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State Aid and Redevelopment: Some recent developments

Two recent developments for those interested in this area of practice:

1. The BIS State Aid Guide (June 2011) says in respect of “Land and property development/regeneration” that “[t]here is no formal Commission framework as such for land and property regeneration, but there are several schemes in the UK which have ether received Commission State aid approval, or which the Commission confirmed as not involving Article 107(1) State aid”. This is thus an area where there is a lack of clarity on where State aid may be an issue. Usefully the European Commission has recently concluded that a German scheme providing direct grants for the development and revitalisation of land does not constitute state aid. The Commission has found that the development of land by local authorities is part of their public tasks and therefore outside the realm of EU state aid rules. See http://europa.eu/rapid/press-release_IP-14-332_en.htm The Commission’s press release says:

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's examination showed that developers are selected through an open, transparent and non-discriminatory public procurement procedure. Moreover, the land is sold either through a tender procedure or after an independent expert evaluation of the land, in line with the Commission's communication on land sales (see further here). 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.

This decision provides an important clarification as regards the notion of state aid under EU law because it confirms that the development of land by a local authority is a public task and that this qualification has not changed after the Leipzig/Halle judgments of the EU Courts (joined cases T-443/08 and T-455/08 and case C-288/11 P).

2. In Brown v Carlisle (No. 2)  [2014] EWHC 707 (Admin) Collins J. ruled as follows on the issue of whether the grant of planning permission in that case itself amounted to a State aid (having set out the terms of Article 107(1) and the wide scope given to State aid in the CJEU case-law):

58. Prima facie this could mean that any grant of planning permission which gives an advantage, as will often be the case, to the recipient could engage state aid.  But the court has made clear that the exercise of a power which only the state or a public body such as a local authority which is in the same position can exercise will not amount to state aid.  Thus the grant of planning permission will not by itself constitute state aid: see Muller v Bundesamt etc (Case C-451/08), which concerned the award of public work contracts, where at paragraph 57 the court observed:-

“It is not the purpose of the mere exercise of urban-planning powers, intended to give effect to the public interest, to obtain a contractual service or immediate economic benefit for the contracting authority …”

59. It is common ground that four conditions must be met if Article 107(1) is to apply.  First, there must be an intervention by the State or through State resources.  Second, the intervention must be liable to affect trade between Member States.  Third, it must confer an advantage on the recipient.  Fourth, it must distort or threaten to distort competition.  In a valuable discussion of the requirements of State Aid, Advocate General Wathelet in Doux Elevage SNC (Case C-677/11) referred to the material principles established by the ECJ (Paragraph 37).  Financing through State resources is a constitutive element of the concept and so the State measure must entail a burden on the public purse either in the form of expenditure or reduced revenue: see Prussen Elektra [2001] ECR 1-2159. 

60. Mr Jones accepts that a grant of planning permission being a regulatory role reserved to the State will not involve State Aid.  But he submits that the use of a s.106 agreement is a different matter.  This it is said has required the IP to direct resources to a particular market operator, namely the owner of the airport.  The permission to construct the FDC is contingent on the financing of the airport.  I can see the possibility of State Aid arising where there is no link between the provider and the recipient of the finance.  It is not necessary to show that State resources are directly or even indirectly involved, but there must be some direct link between the advantage conferred and a reduction or a risk of reduction in the State budget: see Bouygues (II) [2013] Case C-401/10 at paragraphs 101 to 109.

61. While the airport operator may be a different company within the Stobart Group, in reality it is the group which matters.  The distinction between the legal entities recognised in English law is not in my judgment material.  Thus the reality is that Stobart has agreed to subsidise itself in order to establish the planning advantage which enabled planning permission to be granted.  There is no question of special rules applying to enabling development.  Equally, there is no question of any state resources being involved.  It is hardly surprising that state aid has not so far as I am aware been raised in planning cases since it will be likely that any case which could by the use of a s.106 obligation engage it (such cases will be rare in the extreme) would fall foul of a lack of justification for the s.106 obligation.  But I do not need to go into that.  Suffice it to say that I am satisfied that the arguments put forward by the defendant and the IP on state aid are correct and I reject those put forward by Mr Jones.