German land preparation scheme is not state aid, confirms Commission

Out-Law News | 01 Apr 2014 | 3:05 pm | 2 min. read

A German local authority scheme which gives direct grants to prepare land for building projects is not state aid and therefore does not breach European competition law, the European Commission has ruled.

The development of land by local authorities is "part of their public tasks", the Commission found. The funding is designed to ensure land for development is connected to water, gas, sewage and electricity utilities, as well as rail and road networks, and does not constitute state aid, the Commission said.

The decision confirms a 2002 ruling by the Commission on the same German land development scheme. Germany had requested the Commission re-examine the scheme as a result of legal uncertainty on public sector spending in Europe which followed a 2012 European Court of Justice ruling on proposed German public funding for a runway at Leipzig-Halle airport.

The Commission described the latest decision as "an important clarification as regards the notion of state aid under EU law" which has ended "legal uncertainty" surrounding public spending on land development since the Leipzig-Halle case.  

Caroline Ramsay of Pinsent Masons, the law firm behind Out-Law.com said: "This ruling offers a fantastic bit of clarification which we needed following the Leipzig-Halle judgements."

"Leipzig-Halle created a huge amount of uncertainty for the public sector around projects of this nature," said Ramsay. "There has been a fine line between creating public infrastructure, which is allowed, and sprucing up land for the benefit of a developer, which would be state aid, and a lot of public sector organisations have been reluctant to spend money on such projects in case they fall foul of Leipzig-Halle down the line. A lot of regeneration has stalled in recent years and this judgement offers clarity which could kick-start regeneration projects and allow public sector organisations to provide 'oven-ready' sites."

In the Leipzig-Halle case, the German public sector planned to give €350 million to help fund the building of a new runway project at Leipzig-Halle airport in Germany. However in 2012 the Court of Justice of the European Union (CJEU) held that the construction of infrastructure that is inextricably linked with its subsequent economic use constitutes an economic activity in itself, therefore EU state aid rules apply to the financing. But the CJEU also ruled that the performance of public duties is outside the scope of the state aid rules.

"Following these judgments, there has been some legal uncertainty as regards the applicability of EU state aid rules to land development," said a statement by the European Commission last week. "Today's decision confirms that land development by public authorities is part of the performance of public duties, namely the provision and supervision of land infrastructure in line with local urban and spatial development plans."

According to the Commission, Germany did not believe that its scheme constituted state aid, but referred it a second time to the Commission to secure legal certainty.

In its second ruling on the case, the Commission found that the German land development scheme is aimed at "making land ready to build, ensuring that the territory is connected to utility (water, gas, sewage and electricity) and transport networks (rail and roads)." It does not concern the construction of buildings or the management of land, the Commission found.

The Commission's examination found that developers are selected through an "open, transparent and non-discriminatory public procurement procedure" and that the land to be developed is sold either through a tender procedure or following an independent expert evaluation of the land, in line with the Commission's communication on land sales. "This ensures that developers are remunerated on market terms and that purchasers of land pay the market price. Since neither developers nor the final purchasers receive an advantage through the measure, there is no state aid involved," said the Commission.

The non-confidential version of the Commission's decision on the German land development case will be made public after any confidentiality issues have been resolved. The Commission also plans to further clarify the notion of state aid within the EU with the adoption of a Communication on the issue, following a public consultation on the draft Communication earlier this year.