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state aid and sales at an undervaluationEuropean law regulating the provision of public financial assistance to businesses is complex; and the provision of aid without obtaining clearance from the EC Commission is increasingly fraught with risk for both provider and beneficiary. In this Note we look at the law as it applies to aid by way of provision of land gratuitously or at an undervalue. The European Commission has power to monitor, control and restrict the forms and levels of aid given by an EC Member State or through state resources. In simple terms, state aid is any gratuitous advantage or benefit provided by a state body or using state resources to any undertaking. This includes public and quasi-public bodies operating as a business. State aid obviously includes subsidies, grants and cash injections to public enterprises, but crucially it can also include sales of land/property at discounted prices. This issue is discussed in the remainder of this paper on RDAs and state aid. The European Court of Justice decides what is aid and interprets threats to competition and trade, and it has recently been doing so with increasing stringency. Although the EC Treaty refers to a distortion of competition in so far as trade between EC Member States is involved, in practice the Commission also pursues vigorously complaints about assistance even where there appears to be little or no impact on trade with other countries. In the recent case of Altmark, for example, the European Court found that subsidies provided to local bus services in a very small area of Germany were still subject to the EC state aid rules. A sale of land at an undervalue in a UK town by an RDA can therefore breach the EC state aid rules. State aids should be notified to the European Commission and authorised in advance (that is, they should not be implemented until the Commission has issued a clearance decision). If aid is unlawfully paid by a state body, such as an RDA, then the state body is required to recover the unlawfully paid state aid plus interest from the recipient. Basically, then, if an RDA were to misjudge a state aid issue and to give aid unlawfully to a body (whether public or private), the RDA itself would not face any financial risk. The recipient of the aid, rather than the RDA, would be financially at risk of having to repay the aid plus interest. However, there are still many downsides for an RDA if it fails to fulfil its obligation to notify financial assistance, which should be classified as a state aid, to the European Commission:
Monitoring Following the adoption of a recent Regulation on procedure in state aid, the European Commission is not only able to order recovery of aid (plus interest) which has been paid in breach of state aid rules, but it is also able to undertake close monitoring to ensure that any conditions attached to the payment of financial assistance are respected. This includes the possibility of on-site monitoring visits at the premises of aid recipients in cases where the Commission has serious concerns. State Aid elements in sales of land The European Commission’s Communication on State Aid elements in Sales of Land by Public Authorities makes it clear that a sale of an interest in land (freehold interests, leasehold interests and so on) by an RDA to another public body (such as a university, college, school or hospital) at an undervalue can constitute unlawful state aid. It should be noted that land sold at less than market value may constitute a state aid even if the recipient has agreed to undertake certain improvements or other investments in connection with the land in question. The European Commission Communication makes it clear that a public body selling land should behave in the same way as a private vendor operating under normal market economy conditions and sell at market value. The Commission therefore thinks that a sale of land by an RDA should follow a sufficiently well-publicised open and unconditional bidding procedure, comparable to an auction, honouring the best bid, if it is clearly to be a sale at market value, and consequently is not to contain any elements of state aid. In a case in 1992 concerning aid granted by an English local authority to Toyota Motor Corporation, the Commission found that in selling land to Toyota at a price of some £4.2 million below its market value, the local authority had granted an illegal state aid. The Commission made the point that a public body may be granting aid where it does not act like a “normal” private vendor - a private vendor would examine the possibility of alternative purchase offers and sell the land to the person making the highest offer. According to the European Commission’s Communication: “market value means the price at which land could be sold under a private contract between a willing seller and an arm’s length buyer on the date of valuation, it being assumed that the property is publicly exposed to the market, that market conditions permit orderly disposal and that a normal period, having regard to the nature of the land, is available for the negotiation of the sale.” If no bidding or auction procedure is to take place, an independent valuation should be carried out prior to the sale negotiations to establish the market value - that is, the price at which the assets could be sold in an arm’s length transaction. The evaluation should be undertaken by an independent asset valuer, which might include a state valuation office or public officers who can act without “undue influence” being exerted on their findings. The primary costs incurred by the public authorities to acquire a site are an indicator of the market value unless a significant period of time has elapsed between the initial purchase and sale of the land. The market value should not be less than the initial purchase price during a period of at least three years after acquisition unless the independent valuer can establish a general decline in the prices for land in the relevant market. State Aid Exclusions and Exemptions Normally, when state aid is given, the grantor of the state aid needs to notify the state aid to the European Commission in advance. There are, however, exclusions and exemptions from the rules. These include exclusions and exemptions for certain types of regional and sectoral aid, training, employment, research and development and aid for rescuing and restructuring for companies facing serious financial difficulties. There are also special rules relating to financial assistance provided for cleaning up contaminated land. All of these exclusions and exemptions are notoriously difficult to apply and it is often difficult to assess whether the European Commission will consider that an RDA has correctly applied the relevant exclusion or exemption to a specific act of financial assistance. UK regeneration schemes have been struck down by the European Commission in the past, despite wide-spread belief that the EC state aids rules were being complied with. For example, part of the Partnership Investment Programme, which was operated by English Partnerships to support supposedly non-commercially viable regeneration projects throughout England where development costs exceeded the likely end value, was struck down by the European Commission for breaching the EC state aid rules. Indeed, the European Commission’s latest guidance on state aids addressed to state bodies is very clear - if there is any doubt whatsoever, a state body (such as an RDA) must notify any financial assistance paid by it to the European Commission.
key expertise Geraldine Tickle James Dilley
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