North-Rhine Westphalia: New Scope for Municipal Services

Münster Higher Administrative Court Allows Subsidiaries for Communities

In North Rhine-Westphalia, the economic activity of communities is tightly regulated, accompanied by a restrictive municipal supervision. The Münster Higher Administrative Court has now eased both, thus providing the local authorities in North-Rhine Westphalia with new scope for action.

The case concerns typical local interests. A community did not want to provide certain services for its own use and for this purpose took out an interest in a GmbH that had been established by other communities. The Düsseldorf district government considered this an infringement of municipal law and requested the community to withdraw from the GmbH. It held that services to meet the community's own needs were not allowed to be provided in the form of a GmbH. Such a legal form of private law would only be permitted if the facility were to directly serve the economic, social or cultural support of residents, but not to meet the community's own needs.

This went too far in the view of the Münster Higher Administrative Court. "The understanding of the district government is incompatible with the guarantee of local autonomy," explained Dr. Ute Jasper of law firm Heuking Kühn Lüer Wojtek in Düsseldorf. "Whether services for the public or the community's own needs are concerned: For an activity under private law, it is solely important that the community is efficient and the facility is required in the individual case. The Münster Higher Administrative Court made that clear in a welcome manner," Jasper continued.

In particular, the court did not accept that the community would not be able to ensure sufficient influence in the case of a GmbH. "In the area of services for the public, the GmbH is recognized as a legal form," Jasper reported. "This must even more apply to activities for a community's own needs since they only affect the community internally." The decision of the Münster Higher Administrative Court is therefore of considerable practical importance. "Whether in procurement, IT services or building management, whether alone or jointly with other local authorities - the Münster Higher Administrative Court returns freedom of scope to communities," Jasper was pleased to note.