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How to avoid State aid when selling public land and buildings

How to avoid State aid when selling public land and buildings. 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.

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How to avoid State aid when selling public land and buildings

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  1. How to avoid State aid when selling public land and buildings

  2. 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. • Communication on State aid elements in sales of land and buildings by public authorities (OJ C 209, 10.07.1997, p. 3) ('LSC'): guidance, aims at reducing number of notifications.

  3. Article 107(1) TFEU, 4 criteria: • Granted by state or through state resources: often local public authorities • To certain undertakings (selectivity): buyer of the assets • Advantage: the difference between the actual sale price and the market price (private investor test) • Effect on trade and distortion of competition: case by case assessment, e.g. real estate potentially EU markets

  4. LSC: two options to automatically preclude State aid • Unconditional bidding procedure, accepting the best bid (preferred option); or • Independent expert evaluation prior to the sale negotiations.

  5. 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). • Special obligations only if applicable to all potential buyers.

  6. Option 2:Expert evaluation • Expert should have appropriate competence and experience. • Independent: public authorities should not be entitled to issue 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). • On the basis of generally accepted standards for land evaluation. • Before the sale negotiations (ex ante)

  7. What if conditions LSC are not met? • Not automatically State aid: procedures in LSC are not exhaustive, but method must lead to a price as close as possible to the market value (Seydaland) • MEIP (Market Economy Investor Principle) 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) • Often: ex post expert evaluation – but often complex and evaluation ex tunc! • Not: regional reference valuations if not regularly updated (Seydaland)

  8. What if MEIP test is not met? • Risk of 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). • Commission can open proceedings which may lead to a negative decision, ordering (if aid was not notified) recovery. • Note that a negative Commission decision cannot declare the sale transaction contract null and void. However, in some jurisdictions national judges can do so under national law (compare Residex case C-275/10).

  9. Land cases in practice: complaints • Relatively large number of complaints • From citizen: often in relation to urban re-generation projects (shopping malls, garages, construction of new buildings). State aid is often not the primary issue but seen as a last resort to possibly stop the project. • From competitors, who have not been selected. • Often lack of transparency: why a particular company was selected, how the sales price was determined, etc. • Many complaints could be avoided by adhering to the principles of the LSC and by being transparent!

  10. Land sale cases in practice: notifications • Normally 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 • Often land sale is part of wider real estate development projects, involving public private partnerships between local public authorities and private project developers. • 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).

  11. Conclusion: 4 key messages • The safest way to avoid State aid is to adhere to the principles of the LSC. • To avoid unnecessary complaints: be as transparent as possible. • In case of doubt: contact your State aid country co-ordinator at an early stage. • In case of regular land sale transactions embedded in urban development programs: consider setting up a scheme for reasons of legal certainty and to avoid many ad hoc notifications.

  12. 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 • Alternative valuation method Germany, decision of 19.12.2012, OJ 2013 C 43, p. 7

  13. 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 • 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

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