Project developer did not receive state aid from Leidschendam-Voorburg after all

In a decision of 15 January 2016, the European Commission (Commission) concluded that the municipality of Leidschendam-Voorburg (Municipality) had not granted unlawful State aid to project developer Schouten De Jong (SJB). The Commission had to reassess the case because the General Court  had annulled the earlier recovery decision.

The case

As part of the (re)development of the town centre of Leidschendam, the Municipality had concluded a cooperation agreement with SJB and three other private parties in 2004. The project consisted of a ground exploitation phase and a construction phase. The Municipality and SJB had entered into a public-private partnership (PPP) for the ground exploitation on a 50-50 basis. The construction phase of the project would be carried out by SJB and the three other private parties. For the apartments, houses and shops to be built by SJB, the PPP sold a plot of land to SJB in 2004 for an amount of € 8.6 million.

Due to national lawsuits, the project was delayed. As a result, SJB was unable to sell at least 70% of the planned free sector housing units (the 70% clause). Because of this, SJB asked the Municipality in 2009 to agree to (i) a reduction in the initially agreed the sales price of the land and (ii) a waiver of the ground exploitation fee and quality fee to be paid by SJB. The Municipality then had the land re-evaluated. On the basis of the residual value method, an independent expert came to the conclusion that € 4 million was a market-conform price for the land in 2010. Subsequently, the sales price was set at this amount. The land exploitation contribution and quality fee were waived. In a decision of 23 January 2013, the Commission concluded that the Municipality had thereby granted unlawful State aid to SJB. The Netherlands was ordered to recover an amount of € 6,922,121.– plus interest from SJB. This recovery decision was annulled by the General Court in a judgment of 30 June 2015 (only in French and Dutch). According to the General Court, the Commission had not properly investigated whether the Municipality had acted as a private market operator.

Assessment by the Commission

After re-examination, the Commission finds that the Municipality has indeed acted as a ‘market economy operator‘ (MEO) for the following reasons:

(i) The project had been significantly delayed. In the event of a delay, the Municipality and SJB were contractually required to re-negotiate the in 2004 agreed arrangements. Only in the absence of an agreement could the contract be terminated.
(ii) The project was complex and consisted of several interlinked sub-projects. In addition, several parties were involved.
(iii) It was ‘in the financial interes‘ of the Municipality that the ground exploitation works were carried out expeditiously so that the land could be delivered and the selling price of the land was paid.
(iv) SJB had agreed to waive its right to invoke the 70% clause.
(v) Through its participation in the PPP, SJB would bear half of the reduced costs of the sales price.
(vi) At the time of the renegotiations, the financial crisis had broken out, affecting in particular the Dutch real estate market.

Having thus established that a market economy operator would also have renegotiated the agreement in the given circumstances, the Commission assesses whether the outcome of the negotiations is considered to be market-conform. On the basis of the valuation commissioned by the Municipality in 2009, the Commission concludes that this is the case. It therefore finds that SJB did not receive any unlawful State aid.


The MEO test

In the context of the MEO test, all relevant elements of the contested measure and its context should be considered. In the present case, the relevant facts where:

(i) the legal status of the parties involved
(ii) the complexity of the project
(iii) the existence of several bilateral agreements
(iv) the interest of the State
(v) the economic situation at the time of the adoption of the contested measure
(vi) the importance of the contribution of the beneficiary of the contested measure

Interest of the State

In the Commission’s view, the considerations of the Municipality as a public authority in the execution of the project are not relevant in the context of the MEO test. However, this is without prejudice to the need to examine whether ‘a hypothetical private operator, who would have been in a similar contractual and financial position‘ would have acted in the same way as the Municipality did (marginal 81). Public authorities often pursue public interests. The Commission seems to say that this cannot be taken into account in the MEO test. After all, undertakings usually do not pursue those interests. But if financial interests are linked to the public interests pursued by the government, they must be taken into account in the MEO test.

Residual land value

What is striking about the present decision is that the Commission assumes without any justification, on the basis of the valuation commissioned by the Municipality in 2009, that the new land price can be considered to be market-conform. In the recovery decision, this evaluation was rejected, as the new land price was established on the basis of the residual value method. In times of crisis, this method would be inappropriate. The Commission seems to have now come back to this point. It is unfortunate that the Commission does not explain its new view. However, it should be noted that in previous decisions the Commission accepted the residual value method as a commonly used valuation method in the Netherlands. See for example a decision of 5 October 2011 (Kanaalzone Zuid Apeldoorn) and a decision of 30 June 2015 (Harlingen – Lundinga).

door | 24 februari 2016 | Staatssteun

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