Sale of Public Land and Buildings

1
Sale of Public Land and Buildings

• Zagreb, 1 July 2008
• Joern Thiessen

2
Sale of Land State Aid?

• State aid in the meaning of Art. 87 EC requires
• -Benefit for undertaking.
• -Resulting from state ressources.
• Evident if money is transferred from state budget
  to an undertaking.
• But any benfit can be regarded as state aid.
• If state sells a piece of land at a market value
  of 1 Mio for 500.000,- there is a benefit and
  accordingly state aid.

3
How to Avoid Violations of State Aid Law

• To avoid the transaction beeing qualified as
  state aid the piece of land should be sold at or
  above market value.
• If the price is below market value the
  transaction is state aid but and must be
  justified under Art. 87 para. 3 EC.
• Problem how to determine the market value?

4
Aid-Free Sale of Land

• Legal basis
• Commission communication on state aid elements
  in sales of land and buildings by public
  authorities (OJ C 209/03, 10.07.1997).
• Communication gives guidance
• -how to structure the sale as an aid free
  transaction.
• -how to handle cases where the sale was below
  market price and constitutes state aid.

5
Aid-Free Sale of Land

• According to the communication, the sale does not
  contain aid if land is sold at/above market
  price.
• In the communication the Commission establishes
  two procedures to ensure this
• 1. Sale through an unconditional bidding
  procedure.
• 2. Sale after an indipendent expert evaluation
  to establish the market value of the land.

6
Aid-Free Sale of LandUnconditional bidding
procedure

• Conditions for bidding procedure
• -offer must be sufficently well publicised.
• (repeated advertising for 2 or more months in
  national press and through estate-agents).
• -offer must be unconditional.
• (subject to reasonable restrictions from
  environmental or planning law other restrictions
  admissible if they can be fulfilled by all
  bidders).
• -sale to highest or only bid.

7
Aid-Free Sale of LandSale after Independent
Expert Evaluation

• Transaction is aid free if the land is sold at a
  price that was determined to be the market value
  by an independent expert.
• Conditions
• -expert asset valuer with specific
  qualifications.
• -independence of expert from state influence.
• -MS has some margin to sell below this market
  value.

8
Aid-Free Sale of LandSale after Independent
Expert Evaluation

• Expert asset valuer with specific qualifications
• -must have appropriate qualification/degree.
• -must have suitable experience/competence in
  valuing land in the location and category of
  asset.
• -If in that country no academic degree exists
  the expert should be a member of the professional
  body responsible for valuations and be appointed
  by the courts.

9
Aid-Free Sale of LandSale after Independent
Expert Evaluation

• Independence of expert
• -Public authorities should not be entitled to
  issue orders as regards the result of the
  evaluation.
• -State valuation offices and public officers are
  to be regarded as indipendent provided that undue
  influence on their findings is effectively
  prohibited.

10
Aid-Free Sale of LandSale after Independent
Expert Evaluation

• Margin to sell below market value
• -If reasonable efforts to sell the land at
  market value fail the MS may recuce the price by
  up to 5.
• -If the land cannot be sold at the market value
  less 5 a new valuation may be carried out taking
  into account the experience made and the offers
  received.

11
How to Handle Transactions Containing State Aid

• Transactions containing state aid are not
  necessarily unlawful.
• They can be justified on the basis of
• -The De Minimis Rule (benefit gt200.000,- ).
• -Other provisions of secondary legislation, e.g.
  as regional investment aid (notification
  necessary if outside an approved scheme).

12
Consequences of Violating State Aid Rules

• Competition authorities might open formal
  investigation after
• -complaints of competitors.
• -becoming aware of the transaction through the
  media.
• Competition authorities may order recovery of the
  aid if it was granted illegally (difference
  between market value and price actually paid).
• National law violation of state aid rules could
  make transaction void (e.g. Germany Federal
  Supreme Court ruled that contracts containing aid
  and violating the notification requirement are
  void).

13
Transacion is in line with state aid law!
Sale to highest bidder?
yes
no
Sale at market value following independent
evaluation?
yes
no
De Minimis? Benefit lt200.000,- ?
yes
no
Justified under approved scheme?
yes
no
Indicidual notification and approval?
yes
no
Aid is unlawful! Recovery of benefit!