Property Sales – ECJ Advocate General Wants to Relax Strict Requirements

Local communities have reason to hope that they will soon again be able to sell real estate without requiring a public award procedure. The ECJ Advocate General clearly rejected the “Ahlhorn” court ruling in referral proceedings held before the Upper Regional Court of Düsseldorf (Order of October 02, 2008). The final motions were published on November 17, 2009.

Should the ECJ agree with the Advocate General’s opinion, the obligation for public authorities to go through an award procedure when selling real estate will be a thing of the past.

Background

In a decision by the Upper Regional Court of Düsseldorf in effect since the summer of 2007, the sale of real estate by public authorities would in any event be deemed a public building contract if at the same time a building obligation were imposed on the investor. Prior to that time, the sale of real estate was only subject to the award procedure regiment if the municipal community intended to use the building to be constructed itself sometime in the future. Based on the court ruling by the Upper Regional Court Düsseldorf and some other upper regional courts, the municipal community was no longer required to pursue its own procurement needs. It would suffice if the community merely published planning and urban development specifications.

German lawmakers did in fact deal with the large amount of criticism directed at the court ruling of the Upper Regional Court Düsseldorf from both the theoretical as well as practical sides of the issue. In the course of this year's award procedure reform process, the sale of real estate by public authorities with a construction obligation was expressly excluded from the tendering obligation. Based on this, only such contracts would be relevant to the award procedure that would specify a construction performance or the construction of a building on behalf of the public contract awarder and which would be of a direct economic benefit to the public authority, cf. Section 99(3) Act Against Restraints of Competition [GWB]. However, many experts did express their doubts as to whether this revision in the law was actually compatible with European law. This is the reason why many are very eager to hear just how the ECJ will decide on this issue.

Now, the ECJ Advocate General has given an initial indication of where he is leaning on the matter. He also appears to believe that the decision by the Upper Regional Court of Düsseldorf goes too far and that it cannot be reconciled with European award procedure guidelines.

The Advocate General’s point of view

In the opinion of the Advocate General, a public works contract or a public works concession requires a direct connection between the public contract awarder and the construction work. This direct connection might particularly be at hand if the building were to be purchased by a public administrative authority or if it were to benefit the authority economically. The same would apply if the public contract awarder had taken the initiative to implement a construction project or if it were to bear the costs thereof. However, the activity of the public authority would in this case need to extend beyond the mere use of the licenses, which generally would be especially awarded to the public authority in the area of urban development projects. Thus, “normal” urban development activities and initiatives can be made without the need to follow public procurement law.

Moreover, the Advocate General indicates his agreement with the German lawmakers on the issue that a public works concession should always require a limited right to the use of the building. Therefore, the sale of real estate and with it the transfer of ownership would exclude the existence of a public works concession.

Consequences for practical examples

The final motions by the Advocate General are indeed decisive with regard to the issue of how to handle the sale of real estate by public authorities. Municipal communities do have good reason to hope that real estate may once again be sold in the future without the obligation to follow public procurement procedures. This would be consistent with the new "Alhorn” clause in Section 99(3) GWB. At the same time, however, it is not yet clear whether or not the ECJ will in fact follow the petition submitted by the Advocate General. The decision is expected in April 2010. Generally, the ECJ would follow the stance taken by the Advocate General. However, more recently it has repeatedly deviated from this practice. This is what is causing some concern in view of the countenance of the EU Commission, which deviates from the position of the Advocate General on a number of different points. However, at this time municipal communities can base their decision on the law as it stands for now and the statements made by the Advocate General in cases in which they would like to sell properties without going through a public award procedure.