2010, Case C-290/07 P (setting aside the judgment of the Court of First Instance of 29.03.2007 in case T-366/00)

• Seydaland, judgment of 16.12.2010, C-239/09

• Konsum, judgment of 13.12.2011, T-244/08