Joined Cases C-197/11 and C-203/11

Eric Libert and Others

v

Gouvernement flamand (C-197/11)

and

All Projects & Developments NV and Others

v

Vlaamse Regering (C-203/11)

(Request for a preliminary ruling from the Cour constitutionnelle (Belgium))

‛Fundamental freedoms — Restriction — Justification — State aid — Concept of ‘public works contract’ — Land and buildings located in certain communes — National legislation making the transfer of land and buildings subject to the condition that there exists a ‘sufficient connection’ between the prospective buyer or tenant and the target commune — Social obligation on subdividers and developers — Tax incentives and subsidy mechanisms’

Summary — Judgment of the Court (First Chamber), 8 May 2013

Approximation of laws — Procedures for the award of public works contracts, public supply contracts and public service contracts — Directive 2004/18 — Public works contracts — Concept — Development of social housing units which are subsequently to be sold at capped prices to a public social housing institution, or with substitution of that institution for the service provider which developed those units — Included — Conditions — Assessment by the national court

State aid — Concept — Tax incentives and subsidy mechanisms intended to compensate for the social obligation to which the subdividers and developers are subject — Included — Conditions — Constituting an economic advantage rather than compensation for the discharge of public service obligations — Assessment by the national court

Citizenship of the Union — Freedom of movement for persons — Freedom of establishment — Freedom to provide services — Free movement of capital and liberalisation of payments — Restrictions on property transactions — National legislation making the transfer of property located in certain communes subject to verification, by a provincial assessment committee, that there exists a ‘sufficient connection’ between the prospective buyer or tenant and those communes — Not permissible — Justification — Social housing policy — No such policy

See the text of the decision. (see paras 33, 34, 36)

Articles 21 TFEU, 45 TFEU, 49 TFEU, 56 TFEU and 63 TFEU and Articles 22 and 24 of Directive 2004/38 on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States preclude legislation which makes the transfer of immovable property in the target communes subject to verification, by a provincial assessment committee, that there exists a ‘sufficient connection’ between the prospective buyer or tenant and those communes. Such legislation constitutes a restriction on the fundamental freedoms guaranteed by those articles of EU law. It is true that requirements relating to social housing policy in a Member State, the objective of which is to guarantee sufficient housing for the low-income or otherwise disadvantaged sections of the local population, can constitute overriding reasons in the public interest and therefore justify such restrictions. However, those measures go beyond what is necessary to attain the objective pursued. The conditions, established by that legislation, any one of which is to be met and compliance with which must be verified as a matter of course by the provincial assessment committee in order to establish whether the requirement for a ‘sufficient connection’ between the prospective buyer or tenant and the target commune is satisfied, may be met not only by the less affluent local population but also by other persons with sufficient resources who, consequently, have no specific need for social protection on the property market. Lastly, if a prior administrative authorisation procedure is to be justified even though it derogates from a fundamental freedom, it must be based on objective, non-discriminatory criteria known in advance, in such a way as adequately to circumscribe the exercise of the national authorities’ discretion. That is not the case when one of those conditions requires that the prospective buyer or tenant has a professional, family, social or economic connection with the commune in question as a result of a significant circumstance of long duration, in the light of the vague nature of that condition and in the absence of any specification of the situations in which it would be deemed to have been met. (see paras 48, 51, 52, 55, 57-60, operative part 1)

Article 63 TFEU must be interpreted as not precluding legislation according to which a ‘social obligation’ is imposed on some economic operators when a building or land subdivision authorisation is granted, in so far as the referring court finds that that legislation is necessary and appropriate to attain the objective of guaranteeing sufficient housing for the low income or otherwise disadvantaged sections of the local population. The obligation imposed on some subdividers or developers, for the grant of a building or land subdivision authorisation, to follow a procedure under which they must discharge a social obligation entailing the use of part of their building project for the development of social housing units or the payment of a financial contribution to the commune in which that project is developed, constitutes a restriction of the free movement of capital, since the investors in question cannot freely use the land for the purposes for which they wished to acquire it. However, that obligation may be justified by requirements relating to social housing policy in a Member State as an overriding reason in the public interest. It is for the referring court to assess whether such an obligation satisfies the principle of proportionality. (see paras 65-69, operative part 2)

The tax incentives and subsidy mechanisms are liable to be classified as State aid within the meaning of Article 107(1) TFEU. It is for the referring court to determine whether the conditions relating to the existence of State aid are met and, if so, to ascertain whether, as regards measures whereby compensation is provided for the social obligation to which subdividers and developers are subject, Decision 2005/842 on the application of Article 86(2) EC to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest is nevertheless applicable to such measures. In that regard, measures which, whatever their form, are likely directly or indirectly to favour certain undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions are regarded as aid. By contrast, where a State measure must be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations, so that those undertakings do not enjoy a real financial advantage and the measure thus does not have the effect of putting them in a more favourable competitive position than the undertakings competing with them, such a measure is not caught by Article 107(1) TFEU. This could be the case of measures which are intended to compensate for the social obligation to which the subdividers and developers are subject, entailing the use of part of their building project for the development of social housing units or the payment of a financial contribution to the commune in which that project is developed. However, for such compensation to escape classification as State aid in a particular case, a number of conditions must be satisfied. First, the undertaking receiving such compensation must actually have public service obligations to discharge, and the obligations must be clearly defined. In that regard, on account in particular of the wide discretion enjoyed by the Member States, it is not inconceivable that the social obligation may be regarded as a public service. The fact that the social obligation does not directly benefit individuals – the applicants for social housing – but rather the social housing companies, is irrelevant with regard to the classification of the service in question. Second, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner, to avoid it conferring an economic advantage which may favour the recipient undertaking over competing undertakings. Third, the compensation paid cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations. Fourth, the compensation must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with the requisite means so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations. (see paras 83-89, 91, 92, 102, operative part 3)

See the text of the decision. (see paras 94, 95)