When a public body sells immovable property (such as land) where no tendering obligation applies, a mandatory, public selection procedure will henceforth apply. The Supreme Court made this ruling on 26 November 2021 in the Didam judgment. The judgment constitutes an important ruling on the principle of equality that a public body must observe. The ruling deals with the sale of real estate, but the meaning of the ruling is broader.
The Supreme Court concludes that a public body seeking to conclude a private-law contract is bound by the general principles of proper administration. This has been settled case law of the Supreme Court since 1987 (Amsterdam vIKON 27 March 1987, ECLI:NL:HR:1987:AG5565). The general principles of proper administration include the principle of equality.
In this case, a real estate company applied to the municipality of Montferland as a candidate for a plot of land in the centre of Didam. However, the municipality wanted to sell the plot to a property developer. The real estate company argued that this was unfair, invoking the Council of State’s Administrative Law Division’s line on scarce permits. In the distribution of scarce permits to potential candidates, room for competition must be offered in a real way. According to the property company, this line should not only apply to scarce permits, but also to land. Land is also a scarce commodity in the Netherlands.
The Arnhem-Leeuwarden Court of Appeal (19 November 2019, ECLI:NL:GHARL:2019:9911) previously ruled against the real estate company. According to the court, such a standard would not (yet) apply to land issuance outside the procurement law context. Moreover, according to the court, the real estate company should have made it plausible that scarcity existed.
The Supreme Court ruled otherwise in this judgment. A public body must offer equal opportunities to candidates to compete for a property. The government must also adhere to this specific interpretation of the principle of equality when concluding private-law contracts. According to the Supreme Court, the scope of the principle of equality is thus broader: it applies to all contracts a government wishes to enter into. Since part of the purpose of the principle of equality is to provide equal opportunities, a government wishing to conclude a private law contract must make public its desire to do so in advance so that interested parties can come forward.
A switch switched?
In a sense, a switch has been made. Until now, the lower civil case law was reluctant to accept that the principle of equality has consequences for the sale of real estate (see, for example, Vzngr. Rb. Den Haag 19 July 2017, ECLI:NL:RBDHA:2017:9945; unpublished). Nevertheless, the Supreme Court’s ruling is in line with a legal development that has been going on for years. Paul Heijnsbroek already concluded in his 2013 dissertation that the government should also provide competition space when selling real estate. Groundbreaking was the Vlaardingen ruling by the Council of State (ABRvS 2 November 2016, ECLI:NL:RVS:2016:2927). The Supreme Court referred to that ruling. According to the Council of State, it follows from a European-law interpretation of the principle of equality that in the case of ‘scarce’ permits (e.g. because a limited number of permits are available per municipality), room for competition must be provided. The government must offer equal opportunities to acquire a scarce permit. It must inform possible candidates in advance through an appropriate degree of publicity. Such a licence may not be granted for an indefinite period of time (cf. CBb 15 May 2012, ECLI:NL:CBB:2012:BW6630).
The Supreme Court rightly concludes that this interpretation and application of the principle of equality also applies to the private law actions of public authorities. With reference to the Supreme Court’s ruling on Amsterdam vIKON and the Vlaardingen judgment of the Council of State, the conclusion is clear: the principle of equality entails that room for competition must also be provided outside the procurement law context if a government wishes to enter into a private law contract.
Thus, principles already familiar from procurement law have become applicable in a broad sense to all government action, both private and public.
How does a government do that?
In its ruling, the Supreme Court gives some guidance on how a public body should now approach this. The Supreme Court derives these handles from European law and rulings by the highest general administrative court, the Administrative Law Division of the Council of State.
- A public body must consider whether there are expected to be several candidates. If this is the case, the public body must offer scope for competition to candidates to compete for the property.
- In doing so, a public body should establish criteria against which the buyer is selected. These criteria should be objective, verifiable and reasonable.
- A public body must provide clarity about the selection procedure, ensuring an ‘appropriate degree’ of publicity.
Where there is expected to be only one bidder, the public authority does not have to provide any scope for competition. However, the public body must publish its intention to sell land so that it can be notified. Moreover, the public body must justify why it is established or can reasonably be assumed that only one serious bidder will be considered. This is obviously intended to ensure that that intention can be challenged by other prospective purchasers in good time so that the court can review the consideration made for not providing scope for competition.
Henceforth, governments must therefore offer equal, or fair, opportunities when issuing land. Because pure land allocation by the government falls outside the scope of procurement law, governments were in principle free to sell real estate such as land to a real estate company or developer of their choice. That choice is now no longer free; equal opportunities must be offered to candidates. For governments, this means considerably more work, including in ongoing procedures. For candidates, the playing field becomes more level, but they will have to comply with the criteria on the basis of which the buyer will be selected. In short, a far-reaching ruling with major consequences.
In practical terms, the national objective of building substantially more homes in the short term is further jeopardised by this ruling. Besides the nitrogen issue and the sustainability and climate objectives, the provision of fair opportunities for all market parties must now be taken into account. Public authorities may be obliged to reissue already issued land with a public procedure. For property developers who have missed or risk missing the boat, the ruling actually offers opportunities to obtain land after all.
Questions or advice
This article was co-authored by Nina Eijpe.