Commission Decision (EU) 2025/1270 of 25 November 2024 on the measures on SA.39182 (2017/C) (ex 2017/NN) (ex 2014/CP) Alleged illegal aid to Tartu Agro AS implemented by Estonia (notified under document C(2024) 8047)
Date: 2024-11-25
Institutions: Directorate-General for Competition, European Commission
Subjects: Estonia, Southern Estonia, State aid, agricultural holding, agricultural land, control of State aid, farm lease, farm rent, infringement procedure (EU), market prices, reimbursement of aid




L_202501270EN.000101.fmx.xml












Official Journal of the European Union


EN
L series













2025/1270


2.7.2025







            COMMISSION DECISION (EU) 2025/1270
of 25 November 2024
         
on the measures on SA.39182 (2017/C) (ex 2017/NN) (ex 2014/CP) Alleged illegal aid to Tartu Agro AS implemented by Estonia


(notified under document C(2024) 8047)


Only the English text is authentic


THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,


Having called on interested parties to submit their comments pursuant to the provision(s) cited above (1) and having regard to their comments.

Whereas:
1.   PROCEDURE







(1)


By a complaint submitted to the Commission on 24 July 2014, the Commission was informed that the Ministry of Rural Affairs (previously the Estonian Ministry of Agriculture, currently Ministry of Regional Affairs and Agriculture) (‘the Ministry’) had allegedly implemented an unlawful State aid in favour of Tartu Agro AS. The complaint was registered by the Commission on 28 July 2014.










(2)


According to the complainant, the Ministry has granted unlawful State aid to Tartu Agro AS through the rent of agricultural land in Tartu county at prices that have been below the market rate since the beginning of the lease contract in 2000.










(3)


The Commission forwarded the complaint to the Estonian authorities on 14 August 2014 and invited them to submit information and comment on the allegations made by the complainant. The Estonian authorities replied on 3 October 2014.










(4)


By letter dated 27 February 2017, the Commission informed Estonia that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (‘TFEU’) (the ‘investigation procedure’) in the abovementioned case.










(5)


The Commission decision to initiate the investigation procedure was published in the Official Journal of the European Union (2) (‘the opening decision’) (3) and the Commission called on interested parties to submit their comments within one month of the date of the publication of the opening decision.










(6)


On 21 April 2017, the Estonian authorities submitted their comments.










(7)


The Commission also received two sets of comments from interested parties. These comments were forwarded to the Estonian authorities on 10 May 2017 and on 12 May 2017. The Estonian authorities sent their comments on 28 June 2018.










(8)


On 11 June 2017, the complainant submitted additional comments comprising five annexes. As three of those annexes could not be opened, the complainant re-submitted them on 19 June 2017. These comments were forwarded to the Estonian authorities on 3 July 2017. The Estonian authorities submitted their comments on 21 July 2017.










(9)


Tartu Agro AS contacted the Commission by a letter of 30 August 2017. The Commission replied by a letter on 11 September 2017.










(10)


The complainant contacted the Commission by a letter on 9 January 2018, 30 January 2019 and 14 July 2019. The Commission answered by a letter respectively on 7 February 2018, 1 March 2019 and 17 July 2019.










(11)


On 7 February 2019, a teleconference with the Estonian authorities was held.










(12)


The Commission sent a request for additional information to the Estonian authorities on 15 February 2019, which the Estonian authorities answered by letter of 17 April 2019.










(13)


On 24 January 2020, the Commission adopted its first final decision finding that the State aid in form of a rent of agricultural land for a rate below the market price was unlawfully granted by Estonia, in breach of Article 108(3) TFEU, to Tartu Agro AS (‘the initial decision’) (4).










(14)


The Commission concluded that, in addition to the rent actually paid by Tartu Agro AS, 50 % of the investments in the land improvement system and 100 % of the annual land taxes should have been considered as part of the rent payments. The Commission used a market price estimate that was an average of a price range estimated by an external expert’s valuation report (the Uus Maa report) and data of the Statistics Estonia depending on the time period.










(15)


The initial decision concluded that Estonia should put an end to the measure and recover the unlawful aid granted from Tartu Agro AS, unless the aid has been granted to a specific project, which, at the time of granting, fulfilled all conditions of the block exemption regulations, de minimis regulation or of an aid scheme approved by the Commission (recital 17 of the initial decision). The Estonian authorities implemented the initial decision. In particular, the unlawful aid was recovered and, on 29 December 2020, the Estonian authorities increased the rental fee according to the methodology provided in the initial decision applying it retroactively from 1 January 2020.










(16)


On 13 July 2021, the General Court annulled the initial decision in its entirety (5) (‘the General Court’s judgment’).










(17)


On 29 September 2022, the Estonian authorities sent a letter to the Commission regarding the General Court’s judgment. The Commission replied to the Estonian authorities on 7 October 2022.










(18)


On 13 October 2022, the Estonian authorities sent their reply to the Commission letter of 7 October 2022 by letter dated on 12 October 2022. The Commission replied to the Estonian authorities on 16 November 2022.










(19)


On 22 November 2022, Tartu Agro AS sent a letter to the Commission to express its views on the General Court’s judgment and the method to quantify the advantage. On 14 December 2022, the Commission replied to Tartu Agro AS and forwarded that letter to the Estonian authorities and requested comments from the Estonian authorities. Further, on 22 December 2022, the Commission requested additional information from the Estonian authorities. The Estonian authorities provided their comments on 6 February 2023 by a letter dated 3 February 2023. On 17 April 2023, Tartu Agro AS sent a letter to the Commission and expressed its views and provided comments on the submission of the Estonian authorities of 6 February 2023.










(20)


On 5 June 2023, the Commission services requested the Estonian authorities to confirm that their letter of 6 February 2023 does not contain confidential information. On 13 June 2023, the Estonian authorities replied to the Commission confirming that their submission did not contain confidential information.










(21)


On 26 June 2023, the Commission services forwarded the letter of 6 February 2023 of the Estonian authorities to Tartu Agro AS. On 25 July 2023, Tartu Agro AS replied to the Commission letter on 26 June 2023 and requested a meeting with the Commission authorities.










(22)


On 27 September 2023, a conference call between the Commission services and Tartu Agro AS was arranged.










(23)


On 3 October 2023, Tartu Agro AS sent its presentation, given orally in the conference call of 27 September 2023, in writing.










(24)


On 24 October 2023, Tartu Agro AS sent by letter comments with supporting documents to the Commission.










(25)


On 16 May 2024, Tallinn Administrative Court dismissed the action of Tartu Agro AS as regards the refunding of the recovered unlawful aid in case 3-20-620.










(26)


Estonia exceptionally waived its rights deriving from Article 342 TFEU, in conjunction with Article 3 of Council Regulation No 1 (6) and agreed to have this decision adopted and notified in English (‘Decision’).




2.   DESCRIPTION

2.1.   The beneficiary







(27)


The beneficiary is Tartu Agro AS, currently a private limited liability company operating in the primary agriculture and forestry sectors. inter alia, it produces milk, meat and cereals (7).




2.2.   The measures and scope of the decision







(28)


The measures granted by Estonia to Tartu Agro AS (‘the measures’) consist of:






(a)


a lease contract based on the outcome of a restricted tendering procedure (‘the tendering procedure’) signed on 16 November 2000 (‘the initial lease contract’) between the Ministry and Tartu Agro AS (together ‘the parties’) (recital 8 of the opening decision) for a duration of 25 years, namely its advantageous initial rent price (‘rental fee’) and provisions relating to the fee adjustments during the duration (‘the initial lease of the land’);










(b)


renegotiated or unilaterally increased advantageous rental fee since 1 May 2004 (excluding the unilateral and retroactive increase decided by the Estonian authorities on 29 December 2020 and applied as of 1 January 2020 in order to implement the initial decision – see recitals 15 and 29); and










(c)


derogations from normal market practices when the provisions of the initial lease contract as amended (‘the lease contract’) have been applied by Estonia, namely the fact that the annual rental fee increases were not enforced in accordance with the lease contract and the rental fee was not increased by Estonia although the State aid rules became mandatory in Estonia’s following its accession to the EU in 2004.














(29)


The Commission considers that the scope of the opening decision and consequently also of the present decision covers the measures as negotiated and implemented by the parties of the lease contract (i.e. Estonia and Tartu Agro AS). The unilateral and retroactive modification on 29 December 2020 by Estonia in order to enforce the initial decision has substantively modified the lease contract. Therefore, this substantive alteration falls outside the scope of the present decision. Any possible additional advantages granted to Tartu Agro from 1 January 2020 would therefore need to be examined separately as such advantages, if any, would qualify as ‘new aid’ in the sense of Article 1(c) of Council Regulation (EU) 2015/1589 (8).




2.3.   Background and presentation of Tartu Agro AS







(30)


Tartu Agro AS, originally ‘Tartu State Farm’, is the successor of a State farm established by a decision of the Estonian Supreme Council in 1992 (9), for the purpose of seed cultivation and conducting livestock related research.










(31)


In 1997, Tartu State farm was turned into the limited company Tartu Agro AS.










(32)


On 16 November 2000, the Ministry leased land to Tartu Agro AS for 25 years for plots of agricultural land comprising a total of 3 089,17 ha located in the municipality of Tähtvere.










(33)


In August 2001, the State decided to sell its shares in Tartu Agro AS. The shares were sold on 2 October 2001 to OÜ Tartland, a privately owned company. In 2002, OÜ Tartland merged with Tartu Agro AS.










(34)


On 1 May 2004, the rules relating to State aid became mandatory for the Republic of Estonia (‘Estonia’), on the date of Estonia’s accession to the European Union. The measures were not communicated to the Commission within four months of the date of accession (see recital 469).










(35)


The initial lease contract, including the conditions relating to the rent payment, has been re-negotiated several times since 1 May 2004 (see recitals 75 to 82).




2.4.   Grounds for initiating the procedure







(36)


In its opening decision, the Commission concluded that it could not exclude that the measures under assessment might involve State aid within the meaning of Article 107(1) TFEU. More specifically, the Commission raised doubts as to whether the rental fee paid by Tartu Agro AS, under the lease contract that was set for 25 years from 16 November 2000, was below the market price, thereby providing an economic advantage to Tartu Agro AS.










(37)


The Commission recalled that to examine the question whether the economic transaction carried out by a public body confers an advantage on its counterpart, it must be assessed whether the transaction was carried out in line with normal market conditions. Further, it must be assessed whether the parties have de facto acted in line with a conducted agreement and normal market conditions.










(38)


In this context, if a lease of assets is carried out following an open, transparent, non-discriminatory and unconditional tender procedure in line with the principles of public procurement (10), it can be, in general, presumed that it is in line with market conditions assuming that the parties of the agreement operate as agreed. In the opening decision, the Commission could not conclude that the tendering procedure was transparent, non-discriminatory or unconditional (recital 58 of the opening decision).










(39)


Further, the independent Uus Maa report submitted by the Estonian authorities seemed to indicate that the rental fee paid by Tartu Agro AS was below market prices. Therefore, the Commission concluded that it could not be excluded that an advantage might have been granted in favour of Tartu Agro AS.










(40)


The advantage seemed to be selective given that the land leased concerned one single undertaking, namely Tartu Agro AS. The other elements of 107 (1) TFEU, namely use of State resources, distortion of competition and effect on trade seemed to be fulfilled (recitals 43 to 45 and 65 to 67 of the opening decision) especially given that Tartu Agro AS operates in the primary agriculture sector, where normally operate several micro, small and medium-sized enterprises (‘SMEs’) that are vulnerable for distortion of competition and effect on trade. In addition, the lease transaction was exceptional regarding the size of the leased area and the duration of the lease contract.










(41)


The Commission also assessed whether the measures could be declared compatible with the internal market. As State aid in the form of unduly low land rental fees constitutes operating aid, by reducing the normal operating costs of the beneficiary, the operating aid was deemed to be prima facie incompatible with the internal market, in particular under Article 107(3), point (c), TFEU (11).




2.5.   Data on the market conformity of the lease contract and its enforcement

2.5.1.   The process to conclude the initial lease contract.







(42)


The decision to conclude the initial lease contract with Tartu Agro AS was based on a restricted tendering procedure. The Estonian authorities have not provided any supporting documents that would have demonstrated for what reason the initial lease contract was conducted for exceptionally long duration and large area.










(43)


The first step of the selection procedure was the official announcement of the tender. The tender was published in the Official Announcements on 6 July 2000, upon request of the Ministry (‘the official announcement of the tender’). The official announcement of the tender set out a condition that the agricultural production activity of Tartu Agro AS should be continued (‘the condition to continue agricultural production activity of Tartu Agro AS’). The deadline for submitting tenders was 26 July 2000.










(44)


The official announcement stated as follows ‘The Ministry of Agriculture announces a tender procedure with prior negotiation (selective tendering) to lease out state-owned land units with a total area of 3 089,17 hectares located in Tähtvere municipality in Tartu county. The land use is designated as profit-yielding land, and a condition for the land to be leased out is that Tartu Agro AS continue agricultural production’.










(45)


The official announcement of the tender stipulated that the participants should submit (i) an application, (ii) a receipt of paying the participation fee of 1 000 Estonian kroon (‘EEK’) (EUR 63,91 (12)), (iii) an offer for the rental fee and (iv) a business plan (‘the selection criteria’).










(46)


As noted above (recital 43), the official announcement of the tender set out a condition that the agricultural production activity of Tartu Agro AS should be continued.










(47)


Following that first procedure, a shortlist of pre-selected candidates was established based on the selection criteria. These pre-selected candidates were then eligible to negotiate the further conditions to be laid down in the lease contract (‘the restricted negotiation’).










(48)


Two companies submitted an offer: Tartu Agro AS and Aiu Põllumajanduse OÜ.










(49)


The decision on the eligible candidates for the restricted negotiation was made on 27 July 2000. An evaluation panel assessed the submitted tenders and prepared minutes on the outcome of the assessment. According to those minutes (13), it was decided that the negotiations would be started with Tartu Agro AS and that the second tenderer, Aiu Põllumajanduse OÜ, would be excluded from the negotiations.










(50)


According to the evaluation panel’s minutes, Tartu Agro AS had submitted the documents required in the announcement of the tender. The offer for the rental fee was EEK […] (*1) (ca. EUR […]) per year, respectively EEK […]/ha (EUR […]/ha).










(51)


Tartu Agro AS offered also to pay the land tax of EEK […] (ca. EUR […]) and to make investments with up to EEK […] (ca. EUR […]) per year. Tartu Agro AS offered to conclude the lease contract for a duration of 10 to 25 years.










(52)


The second tenderer, Aiu Põllumajanduse OÜ, had also submitted an application. However, its board’s decision to participate in the tender, as well as the registration card as a private limited company in the Estonian Central Commercial Register, were not enclosed to the application. Further, the business plan was deemed not to fulfil certain requirements in terms of analysis and plans. The offer for rental fee was EEK 200 per ha (ca. EUR 12,78/ha) per year.










(53)


It was on those grounds that it was decided to exclude Aiu Põllumajanduse OÜ and to start negotiations with Tartu Agro AS, the successful bidder.










(54)


In view of the negotiations, Tartu Agro AS was requested to submit an explanation for the annual investments, including a detailed list of annual investments.




2.5.2.   The initial lease contract signed on 16 November 2000
                              







(55)


The initial lease contract was signed on 16 November 2000 for 25 years between the Ministry and Tartu Agro AS.










(56)


During the 25 years duration of the contract, the leased plots have been adjusted and the initially agreed rental fee has been renegotiated and unilaterally increased (‘the lease transaction’).










(57)


The initial lease contract for 3 061,93 ha, located in Tähtvere municipality, in Tartu county, was conducted based on a negotiated tender procedure. The total size of the plots in the invitation to tender (14) for the lease was 3 061,17 hectares (‘ha’).










(58)


The owner of the leased land is Estonia.










(59)


According to the initial lease contract, the object of the lease is to use the land for agricultural production as revenue-producing land and the lessee must make prudent use of the land and, in particular, ensure that it is profitable on a sustainable basis.










(60)


The annual rental fee was agreed to be in total EEK 10 000 (ca. EUR 639) per calendar year for the leased area. The rental fee was due twice a year. 50 % of the annual fee was due on 1 July and 50 % was due on 1 December. The first payment under the initial lease contract was due by 1 December 2000.










(61)


Under section rent and taxes of the initial lease contract, the lessee was liable to pay all taxes relating to the subject matter of the lease. Furthermore, under the lessee’s other contractual rights and obligations the parties had agreed certain financial obligations for the lessee, as described in detail in recital 68.










(62)


The initial lease contract did not include an indexation condition or other provisions that would have enabled automatic annual rent increases without the parties’ agreement but there were terms which stipulated under which conditions the initial lease contract can be revised or terminated.










(63)


Firstly, according to point 9.3 of the initial lease contract, the lease contract including the amount of the lease was subject to review once a year (15).










(64)


Secondly, according to point 13 of the initial lease contract, under certain conditions the parties may request a modification of the lease contract in order to restore the initial relationship of the parties’ obligations.










(65)


The lease contract may also be terminated under certain conditions.










(66)


As regards the rental fee, point 13.5 of the initial lease contract states that if the rental fee exceeds the revenue from the regular management of the leased land at issue, or if it deviates by more than half of the reasonable rental fee (16) corresponding to the contractual obligations of both parties, a reduction or increase of the rental fee by a reasonable amount (17) may be required from the time of payment of the rental fee following the submission of the request for amendment of the rental fee. The lessee may not demand a change in the rental fee due to a change in the value of the subject of the contract as a result of its economic activity.










(67)


In addition, the initial lease contract states that its terms may be amended only with the written agreement of the parties, except in cases where a modification results from the contract or from legislation.










(68)


Under the initial lease contract, the lessee also had to pay the costs for maintaining and improving the land (‘financial obligations’), including:






(a)


EEK […] (EUR […]) investment per calendar year for the renewal of land improvement systems (‘the commitment for investments’ or ‘the committed investments’);










(b)


EEK […] (EUR […]) maintenance expenses of the land and the improvement of soil fertility, consisting of:






(1)


plant protection (at least EEK […] (EUR […]));










(2)


mineral fertilisers (at least EEK […] (EUR […]));










(3)


organic fertilisers (at least EEK […] (EUR […]));










(4)


liming soils (at least EEK […] (EUR […]));










(5)


manual control of wild oats (at least EEK […] (EUR […])); and










(6)


maintenance of road edges (at least EEK […] (EUR […])), (altogether ‘the commitment for maintenance expenses’).


















(69)


According to the initial lease contract, improvements made by Tartu Agro AS, which have been agreed with the lessor in advance in writing (thus beyond the committed investments), will become the property of the lessor and the lessor undertakes to acquire them at least to their normal value at the end of the lease contract (see recital 133).




2.5.3.   The sale of the shares of Tartu Agro AS in 2001 and its merger with the buyer in 2002







(70)


In August 2001, (following the conclusion of the initial lease contract on 16 November 2000) the State decided to sell its shares of Tartu Agro AS.










(71)


On 2 October 2001, Tartu Agro AS was sold to OÜ Tartland (18) (‘the administrative decision to sell the shares of Tartu Agro AS to OÜ Tartland’) based on the outcome of a restricted tendering procedure (‘the privatisation’).










(72)


The offer of OÜ Tartland was selected because it had higher commitment for investments compared with the bidder with the highest offered purchase price.










(73)


In November 2001, the sales contract for the shares of Tartu Agro AS was signed (‘the sales contract’). According to the sales contract:






(a)


the purchase price of the shares of Tartu Agro was EEK […] (approximately EUR […]);










(b)


the buyer had the obligation to continue agricultural production and organise the activities of Tartu Agro AS in such a way that Tartu Agro AS continued agricultural production and to carry out the following activities: cereal and hay seed production (operation as seed centre), milk production, meat production and meat processing;










(c)


the buyer had the obligation to […]; and










(d)


the buyer had the obligation to carry out itself or to manage Tartu Agro AS to make long-term capital investments […] following the annual allocation by sectors specified in the sales contract, which specified that between 2001 and 2006 EEK 21 140 000 (EUR 1 400 000) were to be invested in crop production, buildings, land and machinery.














(74)


Following the above share deal, on 30 May 2002, OÜ Tartland was merged into Tartu Agro AS, i.e, Tartu Agro AS was the acquiring entity and OÜ Tartland (‘the parent company’) ceased to exist (‘the merger’).




2.5.4.   The amendments of the lease contract







(75)


The initial lease contract has been modified several times since 2004.










(76)


The rental fee was renegotiated and adapted thrice. Furthermore, Estonia unilaterally increased the rental fee in 2020 in order to comply with the initial decision (see recital 15).










(77)


More in particular, on 14 January 2005, the rental fee was increased to EEK […] (EUR […]) in total per calendar year. Furthermore, the parties agreed that the rental fee can be changed with the agreement or at the request of one of the parties every two years.










(78)


On 21 March 2007, the rental fee was increased to EEK […] (EUR […]) in total per calendar year.










(79)


On 12 May 2009, the amount of the annual rental fee was increased to a total of EEK […] (EUR […]) for 2009. In addition, Tartu Agro AS was required to pay the land tax and invest at least EEK […] (EUR […]) per calendar year in land improvement systems.










(80)


The parties agreed that from 2010 onwards the rent will be changed to take account of the previous year’s single area payment (19) (see recital 136). The parties agreed that the rent should amount to approximately one third of the previous year’s single area payment, from which the lessee’s obligations to pay the land tax and investments upgrading land improvement systems would be deducted.










(81)


On 29 December 2020, the rental fee was unilaterally increased by the Ministry retroactively from 1 January 2020 to comply with the initial decision finding that the State aid was unlawfully granted by Estonia to Tartu Agro AS (see recital 15) (20).










(82)


The Ministry based the increase on the initial decision (see recitals 13 to 15). In that decision, statistics from Statistics Estonia were considered an appropriate market price benchmark by the Commission. Consequently, since 2020, the Ministry has based its unilateral rental fee increases on data published by Statistics Estonia (see recitals 213 and 304 as requested by the initial decision).










(83)


Although Tartu Agro AS has paid the unilaterally increased rental fee, it has stated that, depending on the outcome of the Commission’s formal investigation procedure, it may submit a claim to the Ministry for reimbursement of the difference between the contractual fee and the fee based on data published by Statistics Estonia. This unilateral increase, as it constitutes a substantial modification of the lease contract, does not fall within the scope of the Decision (see recital 29).










(84)


In addition, the lease contract has been amended nine times by agreements between the parties, but those amendments were limited to slight decreases in the leased area which did not change the rental fee.




2.5.5.   The rental fee paid by Tartu Agro AS







(85)


Tartu Agro AS has not paid the amount of the annual rental fee as agreed in the lease contract. According to the Estonian authorities, the annual rental fee payments actually made by Tartu Agro AS per year under the lease contract until 2019 (see recital 29) is as follows (see Table 1):

Table 1


The annual rent payment actually paid by Tartu Agro AS in 2000 – 2019









Year


Rental fee
(EUR /year)


Year


Rental fee
(EUR /year)





2000



[…]



2011



[…]





2001



[…]



2012



[…]





2002



[…]



2013



[…]





2003



[…]



2014



[…]





2004



[…]



2015



[…]





2005



[…]



2016



[…]





2006



[…]



2017



[…]





2007



[…]



2018



[…]





2008



[…]



2019



[…]





2009



[…]


 


 





2010



[…]


 


 











Source:



The Estonian authorities.


















(86)


Minor changes concerning the leased area have been agreed between the parties and the leased area has been revised over the duration of the lease contract as shown in the following table (see Table 2).










(87)


In addition, only part of the leased land is agricultural land eligible for the EU’s common agricultural policy (‘CAP’) support, as shown in the following table (see Table 2).

Table 2


Number of hectares under the lease contract and area eligible for the CAP support (ha)











Year


Total area


Eligible for the CAP support


Year


Total area


Eligible for the CAP support





2000



3 089,17 


[…]



2012



3 061,93 


[…]





2001



3 089,17 


[…]



2013



3 061,93 


[…]





2002



3 089,17 


[…]



2014



3 061,93 


[…]





2003



3 083,49 


[…]



2015



3 058,49 


[…]





2004



3 080,93 


[…]



2016



3 055,13 


[…]





2005



3 080,93 


[…]



2017



3 054,83 


[…]





2006



3 080,93 


[…]



2018



3 028,05 


[…]





2007



3 068,70 


[…]



2019



3 011,21 


[…]





2008



3 068,70 


[…]


 


 


 





2009



3 067,16 


[…]


 


 


 





2010



3 061,93 


[…]


 


 


 





2011



3 061,93 


[…]


 


 


 











Source:



The Estonian authorities.


















(88)


The annual rental fee actually paid by Tartu Agro AS converted as euro per hectare of arable land per year is presented in the table below (see Table 3).










(89)


When the annual rental fee actually paid by Tartu Agro AS is converted to EUR per hectare values:






(1)


for the years 2000-2003, the euro per ha rental fee was based on the number of hectares of arable land according to the Uus Maa report (2 839,5 ha) (Table 2), an expert evaluation sent by Estonian authorities in 2016 (see recitals 39 and 119), and










(2)


for the years 2004-2019, the euro per ha rental fee was based on the number of hectares eligible for the CAP support as reported in Table 2 above.

Table 3


The annual rental fee actually paid by Tartu Agro AS in 2000 – 2019 (EUR/ha)









Year


Annual rental fee paid by Tartu Agro AS
(EUR/ha)


Year


Annual rental fee paid by Tartu Agro AS (EUR/ha)





2000



[…]



2012



[…]





2001



[…]



2013



[…]





2002



[…]



2014



[…]





2003



[…]



2015



[…]





2004



[…]



2016



[…]





2005



[…]



2017



[…]





2006



[…]



2018



[…]





2007



[…]



2019



[…]





2008



[…]


 


 





2009



[…]


 


 





2010



[…]


 


 





2011



[…]


 


 












2.5.6.   Land tax paid by Tartu Agro AS







(90)


In Estonia, owners of land are obliged to pay a land tax that is based on the taxable value of the land. However, the parties had agreed in the initial lease contract that Tartu Agro AS takes over the obligation itself to pay the land taxes. According to the Estonian authorities, the land tax paid by Tartu Agro AS is as follows for the years when the initial lease contract was signed as well as for the years when the rental fee was renegotiated or unilaterally adjusted (see Table 4):

Table 4


Land tax paid by Tartu Agro AS (EUR/year)







Year


Land tax
(EUR / year)





2000



[…]





2004



[…]





2005



[…]





2007



[…]





2009



[…]











Source:



The Estonian authorities.












2.5.7.   Investments in land improvement systems paid by Tartu Agro AS







(91)


On 6 February 2023, the Estonian authorities provided additional information as regards the commitment for EEK […] (EUR […]) investments per calendar year for the renewal of land improvement systems that was not available at the time of the assessment of the initial decision.










(92)


The Estonian authorities explained that the renewal of land improvement systems on the State land covered by the lease contract is organised through two land improvement associations (21).










(93)


Pursuant to the Land Improvement Act (Maaparandusseadus), a land improvement association is a legal entity governed by private law. Its members are the owners of the land improvement systems and other parties who benefit from the activities.










(94)


Regarding the case at hand, Estonia and Tartu Agro AS are members of the two land improvement associations. Each of the associations have around 200 other members. Estonia is the main owner of the land that those two associations are responsible to maintain.










(95)


Further, the Estonian authorities explained that, in general, the land improvement associations collect the finance that their investments require from their members. However, regarding the land covered by the lease contract, the main part of the investments was not financed by the members of the associations but by external support granted to the land improvement associations.










(96)


The Estonian authorities explained that from 2004 to 2019 the land improvement associations obtained a total of EUR 2 102 953,38 support to invest in land improvement systems from the European Agricultural Guidance and Guarantee Fund (22) (‘EAGGF’) and the European Agricultural Fund for Rural Development (‘EAFRD’) (‘altogether the CAP funds’). EUR 1 410 024 of that amount was used for investments in land improvement systems on the land covered by the lease contract.










(97)


In addition to the support from the CAP funds, the investments were financed by the members of the associations.










(98)


In agreement with the Estonian authorities, from 2004 to 2019, in total EUR […]was financed and borne by Tartu Agro AS regarding the land covered by the lease contract.










(99)


The Estonian authorities explained that the investments financed and undertaken by Tartu Agro AS, from 2004 to 2019, were as follows (see Table 5):

Table 5


The commitment for Investments actually financed by Tartu Agro AS







Year


The commitment for Investments financed by Tartu Agro AS
(EUR / year)





2004



[…]





2005



[…]





2006



[…]





2007



[…]





2008



[…]





2009



[…]





2010



[…]





2011



[…]





2012



[…]





2013



[…]





2014



[…]





2015



[…]





2016



[…]





2017



[…]





2018



[…]





2019



[…]





Total



[…]








2.5.8.   Market information: Rental fee data on land leases







(100)


In this case, the price data on land lease fees consist of statistical data from:






(1)


Statistics Estonia (section 2.5.8.1, see recital 304) and;










(2)


realised lease fees of the land rented out by the Land Board (section 2.5.8.2, see recital 314).














(101)


Furthermore, as land leases are depending on the single area payment support, the Single area payment support development is relevant for the assessment.










(102)


In addition, three external expert’s valuation reports (sections 2.5.8.3 to 2.5.8.5) were available to the Commission, namely:






(1)


the Uus Maa report (see recitals 309 to 311);










(2)


the Pindi Kinnisvara report (see recitals 305 to 308; and










(3)


the Domus report (see recital 313).














(103)


However, on 6 February 2023, the Estonian authorities explicitly withdrew the submission of the Pindi Kinnisvara report, i.e. the external expert’s report referred to in recital 116, for the reasons explained in recital 212. During the investigation procedure, before the initial decision, the Estonian authorities had submitted the Uus Maa report because the Commission services had informed the Estonian authorities that the Pindi Kinnisvara cannot be considered as an independent report since that report was commissioned by the lessee.










(104)


Although the Estonian authorities withdrew the submission of the Pindi Kinnisvara report, Tartu Agro AS bases its claims on that report, therefore it is still part of the administrative file.










(105)


The Uus Maa report and the Domus report provide rental fee estimates for specified time periods. Those reports based their market rental fee estimates on a detailed assessment of the leased parcels. By contrast, the Pindi Kinnisvara report did not include any parcel level analysis and it did not provide a market fee estimate for specified time periods. Furthermore, the external experts’ reports differ considerably from each other in how they take into account the financial obligations referred to in recitals 61 and 68.




2.5.8.1.   Market prices of rental fees. Data published by Statistics Estonia







(106)


On 17 April 2019 and 6 February 2023, the Estonian authorities submitted statistical data of Statistics Estonia (‘the Statistical Office’) on the market prices of rental fees of agricultural land. That data is available in a public database in a table titled PM59 (23).










(107)


The published data on rents by year, county and type of agricultural land is as follows (see Table 6 and Table 7):

Table 6


Rental fees by year (Estonia) and type of agricultural land (EUR/ha)

















Estonia


2009


2010


2011


2012


2013


2014


2015


2016


2017


2018


2019





Arable land



 


 


 


 


43 


50 


55 


54 


60 


62 


 





Permanent grassland



 


 


 


 


30 


38 


38 


40 


47 


50 


 





Agricultural land total



21 


25 


26 


35 


40 


48 


52 


52 


58 


60 


64 











Source:



The Statistical Office.









Table 7


Rental fees by year (Tartu county) and type of agricultural land (EUR/ha)

















Tartu county


2009


2010


2011


2012


2013


2014


2015


2016


2017


2018


2019





Arable land



 


 


 


 


52 


58 


65 


61 


 


77 


 





Permanent grassland



 


 


 


 


39 


44 


45 


62 


 


 


 





Agricultural land total



 


 


 


 


50 


56 


63 


61 


 


75 


 











Source:



The Statistical Office.


















(108)


By a letter dated 3 February 2023, the Estonian authorities noted that the Statistical Office has published data on agricultural land rents since 2009. The source of the data, data collection methods and published statistic have been different from year to year. Information on arable land and permanent grassland by county has been published for the years 2013-2018.










(109)


In particular, the Estonian authorities explained that until 2020, the data also included land rented free of charge and transactions between related parties which do not necessarily reflect market price in line with standard practice (see recitals 213 and 304).




2.5.8.2.   Market prices of rental fees. Data on the Land Board’s realised lease transactions







(110)


On 6 February 2023, the Estonian authorities submitted data, which was not available to the Commission during the investigation procedure before the initial decision, on realised agricultural land lease transactions of the Land Board.










(111)


The Land Board is a public authority in Estonia that organises land valuation, controls, sells State owned land and leases out larger areas of land suitable for agricultural use or arable land that may be necessary for public purposes in the future. The average realised lease fees on agricultural land leased in Tartu county – including those leased to Tartu Agro AS – by the Land Board at a public auction in the period 2005-2022, are as follows (see Table 8):

Table 8


Rental fees by the Land Board (EUR/ha)










Year


Number of auctions in Tartu county


Number of auctions in all counties


Medium rental fees
(EUR/ha)
in Tartu county


Average of the medium rental fees
(EUR/ha)
in all
counties




2005


 


9 


 


34,60 




2006


1 


17 


22 


23,66 




2007


 


36 


 


36,92 




2008


 


3 


 


41,30 




2009


 


15 


 


52,90 




2010


1 


14 


39,2 


36,58 




2011


1 


14 


59 


55,88 




2012


20 


144 


95,6 


80,39 




2013


17 


174 


218,6 


122,31 




2014


19 


357 


170 


109,85 




2015


18 


386 


181,2 


107,63 




2016


21 


395 


154 


95,27 




2017


23 


428 


136,5 


88,00 




2018


36 


511 


170,3 


101,03 




2019


62 


517 


168,6 


115,13 











Source:



The Estonian authorities.


















(112)


The Land Board generally enters into lease agreements for a fixed term of five years. The land is rented or sold at the highest price/fee offered at public auctions. These auctions are open to all interested parties. Bids are made electronically in the form of an auction.










(113)


The highest bidders acquire both the right to rent land and the preferential right to continue to use the land once the lease expires by either buying the land or continuing to rent it subject to the State’s decision (recital 144).










(114)


The lessees are obliged to:






(a)


pay the rent;










(b)


pay the land tax; and










(c)


commit to maintain the land in good condition.














(115)


In addition, when there is a written agreement with the lessee, modifications and improvements going beyond regular maintenance may also be made to the land being rented and those investments costs will subsequently be offset against the rent.




2.5.8.3.   Market prices of rental fees. Estimate based on the external expert Pindi Kinnisvara







(116)


On 3 October 2014, the Estonian authorities submitted a report, commissioned by Tartu Agro AS, dated 12 April 2013 on the outcome of an expert evaluation made by a private real estate company, AS Pindi Kinnisvara (‘the Pindi Kinnisvara report’). However, as referred to in recitals 103 and 104 on 6 February 2023 the Estonian authorities explicitly withdrew the submission of the Pindi Kinnisvara report (see also recital 305). That valuation provided in the Pindi Kinnisvara had the objective to reply to the following question: ‘What is the net lease price in euros per hectare per year of agricultural land in an attractive location in the county of Tartu, where around 90 % of that land is arable land, having regard to the lessee’s obligation to make targeted investments as regards the arable land (renewal of land improvement systems, plant protection, fertilising using mineral fertilisers, fertilising using organic fertilisers, liming, control of wild oats, and roadside maintenance) which amount to around EUR 104 per hectare of arable land per year?’.










(117)


The Pindi Kinnisvara report concludes that the market-based net lease rate of the land corresponding to the area described in the query is between EUR 20 to EUR 30 per hectare of arable land per year. That report notes that lease contracts do not normally impose obligations to make ad hoc investments similar to that mentioned in the request and concludes that the financial obligations related to such investments affect the net lease rate inversely in proportion to the amount of the contractual obligation per unit of area of the leased land.










(118)


Further, that report notes, based on the information gathered through interviews with farmers, the following market prices of rental fees:

Table 9


Rental fees according to the Pindi Kinnisvara report (EUR/ha)







Contract type:


Estimated market fees of leased land by the Pindi Kinnisvara report




Existing contracts


Between EUR 30 and EUR 50 per hectare




Renewals of contracts currently in force and for new contracts


Between EUR 50 and EUR 100 per hectare




Logistically well-established and competitive areas


The rental rate is sometimes higher than EUR 100 per hectare











Source:



The Pindi Kinnisvara report dated 12 April 2013.












2.5.8.4.   Market price of rental fees. Estimate based on the external expert Uus Maa







(119)


On 1 February 2016, the Estonian authorities submitted a report dated 10 December 2015 on the outcome of an evaluation made by a private real estate company, Uus Maa Tartu büroo OÜ (‘the Uus Maa report’). That report was commissioned by the Estonian authorities whereas the Pindi Kinnisvara report was commissioned by Tartu Agro AS.










(120)


The Uus Maa report assessed the area subject of the lease contract. The report describes in detail the features of the parcels including building rights, land use and land quality.










(121)


That evaluation had two objectives: firstly, to assess the market lease value of the assets in the period 2000-2014, meaning the rent that the asset would most likely earn in the free market; and secondly, to assess whether clause 10.2 of the lease contract concerning the financial obligations of the lease contract (recital 68) was a normal market practice.










(122)


The Uus Maa report notes that in the early 2000s, lease contracts tended to be quite basic and generic, containing only the rental fee and the terms of payment. The report describes how land improvement and regular roadside maintenance obligations are obligations of the lessees, as those are entities that use and benefits from the property, but notes that those obligations have been included in lease contracts in generic terms, whereas the lease contract specifies in detail how the annual maintenance expenses should be used. Further, the report notes that the construction or replacement of land improvement systems is an investment in the owner’s property and if this has been agreed upon, it is an important obligation in addition to payment of the lease, and it is generally also explicitly specified in contracts.










(123)


The Uus Maa report concludes that it has not been usual to include financial obligations in lease agreements in a form that is measurable in monetary terms and that the lease contract is by no means normal in terms of its length and the size of the hectares to be rented. The Uus Maa report acknowledges that owing primarily to the length of the lease contract it was important to stipulate that the intended use and fertility of the land were to be maintained.










(124)


Further, the Uus Maa report discusses how the leasing culture has developed, and subsequently mainly from 2005 the obligation to pay land tax and other charges relating to the lease, predominantly income tax, was added to lease contracts and clauses concerning the intended use of the land and prudent agronomic conduct have been added to lease contracts since 2010 in a generic manner so that each lessee decides which resources to use and how much to invest as this depends directly on the type of crop being grown and also the location and nature of the land being leased.










(125)


As regards the market rental fees, the Uus Maa report provides data for arable land in the Tartu county (section 7.1. of the report) and the rental fees evolution over the last 15 years of the land covered by the lease contract (section 8.2.2. of the report). The report provides estimates only by periods (24), i.e. 2000-2004 (prior to Estonia’s accession to the EU), 2005 -2009 and 2010-2014 (see Table 11 and Table 12).










(126)


Concerning the period prior to Estonia’s accession to the EU, the report explains that at the time of the initial lease contract (i.e. 2000), and prior to Estonia’s accession to the EU, an imminent exponential increase in arable land was not foreseen and leases were not particularly common. According to the report:






(a)


the rental fee for lease land in the Tartu county covered only decent arable land and amounted to EEK 100 per hectare (EUR 6,4/ha) in 2000. No payments were made for peatlands, poldlands and meadows as there was no rental market for those; and










(b)


the rental fee for the land under the lease contract, for the period 2000-2004 is estimated in a range from EUR 6 to 10/ha.














(127)


More in particular, for years 2001-2003, the Uus Maa report explains that it was only from 2001, when Estonia’s accession to the EU became likely, that more lease contracts started to be concluded. The report establishes that:






(a)


the rental fee of arable land in the Tartu county was around EUR 10/ha; and










(b)


the rental fee for the land covered by the lease contract, the report does not provide specific data, but as indicated in recital 125, it establishes that for the period 2000 -2004, the rental fees is estimated in a range between EUR 6 to 10/ha.














(128)


For 2004, according to the Uus Maa report:






(a)


in the Tartu county, the lowest estimated rental fee is EUR 10/ha; and










(b)


the rental fee for the land covered by the lease contract is not annually established but as explained in recital 126, for the period 2000-2004 it is estimated in a range between EUR 6 to 10/ha.














(129)


For the period 2005-2009, according to the Uus Maa report:






(a)


the rental fee of arable land in the Tartu county is in a range from EUR 10/ha to EUR 20/ha; and










(b)


the rental fee for the land covered by the lease contract is estimated in a range between EUR 10 to 20/ha.

Table 10


Rental fee estimate for the land covered under the lease contract (EUR/ha)









 


2000-2004


2005-2009


2010-2014





Land



6 -10 




10 -20 


30 -50 





Table 11


Rental fee estimate of the Tartu county land (EUR/ha)











 


2000


2001-2003


2004


2005-2009


2010-2014





Land



6,4 


10 



10 -20 



10 -20 


25 -60 


















(130)


The report underlines the impact of the possibility of Estonia’s accession to the EU on the land lease rental fees. It notes that land lease contracts were also concluded for 2 to 3 years, as it was understood that accession to the EU could impact the land lease market and rent levels.










(131)


The Uus Maa report summarises the normal market practices in the leased land from 2000 to 2014 to three time periods as follows (see Table 12):

Table 12


Market practices in the land underlying the lease contract according to the Uus Maa report









 


2000 – 2004


2005 – 2009


2010 – 2014





Land tax



Paid by lessee


Paid by lessee


Paid by owner





Additional contractual obligations on the lessee



None


renewal of land improvement systems and cleaning of septic tanks – no monetary dimension


targeted use of land, complying with agro-technical requirements





Rent change in lease contracts



-


-


5 % annual increase














(132)


The Uus Maa report states that the existence of the lease contract does not affect the result as assessed on the basis of the aim of the valuation. The Uus Maa report notes that having regard to the location, size and condition of the property, its liquidity can be considered high. Further, the report states that the valuation is of medium accuracy and the actual rent may differ by ± 20 %.










(133)


As regards the ancillary obligations and other contractual rights and obligations of the lessee, the Uus Maa report states that improvements made by the lessee and agreed with the lessor in advance in writing become the property of the lessor, who must undertake to acquire them for their usual value on expiry of the lease contract (see recital 69).










(134)


Further, the Uus Maa report includes a market overview in Estonia and in particular the market for agricultural land in Tartu county.










(135)


Regarding the data published by the Statistical Office, the Uus Maa report notes that since 2009, the Statistical Office has collected data on rental fees for agricultural land but that the real average rental fee on arable land has actually been higher than reported by those statistics (see recital 109 and see recitals 213 to 214).










(136)


Further, the report notes that since the introduction of the single area payments (‘SAP’) rental fees for arable land were directly linked and implicitly derived from the unit rates of the single area payment (see recital 80). The report notes the following SAP payments (see Table 13).

Table 13


Single area payment support in Estonia according to the Uus Maa report (EUR/ha)









Year


Single area payment support
(EUR /ha)


Year


Single area payment support
(EUR /ha)





2004



26,46 



2010



80,90 





2005



33,66 



2011



91,10 





2006



42,17 



2012



100,48 





2007



48,55 



2013



109,20 





2008



59,60 



2014



114,09 





2009



70,80 


 


 








2.5.8.5.   Market prices of rental fees. Estimate based on external expert Domus Kinnisvara







(137)


On 7 February 2023, the Estonian authorities submitted a report on the outcome of an expert’s valuation of the land leased to Tartu Agro AS made by a private real estate company, Domus Kinnisvara (‘the Domus report’).










(138)


The Domus report was dated 14 March 2020 with a value date (25) on 18 February 2020.










(139)


The objective of the valuation was to present the rental fee and market value in order to determine the starting price of a land lease auction.










(140)


If follows from the objective of the valuation, and as noted by the Domus report, that the lease contract at stake (see recital 55), which has the expiry date 15 November 2025, is not taken into account in the assessment.










(141)


The Domus report notes, without further analysis, […].










(142)


The Domus report analysed the rental fees of the land leased by farmers in Tartu county in 2020.










(143)


The Commission notes that the period of this investigation ends on 31 December 2019 (recital 15). Therefore, the estimate of rental fees for 2000 provided by the Domus report is not relevant for the case at stake. However, for the sake of transparency, the Commission notes that according to that report, the total area under lease contracts was 667,14 ha and the median annual price was EUR 140 per ha and the average annual rental fee was EUR 150 per ha. The average rental fees were lower in the municipality of Peipsi and higher in Tartu. The Domus report notes that according to the Land Board, the median annual price of State-owned leased land in Tartu county in 2019 was EUR 174 per ha and the average price was EUR 186 per ha, whereas for grassland, the median price was EUR 59 per ha per year and the average price was EUR 73 per ha.










(144)


The Domus report concludes that, given that the fees of the auctions organised by the State tend to be higher than the rental fees in the private sector, the starting price for the public auction on the average annual rental fee of the land leased by farmers in Tartu county is EUR 150 per ha. The Domus report estimates that the accuracy of the valuation result is ± 10 % of its estimated starting.




2.5.9.   The quality of the land leased to Tartu Agro AS







(145)


Information on the quality of the leased land consist of:






(1)


the Domus report;










(2)


the Uus Maa report; and










(3)


the Land Board’s data.














(146)


The Pindi Kinnisvara report (see recitals 104 and 305 to 308) does not assess the quality of the land leased to Tartu Agro AS, hence it does not provide appropriate information on the quality of the leased land. However, it states that the objective of the assessment was to value agricultural land located in an attractive location in Tartu county (recital 116).










(147)


Furthermore, the parties expressed their views on the quality of the leased land.




2.5.9.1.   Information on land quality based on the Uus Maa report







(148)


Regarding the quality of the leased land, the Uus Maa report analysed in detail the following 52 land register units, their quality, use of land and location. The report concludes that in terms of soil type, the vast majority of the land under assessment is on the average arable land type cultivated, on the basis of the Land Board’s soil map, as well as on good cropland type arable land and individual land units on grassland type arable land (see Table 14).

Table 14


The use of the leased register units (the Uus Maa report)









Area


Total area (ha)


of which
arable land
(ha)


Number of cadastral units





Raudteepõllu



35,47 


33,76 


1 





Tartu Agro AS
 (26)



1 378,40 


1 283,69 


22 





Biopõllu



29,03 


28,31 


1 





Briti



5,18 


4,48 


1 





Eerika



17,85 


17,56 


1 





Eerike



10,55 


10,54 


1 





Eino



93,17 


81,05 


2 





Haavakannu



12,47 


12,18 


2 





Heinaseemne



2,56 


2,34 


1 





Kandipõllu



141,80 


123,70 


1 





Koolipõllu



38,30 


37,80 


1 





Liivaaugu



26,60 


19,50 


1 





Malle



5,00 


4,86 


1 





Muide



16,72 


16,33 


1 





nr 4495104



324,43 


303,44 


5 





nr 4495304



4,20 


4,17 


2 





Olevi



133,72 


129,76 


1 





Oraspõllu



55,80 


54,40 


1 





Pikapõllu



697,10 


631,10 


1 





Põllu



3,69 


3,50 


1 





Prosta



5,10 


5,08 


1 





Saviaugu



9,80 


9,50 


1 





Voore-Rähni



23,05 


22,45 


2 





Total (ha)




3 069,99 




2 839,50 




52 















(149)


22 % of the arable land was classified having good quality and 78 % was classified having average quality as shown in area level in the following table (see Table 15).

Table 15


The quality of the leased register units (the Uus Maa report)








Area by qualityclassification


Total area (ha)


of which
arable land
(ha)





Average




2 429,30 




2 224,22 





Raudteepõllu


35,47 


33,76 




AS Tartu Agro


1 050,33 


959,66 




Eerika


17,85 


17,56 




Eino


93,17 


81,05 




Haavakannu


1,48 


1,45 




Kandipõllu


141,80 


123,70 




Liivaaugu


26,60 


19,50 




nr 4495104


185,94 


181,98 




nr 4495304


4,20 


4,17 




Olevi


133,72 


129,76 




Pikapõllu


697,10 


631,10 




Põllu


3,69 


3,50 




Prosta


5,10 


5,08 




Saviaugu


9,80 


9,50 




Voore-Rähni


23,05 


22,45 





Good




640,69 




615,28 





AS Tartu Agro


328,07 


324,03 




Biopõllu


29,03 


28,31 




Briti


5,18 


4,48 




Eerike


10,55 


10,54 




Haavakannu


10,99 


10,73 




Heinaseemne


2,56 


2,34 




Koolipõllu


38,30 


37,80 




Malle


5,00 


4,86 




Muide


16,72 


16,33 




nr 4495104


138,49 


121,46 




Oraspõllu


55,80 


54,40 





Grand Total




3 069,99 




2 839,50 















(150)


The Uus Maa report notes that the soil suitability of arable land is best determined by the soil score or bonite that is expressed as a numerical indicator in a 100-point system.










(151)


The Uus Maa report concludes that for the land leased to Tartu Agro AS that indicator is above average fertile soils in Estonian and Tartu county.










(152)


According to that report, the total area of land under buildings, wooded land and land with lower fertility amounts to 5 %. In terms of soil type, the vast majority of the land under assessment is average arable land, as well as good arable land.










(153)


Regarding the aggregate asset quality, the Uus Maa report uses three quality categories: A, B and C, of which A is the highest and C the lowest and explains that when determining the quality category, each factor is assessed separately using the scale A to C as indicated, and the overall assessment of the property is the result of assessing the three factors.










(154)


The Uus Maa report concludes that the quality category of all the land units in the property being valued is AA.




2.5.9.2.   Information on land quality based on the Domus report







(155)


The Domus report assessed in detail 1 373,91 ha, which were leased to Tartu Agro AS. The Domus report discussed in detail on the features of those cadastral units, including the soil quality and the usage of the parcels as arable land, grassland, forest or other areas.










(156)


The Domus report concludes that the aggregate asset quality, in scale A, B and C, of which A is the highest and C is the lowest, is B- -.










(157)


It notes four positive factors (a large set of field blocks in a single area; arable land is cultivated and grasslands maintained; arable land and grassland are be eligible for the CAP aid; the land cadastral units are predominantly adjacent to the public road) and one negative factor (some cadastral units have lower soil quality).










(158)


The Domus report utilised reference transactions when assessing the sales value of the land. In order to compare the reference transactions with the assets being valued, certain characteristics were analysed in detail and the reference transactions were adjusted correspondingly. The purpose of the adjustment was to estimate how much a difference in a parameter of an asset being valued alters the market value of the reference transaction.










(159)


The Domus report notes the following features in its assessment: transaction time, scale effect (the size of the area), proportion of arable area, compactness, soil fertility, condition of arable land, intended purpose, eligibility for CAP -support, access.




2.5.9.3.   Information on land quality based on the Land Board data







(160)


On 6 February 2023, by a letter dated 3 February 2023, the Ministry of Rural Affairs submitted to the Commission data on the quality classification of the land leased to AS Tartu Agro, land in Tartu county and in Estonia.










(161)


The Estonian authorities explained that soil fertility of agricultural land depends also on many other significant factors, but the classification of the soil – as an assessment of its long-term characteristics – was an indicator that is measurable.










(162)


That data shows that the weighted average classification of the agricultural land leased out by the Land Board is somewhat better (44 points) than the average classification in Estonia (41 points) and that the weighted average classification of the agricultural land leased out in Tartu county is 45 points.










(163)


As regards the agricultural land leased to Tartu Agro AS, the weighted average of the classification is 47 points with the range from 32 to 62 points.




3.   COMMENTS FROM ESTONIA AND INTERESTED PARTIES BEFORE THE GENERAL COURT’S JUDGMENT

3.1.   Comments from Estonia before the General Court’s judgment







(164)


Estonia’s position experienced a change, with significant differences between the arguments presented prior to and following the General Court’s judgment, in particular regarding the existence of the aid (see recitals 184 and 216). However, since Estonia did not formally withdraw its earlier arguments, they are equally presented by the Commission.










(165)


Before the General Court’s judgment, as regards the tendering procedure, Estonia noted that the national law, at the time when the lease contract was signed, was respected during the tender procedure.










(166)


As regards transparency and non-discrimination, the Estonian authorities explained that Aiu Põllumajanduse OÜ was excluded from the negotiation because it did not meet the requirements set out in the announcement of the tender (recitals 52 and 53).










(167)


Specifically, its application contained neither a decision by its board to participate in the tender, nor the company’s registration card from the commercial register, which would have demonstrated its legal capacity. The fact that it was mandatory to present those documents was clear from paragraphs 32 and 55 of the Rules. The documents were necessary in order to enable the authority conducting the tender to be certain that the undertaking actually exists and that the person submitting the tender had been authorised to represent the legal entity.










(168)


Aiu Põllumajanduse OÜ did not submit that information and it was therefore mandatory for the Ministry to exclude that company from the tender, according to paragraph 33 of the Rules. Therefore, according to the Estonian authorities, there was no discrimination and no lack of transparency in the tender procedure.










(169)


As regards the business plan, the Estonian authorities explained that there were no specific requirements in place in 2000 but that it was normal that a business plan included parts describing a business idea, resources, financial forecasts (including a cost-benefit analysis), a risk assessment, etc. The business plan was required in order to assess the tenderer’s vision and possibilities for using the agricultural land, including storing the national seed reserve and propagating high-yielding varieties of seed in accordance with OECD standards on the basis of the financial forecasts provided.










(170)


According to the Estonian authorities, Tartu Agro AS’s business plan contained the information required for the decisions to be taken.










(171)


The business plan of Aiu Põllumajanduse OÜ contained no explanations as to how the undertaking’s vision would be realised. The evaluation committee’s report states the following: ‘The business plan submitted does not meet the requirements; it includes no analysis or planning whatsoever. The rent offered is EEK 200/ha, but it is unclear how payment of the rent will be guaranteed.’ The Estonian authorities therefore found that there was no certainty that Aiu Põllumajanduse OÜ’s financial position, experience and capacity would have allowed it to pay the rent it was offering for the full duration of the lease contract. Similarly, there was no clear understanding of how Aiu Põllumajanduse OÜ could have guaranteed that the requirements set out in the announcement of the tender would have been met.










(172)


As regards the question of whether the tender was unconditional, the Estonian authorities stated that the decision to impose an additional requirement in the tender (recital 44), that required the agricultural production activity of Tartu Agro AS to continue, was not conditional. The aim of setting out the condition to continue the agricultural production activity of Tartu Agro AS in the tender procedure notice was not for the activities of Tartu Agro AS as a company, but that condition was instead linked to Tartu Agro AS’s agricultural production, namely the need and the obligation to propagate particular high-yielding varieties of seed, which meet OECD standards, and to store them for the national seed reserve. Consequently, according to the Estonian authorities, there was an objective justification for the requirement.










(173)


Further, according to the Estonian authorities, the requirement to propagate and store seeds was objective and allowed all interested parties to participate in the tender. No specific method was prescribed for the participants in the tender. On the contrary, the aim was to ensure that as a broad range of agricultural undertakings as possible could participate in the tender. Thus, the Ministry did not set any time or space limitations for meeting the requirement to continue the agricultural production and each party interested in participating in the tender had the opportunity to decide for itself how to fulfil the obligation to propagate and store the seed varieties in question.










(174)


Originally, this requirement of propagation of seeds, which meet OECD standards, and of storage of them for the national seed reserve, was introduced on the basis of Order No 55 of the Minister for Agriculture of 30 April 1997. This Order imposed the propagation and storage of the seeds on the predecessor of Tartu Agro AS – Tartu State Farm.










(175)


Based on the above, the Estonian authorities considered that the tender procedure was carried out in a transparent, non-discriminatory and unconditional manner.










(176)


The Estonian authorities further argued that the value of the rental fee corresponded to the market value, for the following reasons. Firstly, the quality of the land was not taken into account correctly in the opening decision, because at least 12,34 % of the leased land was unsuitable for agricultural production. More precisely, a total of 377,92 ha consists of (i) 42,4 ha of forest land; (ii) 260,5 ha consisted of permanent grassland, namely the Emajõgi floodplain (natural grassland); and (iii) 75,02 ha consisted of roads, paths and ditches between cadastral units. There were also roads, paths, and ditches inside the cadastral units, in which the total area was surveyed.










(177)


Secondly, the agricultural producers in Estonia at the time of the tender were characterised by very low economic capacity. According to information from 2001, the average size of an agricultural holding was 15,6 ha. In total, there were 24 holdings of more than 2 000 ha in size, of which only 8 were comparable to the subject of the tender in having a utilised agricultural area exceeding 3 000 ha. As a result, there was only a very limited number of agricultural producers who were interested in leasing more than 3 000 ha of agricultural land to be used for designated purposes and who were prepared to take the risk and had the capacity to do so.










(178)


Thirdly, the non-existent lease market also puts limits on the possible rental fee. At the time when the lease contract was signed, land was generally given for use free of charge to prevent it from being abandoned. For this reason, the Ministry had to be both reasonable and flexible when setting out its demands.










(179)


Fourthly, the Estonian authorities argued that the financial commitments should be considered as rental income for the Ministry.










(180)


In that regard, the Estonian authorities stressed that the investments in the land improvement system were not a matter of choice but imposed by the lease contract and by the law. According to Section 16(1) of the Land Improvement Act (Maaparandusseadus) (27) in force at that time, the renewal of a land improvement system was an obligation for the owner of the land, which in this case was the State. However, according to the lease contract, Tartu Agro AS also had the obligation to keep the essential parts and accessories of the leased land in a condition corresponding to proper management and to replace them, if necessary. The Estonian authorities argued in that regard that it would have been in the interests of any private investor operating in any market conditions to pass on those obligations and that risk to the lessee.










(181)


The Estonian authorities argued, based on those grounds, that these investments in the land improvement system should be considered as part of the rental income for the Ministry, in addition to the rent payable under the lease contract, and should be taken into account when assessing whether the lease contract is in line with market conditions.










(182)


As regards the expenditures for the maintenance of the land and increasing soil quality, the Estonian authorities argued that these were essential to ensure that the agricultural land would remain usable for a longer period. Without such spending, the quality of the leased agricultural land and its value in economic terms would have dropped. The fact that the spending by Tartu Agro AS to improve the balance of nutrients in the soil resulted in soil fertility stabilising is confirmed by the Agricultural Research Centre. It was thus both profitable and necessary for the State to conclude the lease contract in this form. The lessee’s obligations meant that the State did not have to bear the costs itself but could pass them on to Tartu Agro AS on top of the rental fee.










(183)


As regards the payment of taxes, pursuant to Sections 3 and 10 of the Land Tax Act (28) (Maamaksuseadus), land tax is to be paid by the owner or user of the land. The user of the land should pay the tax if the land has not been re-registered in accordance with the procedure laid down in the Land Reform Act (Maareformi seadus). In accordance with those provisions of the law, the Estonian would have been obliged to pay the land tax.










(184)


The Estonian authorities were therefore of the opinion that the rental fee together with the size of the other financial obligations would have been in line with market conditions, as they were at least comparable to, or higher, than a comparable rental fee on the market in question.










(185)


According to the Estonian authorities, the Ministry wished to earn the maximum revenue possible from leasing the land.










(186)


The Estonian authorities also considered that the choice of signing the initial lease contract with Tartu Agro AS, following the completion of the tender, was not selective, as the selection of Tartu Agro AS was carried out in a transparent, non-discriminatory and unconditional manner. The State acted logically in this selection procedure, with due care, and in accordance with the national legislation that was in force at the time the tender procedure was conducted. Similarly, the Estonian authorities did not agree with the assessment of the opening decision that the measures are liable to distort competition and affect trade between Member States. The Estonian authorities argued that it is merely hypothetical that the measures are liable to distort competition and affect trade between Member States and the Commission has not explained the impact of the lease contract or how it specifically distorts competition and affects trade. Thus, it cannot be ruled out that the possibility of the lease contract distorting competition and affecting trade between Member States is merely hypothetical.




3.2.   Comments of Tartu Agro AS before the General Court’s judgment







(187)


Tartu Agro AS maintained its position prior and following the General Court’ judgment, integrating it with additional arguments.










(188)


Tartu Agro AS argued that it did not receive unlawful State aid from the Estonian government in 2000 since it considered having received no economic advantage at any time under the lease contract.










(189)


According to Tartu Agro AS, the lease contract was entered into through a competitive, transparent, non-discriminatory and unconditional tender procedure, in accordance with the legislation in force at the time of signature.










(190)


As regards the question of whether the tender for the lease of the land unconditional, Tartu Agro was AS referred to the importance of ensuring that the company had means of production, in the form of agricultural land, before the privatisation in 2001. Otherwise, no one would have desired to acquire the shares of Tartu Agro AS, meaning that their value would have fallen to zero. If so, the State would not have been a private investor acting in accordance with market economy principles. Therefore, to affect the sale of the shares and to also obtain the highest possible price for them, the leasing of the land had to be combined with the condition of continuing the agricultural activities of Tartu Agro AS. According to Tartu Agro AS, this condition was laid down in a sufficiently open-ended form in the tender, enabling all bidders to offer their own vision of how to fulfil it.










(191)


Further, Tartu Agro AS explained that the company was strategically important to the Estonian government (29), as it had been designated as a seed centre and as a training and testing ground for the Ministry.










(192)


Tartu Agro AS argued that the parties to a lease contract cannot amend or withdraw from the lease contract unilaterally, even if the market conditions change during the lease contract’s period of validity. This is due to the Estonian contract law (Section 8(2) of the Law of Obligations Act (30), which states that contracts are binding on the parties. Therefore, the parties of the lease contract are unable to continually adapt a long-term contract to market conditions (see recital 402).










(193)


Tartu Agro AS further argued that the rental fee and the lessee’s additional obligations are mutually and inseparably connected and must be seen as one combined actual rental income. The State acted as a prudent owner when imposing the obligation to make investments to preserve the value of the leased land and its soil fertility. According to Tartu Agro AS, the State did so to ensure a long-term increase in land value, which shows that it acted in accordance with the market economy investor principle.










(194)


On the taxes, under Section 8(1) of the Land Tax Act (31), land tax should be paid by the land owner, unless the owner and the lessee have agreed otherwise.










(195)


Tartu Agro AS further claimed that a significant amount of the leased land could not have been used for agricultural production. Tartu Agro AS refered in that regard to the Uus Maa report, according to which only 2 833,60 ha of the leased land was arable land. The remaining land consisted of 116,58 ha of natural grassland, 44,06 ha of forest, 0,3 ha of calm traffic area and 76,33 ha of other land (for instance roads and ditches and submerged land). Another roughly 283 ha of the arable land was permanent grassland, which cannot be used for agricultural production and for which no agricultural support was paid to Tartu Agro AS, but which legislation required to be preserved as permanent grassland. Therefore only 2 550,60 ha of the 3 061,9 ha leased land, namely 83,3 %, were used for its intended purpose. The remaining 16,7 % of the leased land was not used for agricultural production. Tartu Agro AS argues, on that basis, that the actual rental fee per hectare is 16,7 % higher than the contractual rental fee.










(196)


Further, the net rental fee laid down in the lease contract has been increased by more than […]-fold over the first 16 years of the lease contract (from EUR […]/ha to EUR […]/ha), whereas the Uus Maa report indicates that the market price has increased at a (ten-fold) slower rate. Tartu Agro AS also claims that it is not correct to compare this contract with lease contracts that are of smaller magnitude and shorter in duration, as the motives of the lessee and the lessor, and therefore also the balance of contractual obligations in such contracts, differ significantly from those of the disputed lease contract.




3.3.   Comments of the complainant before the General Court’s judgment







(197)


The complainant submitted information only prior to the General Court’s judgment.










(198)


As regards the tender procedures, the complainant pointed to the fact that the terms and conditions of the tender did not mention any obligations such as the payment of the land tax, annual investments in the land improvement system and expenditures for the maintenance of the land and for increasing the soil quality (‘the other obligations’).










(199)


As regards the expenditures relating to the obligations to maintain the land and to increase soil quality, the complainant claimed that the Ministry has acknowledged that it did not verify Tartu Agro AS’s fulfilment of those obligations referred to in recital 225. In general, the complainant was of the opinion that the other obligations should not have been taken into account when assessing the size of the rental fee.










(200)


As regards the size of the leased area, the complainant states that, based on the data from the Land Board’s Geoportal, the precise size of the object of the lease contract was 3 053,59 hectares in 2016.










(201)


The difference from the area specified in the lease contract arises from the fact that the Ministry had re-parcelled and re-registered some registered plots, but those changes had not been entered in the lease contract. Of this, 2 831,55 ha is pure arable land (92,73 %) and 1 033,00 hectares is managed natural grasslands. Only one plot of 26,60 ha is directly excluded from agricultural use, because it is indeed 90 % forested. The complainant noted that the Ministry has also given Tartu Agro AS an annual lumber permit for the management of that forest.










(202)


Further, only 3,02 % of the leased land is ‘other land’. This designation covers all connecting roads and roadsides, ditch-sides, uncultivated edges of fields, green areas and rock piles within fields, bridges, dykes, rainwater culverts, marshy areas, etc. Tartu Agro AS has also permitted its employees to use the edge of one plot as an area for allotments and greenhouses. Therefore, the total economically usable agricultural land on the object of the lease contract covers an area of 2 934,85 ha (96,11 %). The complainant contests, on those grounds, the Ministry’s position that as much as 12 % of the object of the lease is excluded from agricultural use.










(203)


Further, data from the Estonian Agricultural Registers and Information Board (ARIB) web map show that Tartu Agro AS has applied for EU agricultural support for an area of 2 900,81 ha, representing 95 % of the leased land. Those applications concern single area payments, payments for agricultural practices beneficial for the climate and the environment and support for environmentally friendly production.










(204)


According to the complainant, Tartu Agro AS also received other additional income from the land. The information that the complainant has obtained from the Ministry shows that lumber permits for roughly 5 000 m3 of timber (birch, spruce, pine, aspen and alder) were granted to Tartu Agro AS in the years 2000-2015.










(205)


The data of the Private Forest Centre (32) (SA Erametsakeskus) show that the market price of lumber in Estonia has fluctuated as follows in the years 2004-2016: birch, pine and spruce logs between EUR 58 and EUR 83 per m3, alder and aspen logs between EUR 29 and EUR 46 per m3, and wood for heating between EUR 16 and EUR 31 per m3. At that time the State Forest Management Centre (33) sold lumber from its forests at an average price of EUR 42 to EUR 46 EUR per m3. Based on this information, the complainant deems that Tartu Agro AS has received lumber revenues of between EUR 210 000 and EUR 230 000 in 2000 to 2016.










(206)


Further, the complainant also refers to data from the Land Board, according to which the actual lease fees are e higher than those stated in the Uus Maa report in the sense that the average rental fee for land was ca EUR 200 ha in Tartu county in 2015 (34).










(207)


Further, the complainant drew attention to the fact that, at the moment of the tender procedures, Tartu Agro AS was a legal person in private law that was 100 % State-owned and the leased land is also owned by the State.










(208)


The Ministry was designated as the authority to dispose of both properties, which means that both 100 % of the shares of Tartu Agro AS and the leased land were on the balance sheet of the Ministry. Therefore, the Ministry essentially held the tender negotiations with itself.










(209)


The complainant added that the business plan submitted to the tender by Tartu Agro AS reveals that the company considered the greatest risk to be connected to the main means of production – the land. If the land would have fallen into the hands of another owner or lessee, it would have been impossible for the company to continue its agricultural production activities. According to the complainant, this explains why the tender contained a condition requiring the continuation of the agricultural production of Tartu Agro AS. Essentially, the objective of the tender was to enter into a lease contract with that company.




4.   COMMENTS FROM ESTONIA AND INTERESTED PARTIES AFTER THE GENERAL COURT’S JUDGMENT

4.1.   Comments of Estonia after the General Court’s judgment







(210)


Following the General Court’s judgment, the Ministry explained that it has made proposals to Tartu Agro AS to increase the rental fee, which the lessee has not accepted. Further, the Ministry explained that it has proposed the regional average price when calculating the rent from 2023. The Ministry takes the view that an increase in the rental fee is necessary, but under point 13 of the lease contract it is possible to amend the lease contract in very limited cases.










(211)


The Estonian authorities explain that although there are differences between the land covered by the lease contract and the land rented out by the Land Board regarding the size and the duration of lease contracts, the Estonian authorities are of the opinion that the method used by the Land Board is comparable to the method set out in paragraph 84(ii) of the Commission Notice on the notion of State aid as referred to in Article 107(1) TFEU (35).










(212)


On 6 February 2023, the Estonian authorities withdrew the submission of the Pindi Kinnisvara report. The Estonian authorities explained that the report was commissioned by a representative of Tartu Agro AS and that its drafting in general terms does not allow to draw conclusions on reference prices. The report refers to interviews, while the methodology, including the sample on which conclusions were reached, is not known, nor is the period covered by the report.










(213)


Regarding the Statistical Office’s data, the Estonian authorities explained that until 2020 that data also included land rented free of charge or for which an agreement was in place to pay only the land tax. The data covers transactions between related parties which do not necessarily reflect market price in line with standard practice. For instance, it includes situations where a farm, which is a company, rents land free of charge or below market price land from the farmer or other family members. As of 2021, the data also excluded land leases for which only the land tax was paid as rent.










(214)


In addition, the Estonian authorities noted that regarding area-related agricultural aid, the Statistical Office’s method also includes data covering two separate practices. In some lease contracts the right to apply for area-related agricultural aid has been transferred to the lessee, while in other cases it is the landowner who can apply for the aid. When the lessee has the right to apply for area-related aid, the agreed rent generally tends to be lower.










(215)


Further, the Estonian authorities explained that they do not agree with Tartu Agro AS’s claim (see recital 195) that account should be taken only of the share of arable land. The Ministry notes that the subject matter of the lease contract is land and not agricultural parcels. Further, the Ministry notes that there is no justification for applying area-related aid under CAP measures for non-agricultural land, and that natural grassland qualifies as agricultural area under Article 4(3), point (c), of Regulation (EU) 2021/2115 of the European Parliament and of the Council (36). The Ministry considers that land determined as agricultural area in the context of the area-based aid procedure and the area-related payments must be considered as agricultural land.










(216)


Furthermore, the Ministry notes that:






(a)


the leased land is in a logistically good location, located along the city of Tartu and is easily accessible;










(b)


the rental fees of Tartu county are higher than the average rental fees for agricultural land in Estonia;










(c)


the Domus report states, inter alia, that the terms of the lease contract do not correspond to the market conditions because the rental fee is significantly below the market price level;










(d)


given the higher-than-average bonite of leased land, good accessibility of the plots of land and other factors leading to higher rental fees in Tartu county than the Estonian average, the Ministry considers that the application of average ranges for the rental fee as established in the Uus Maa is not justified; and










(e)


Tartu Agro AS’s claim, that 20 % should be deducted from the minimum lease rental fees in the Uus Maa report, is unfounded in light of the above points.








4.2.   Comments of Tartu Agro AS after the General Court’s judgment







(217)


Tartu Agro AS argues that the lease contract was entered into through a competitive, transparent, non-discriminatory and unconditional tender procedure, in accordance with the legislation in force at the time of signature. Alternatively, the lease contract was concluded as part of the preparations for the privatisation in order to maximise the income from the sales of the shares of Tartu Agro AS or to compensate Tartu Agro AS for public services.










(218)


Tartu Agro AS claims that it did not receive unlawful State aid from the Estonian government in 2000, since it considers having received no economic advantage at any time under the lease contract. Alternatively, Tartu Agro AS argues that the sale of the shares of Tartu Agro and the merger removed any economic advantage linked with the lease contract.










(219)


Further, Tartu Agro AS argues that possible State aid is exempted and compatible with the internal market.










(220)


Finally, Tartu Agro AS argues that a possible recovery of aid would be contrary to the principles of legitimate expectations and legal certainty or excluded either due to the time between the Commission’s first action and a final decision or Article 17 of the Regulation (EU) 2015/1589 laying down detailed rules for the application of Article 108 of TFEU.










(221)


Tartu Agro AS argues that the lease contract did not provide for any economic advantage at any time under the lease contract for the following reasons:






(a)


in 2000, Estonia was not a Member State of the EU, and no agricultural support was granted in Estonia and the value and lease prices of agricultural land were low;










(b)


the leased land required investments in land improvement systems and considerable investments were needed to replace depreciated and broken drains, hence, Tartu Agro AS claims that it made an average EUR […]annual investments in land improvement systems;










(c)


Estonia was not prepared to make investments in land improvement systems and therefore leased the land for 25 years;










(d)


investments in land improvement systems benefit the land owner;










(e)


the lease contract required the lessee to make investments, referred to in recital 68(a), which should be considered as part of the rent payment;










(f)


the lease contract included an obligation to the lessee to pay specified annual expenses, referred to in recital 68(b), which should be considered as part of the rent payment; and










(g)


due to the contractual obligation for investments, annual expenses and other investments, the lease contract did not improve Tartu Agro AS’s financial position.














(222)


Regarding the market price of rental fees, Tartu Agro AS notes that:






(a)


the Uus Maa report states that in 2000 the value of land was low and Estonia’s future accession to the EU was not foreseen; the leased area is located in areas where the land improvement systems require continual maintenance;










(b)


the Uus Maa report states that the lease contract is by no means standard in terms of its length and the number of hectares;










(c)


the AS Pindi Kinnisvara report states that agricultural lease contracts do not normally impose on the lessee obligations to make targeted investments;










(d)


the Uus Maa report does not provide a credible market price estimate as it states that actual market rental fees may differ by ± 20 %;










(e)


the market data from the Statistical Office and the Land Board do not take into account the size of the land, their fertility and value, nor the costs/investments included in the rental fee;










(f)


the financial impact of the contractual commitments to improve soil fertility provided for in the lease contract was significantly higher than the Estonian average at that time;










(g)


the lease contract obliged Tartu Agro AS to make investments and expenses at least the amounts specified in recital 68;










(h)


it is not correct to compare the lease contract with lease contracts that are of smaller magnitude and shorter in duration, as the motives of the lessee and the lessor, and therefore also the balance of contractual obligations in such contracts differ significantly from those of the lease contract in this case;










(i)


the use of the leased land was limited to agricultural purposes.














(223)


Regarding the rental fee, Tartu Agro AS claims that the following items should be included in its rent payment:






(a)


the agreed rent as it has been increased;










(b)


the obligation for annual investments in land improvement systems;










(c)


the obligation for annual expenses related to the maintenance of the land and the improvement of the soil fertility;










(d)


actual investments in land improvement systems that exceeded the amounts specified in the lease contract; and










(e)


taxes related to the leased land.














(224)


The obligation to invest at least EEK […] (EUR […]) a year in the renewal of land improvement systems was imposed on the lessee at a time when such obligations were not common, as can be seen in the Uus Maa report. Therefore, this was a significant obligation for the lessee in addition to the rental fee. For the State it was a clearly beneficial and important obligation and therefore unavoidably connected with the rental fee.










(225)


As regards the lessee’s expenditures for maintenance of the land and for increasing its soil quality, Tartu Agro AS argues that those obligations were important for the State when leasing out land over a longer period. Although the improvement in soil fertility is in the interests of the lessee, it also benefits the State in the sense that it increases the land value. For Tartu Agro AS the obligations generated an expenditure of EEK […] (EUR […]) per year.










(226)


Regarding the privatisation of Tartu Agro AS and the merger, Tartu Agro AS argues that:






(a)


the Estonian authorities aimed to maximise profit by arranging the tender procedure for the lease of land, as a selective tender in order to ensure that Tartu Agro AS continued its agricultural production activities and maintained its value that was depending on its ability to utilise the leased land;










(b)


Tartu Agro AS’s possibility to use the leased land was a prerequisite for its business operations and value;










(c)


at the time of the privatisation and the merger, Tartu Agro AS’s value was based on the value of the lease contract;










(d)


any abnormal economic advantage generated by the lease contract increased the selling price of Tartu Agro AS.














(227)


Therefore, Tartu Agro AS argues that:






(a)


Estonia acted as a private investor as it sought to maximise the profit by leasing the land below market price to its entity and then selling the shares of that entity; and










(b)


the purchase of the shares of Tartu Agro AS and its subsequent merger eliminated any economic advantage generated by the lease contract that was included in the price paid by OÜ Tartland for the purchase of Tartu Agro AS and, consequently, Tartu Agro AS would have repaid the advantage generated by the lease contract to the Estonian State.














(228)


Tartu Agro AS, furthermore, claims that possible State aid would be exempted and compatible with the internal market, or would constitute de minimis aid, namely because of the economic situation in which the lease contract was concluded and the fact that Tartu Agro AS operated as OECD-compliant seed propagation and as a learning and testing base for the Estonian University of Life Sciences.










(229)


Tartu Agro AS explains that it is strategically important to the Estonian government as it had been designated as a seed centre and as a training and testing ground for the Ministry. In this context, on 13 October 1997, the Seed Scheme Council of OECD took the decision to accept Estonia to the OECD seed schemes, and Tartu Agro AS was included in the OECD seed cultivation system. Hence, Tartu Agro AS had a significant role as a seed centre by ensuring the propagation of certified seeds and preserving the national seed reserve.










(230)


Tartu Agro AS also acts as a training and testing ground for the Estonian University of Life Sciences in the areas of veterinary medicine, animal husbandry, animal genetics, animal breeding and plant protection cooperation. Therefore, Tartu Agro AS is valuable to the Estonian government for the implementation of educational objectives.










(231)


In addition, Tartu Agro AS considers the Land Board’s statistics as unsuitable for comparison with the leased land at stake. These statistics are generalised and do not take into consideration the specific characteristics of the land in question. Both the rental fee for arable land and the soil quality are also dependent on factors that were not included in the analysis. According to Tartu Agro AS, the Land Board fails to provide information on the quality of the leased land, instead it only notes the weighted average quality of the agricultural land leased, without specifying the relevant period. Furthermore, the Land Board’s lease contracts are not comparable in substance with the one at issue, since they do not generally include additional obligations on tenants as those in it.










(232)


Tartu Agro AS further argues that the Domus report does not consider the nature of the land underlying the lease contract. The report’s valuation is intended solely to determine the starting price for an auction or a sale/rental, and it is not suitable for use in State aid procedure. The report does not attempt to conduct an ex-post assessment of the market price for the lease at issue over the duration of the agreement Furthermore, one of the valuation sources the report relies on is the Land Board’s transaction database, which are not comparable to the leased land at hand.




5.   ASSESSMENT OF THE MEASURES

5.1.   Relevant points of time and periods for assessing the existence of State aid







(233)


Given that the lease was signed before Estonia acceded to the European Union (16 November 2000), for a duration of 25 years, and amended several times, the first issue is to determine the relevant points in time when State aid was granted and for which periods.










(234)


State aid control and State aid EU legal framework became mandatory for Estonia on 1 May 2004, the date of Estonia’s accession to the European Union (‘the accession’). The initial lease contract was signed and its implementation started before the accession of Estonia to the European Union, but given its duration, the lease contract, as amended, has been in force since then (recital 55). The amendments of the initial lease contract have been agreed post-accession and the lease contract still has a duration until 2025.










(235)


Regarding Tartu Agro AS’s claims, referred to in recitals 228 to 230, the Commission acknowledges that there were few leases for arable land in Estonia before Estonia’s accession to the EU, and that Tartu Agro AS had initially, (instead of profit maximisation), a seed cultivation and a research purpose (recital 30) and that the initial lease contract and the sales contract included conditions that aim to ensure continuation of the agricultural operations and of the quality of the leased land (recital 44). However, the Commission notes that the question of whether the initial lease contract was compatible with the internal market on the date of its signature or on any other date prior to the accession of Estonia to the European Union, is not within the scope of this procedure since as indicated in recital 234, State aid rules only apply in Estonia as from its accession to the European Union (37). It follows that the existence of the alleged advantage must be based on the features of the contract on the date of Estonia’s accession to the European Union.










(236)


As regards the points in time when the alleged aid was granted to Tartu Agro AS, the Commission notes that although the initial lease contract was signed in 2000, its conditions have been modified several times since 2004 (recitals 28(b)), 75 to 82). Furthermore, according to the initial lease contract the amount of the rental fee was subject to a review once a year and the lease contract enabled rent increases under certain conditions. In particular, the initial lease contract included an amendment possibility where a modification results from legislation (recitals 62 and 64). Therefore, the rent payments made since 2004 do not represent solely the enforcement of rights based on the initial lease contract.










(237)


It follows that the aid was granted each time Estonia deviated from normal market behaviour which happened at the time of the signature of the initial lease contract in 2000 and its unchanged state at the moment of Estonia’s accession to the European Union in 2004, but also at the time where the rental fee was renegotiated.










(238)


More precisely, after the accession, aid was granted on the following dates:






(1)


on 14 January 2005 (recital 77);










(2)


on 21 March 2007 (recital 78);










(3)


on 12 May 2009, when another rental fee increase was accompanied by the introduction of additional obligations for Tartu Agro AS (recital 79).














(239)


Finally, following the adoption of the initial decision finding that State aid was unlawfully granted by Estonia, in breach of Article 108(3) TFEU to Tartu Agro AS, Estonia had to put an end to the measures (see recital 15). Consequently, on 29 December 2020, Estonia changed the terms of the lease contract (see recitals 81 to 82) by unilaterally increasing the rental fee with retroactive effect. Therefore, as from 2020, the conditions of the lease are not those negotiated by the parties to the contract but those derivating from the implementation of the initial decision. The lease contract as revised in order to comply with the initial decision is outside the scope of the present decision (see recital 29).










(240)


The Commission concludes that the time period covered by the present decision goes from the moment of accession of Estonia to the European Union (1 May 2004) to 31 December 2019.




5.2.   Existence of aid – application of Article 107(1) TFEU







(241)


According to Article 107(1) TFEU, ‘[s]ave as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.’










(242)


The qualification of a measure as aid within the meaning of that provision therefore requires the following cumulative conditions to be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on certain undertakings; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and affect trade between Member States.




5.2.1.   State resources and imputability







(243)


The State, for the purposes of Article 107(1) TFEU, covers all bodies of the State administration, from the central government to the administrative level. The land in question is owned by the State (recital 58) and leased by the Ministry (recital 32). The publishing of the official announcement of the tender with a view to lease the land (recital 43) was on the basis of the decision of a public authority. Subsequently the conclusion of the initial contract, amending it, and the exercise of the rights of the State under that contract are also based on actions by persons or authorities empowered to act on behalf of the State. Hence, the measures are imputable to the State and they were financed through State resources as any alleged rent agreed below market prices constitutes a transfer of State resources in the form of foregone revenues (38)
, (39).




5.2.2.   Undertaking







(244)


In order to constitute State aid within the meaning of Article 107(1) TFEU, the measures must confer an advantage upon an undertaking. Undertakings are entities engaged in an economic activity regardless of their legal status and the way they are financed.










(245)


The fact that Tartu Agro AS was, at the time of the official announcement of the tender on 6 July 2000 (recitals 43 and 48), a State owned public limited company is irrelevant as the Union legal order is neutral with regard to the system of property ownership.










(246)


Economic activities are activities consisting of offering goods or services on the market. The beneficiary of the measures is Tartu Agro AS, which is producing and selling agricultural products (recital 27). Hence, it is an undertaking within the meaning of Article 107(1) TFEU. The nature of the beneficiary being an undertaking was not affected by the privatisation (recital 70) or the subsequent merger (recital 74) because the same economic activity continued after those events. Likewise, the fact that Tartu Agro AS acts as a seed centre for the Estonian government and as a training and testing ground for both the Ministry and the Estonian University of Life Science (recitals 228 and 229), does not put into question its nature as an undertaking. Although acting as a governmental seed centre and as a training and testing ground for a university may be considered as non-economic activities under certain circumstances, still when a land is leased to an entity that engages in both economic and allegedly non-economic activities, the advantage inherently benefits both types of activities. This is because it is not feasible to ensure that portions of the leased land are used exclusively for either economic or non-economic purposes and, even if it were possible, this would not exclude the risk of cross-subsidisation. The main activity of Tartu Agro AS is undoubtably an economic one, relating to producing and marketing of agricultural products (recitals 27 and 284). Therefore, the beneficiary of the measures, Tartu Agro AS was an undertaking throughout the entire period under investigation.




5.2.3.   Notion of advantage







(247)


An advantage, within the meaning of Article 107(1) TFEU, is any economic benefit which an undertaking could not have obtained under normal market conditions (40), that is to say in the absence of State intervention (41). In order to constitute aid a measure must confer on the beneficiary advantages that relieve it of charges that would normally be borne by the beneficiary. The concept of ‘advantage’, for the purpose of Article 107(1) TFEU, includes not only positive benefits, such as subsidies, but also interventions which, in various forms, mitigate the charges which would normally be included in the budget of the recipient undertaking (42).










(248)


Measures which, whatever their form, are likely directly or indirectly to favour certain undertakings, or which fall to be regarded as an economic advantage that the recipient undertaking would not have obtained under normal market conditions, are regarded as State aid (43). The advantage is present whenever the State intervention improves the financial situation of an undertaking in terms varying from the normal market conditions. This can be assessed by a comparison of the financial situation of the undertaking following the measure with the financial situation in the absence of the measure (44).










(249)


The supply of goods or services on preferential terms is capable of constituting State aid for the purposes of Article 107(1) TFEU (45). This concept also applies when public authorities lease assets at prices below market rates with the possibility of conferring an economic advantage to the lessee. The land lease at an allegedly preferential price is comparable to the sale of land by a public authority to an undertaking (46). In this case, it must be verified whether the price paid by the presumed recipient of the aid corresponds to a price it would not have obtained under normal market conditions. In this context, the advantage equals the difference between the actual price paid by the recipient and what it should have paid at the time under normal market conditions (47).










(250)


Against this background, the Commission carries out a complex economic assessment. In this regard, the Commission must be able to estimate, with sufficient accuracy, the value of the measures and consequently determine a price that is as close as possible to the market value (48).










(251)


If a transaction like the lease of assets is carried out following a competitive, transparent, non-discriminatory and unconditional tender procedure in line with the principles of TFEU on public procurement (49), it can, in general, be presumed that such a transaction is in line with market conditions, provided that the appropriate criteria for selecting the lessee have been used (50)
, (51).










(252)


In order to determine whether the lease contract entail aid, the Commission must apply the Market Economy Operator Principle (MEOP) (see section 5.2.3.2) to determine whether the price paid by the presumed recipient of the aid corresponds to the selling price which a private investor, operating in normal competitive conditions, would be likely to have fixed (52).










(253)


It follows that in order to assess the existence of advantage, the Commission will first analyse whether the contract follows a competitive, transparent, non-discriminatory and unconditional tender procedure and second the outcome of the MEOP assessment.




5.2.3.1.   The lease of land and the tender procedure







(254)


If a transaction like the lease of assets is carried out following a competitive, transparent, non-discriminatory and unconditional tender procedure in line with the principles of TFEU on public procurement (53), it can, in general, be presumed that such a transaction is in line with market conditions, provided that the appropriate criteria for selecting the lessee have been used (54)
, (55). Hence, a transaction’s compliance with market conditions can be directly established where it has been carried out through a competitive, transparent non-discriminatory and unconditional tender procedure. On the other hand, if the tender procedure preceding the lease contract did not meet those conditions, that is already a strong indication of an advantage in itself and it influences also the interpretation of terms in the lease contract as well as the assessment of the rental fee.










(255)


In the opening decision, the Commission raised doubts as to whether the tendering procedure applied for leasing the land was transparent, non-discriminatory and unconditional.










(256)


In the present case, there was in the official announcement of the lease a condition that the agricultural production activity of Tartu Agro AS should be continued (recital 44).










(257)


As regards the conditionality of the tender procedure, a tender is unconditional when a potential buyer is generally free to acquire the assets, goods or services to be sold and to use them for its own purposes irrespective of whether or not it runs certain businesses. Applied to the case of a tender for a lease, this means that the lessee needs to be free to use the land in question for whatever purposes it intends to.










(258)


If there is a condition that the buyer or lessee is to assume special obligations for the benefit of the public authorities or in the general public interest, which a private seller would not have demanded – other than those arising from general domestic law or a decision of the planning authorities – the tender cannot be considered unconditional (56).










(259)


According to the Estonian authorities, the aim of the condition referred to in (recital 44) was not for the activities of Tartu Agro AS as a company to be continued but it was linked to its specific agricultural production.










(260)


The Commission notes that the announcement of the tender did not specify that the potential tenderer had to propagate and store certain seeds, it specified only that the agricultural activity of one specific company – Tartu Agro AS – had to be continued after leasing the land. The Commission considers that to be a condition attached to the tender. The context, where the only eligible participant in the tender was ultimately that same undertaking, reinforces that tailor-made, biased, hence conditional nature of the tender.










(261)


Further, by making the lease of land subject to a requirement that the agricultural production activity of one certain undertaking should be continued limits clearly the use of the land for the potential tenderer. Thus, regarding the possibility to obtain the highest possible rental fee, Estonia did not act as a private market operator but rather as a public authority pursuing policy consideration in the context of an economic activity of leasing agricultural land. A private market operator not having these constraints would have been able to attract more offers and achieved a higher rental fee.










(262)


The Commission, therefore, concludes that the tender procedure was not unconditional.










(263)


Based on the above, the tender procedure to lease the land did not fulfil the conditions referred to in recital 254 necessary to conclude that the transaction was in line with market conditions.




5.2.3.2.   Market economy operator principle (MEOP)







(264)


Member States may intervene in the market without falling under the prohibition of Article 107(1) TFEU if their interventions correspond to behaviour of a rational and profit-oriented private market operator acting in similar circumstances under normal market conditions. In other words, economic transactions or investments carried out by public bodies do not confer an advantage on its counterpart if they are carried out in line with normal market conditions (57).










(265)


Under the MEOP, the behaviour of public bodies should be compared to that of similar private economic operators under normal market conditions to determine whether the economic transactions carried out by such bodies grant an advantage to their counterparts. Economic transactions carried out by public bodies do not confer an advantage on their counterpart, and therefore do not constitute aid, if they are carried out in line with normal market conditions.










(266)


Whether a State intervention is in line with market conditions must be examined on an ex-ante basis, having regard to the information available at the time the intervention was decided upon (58). In fact, any prudent market economy operator would normally carry out its own ex-ante assessment of the strategy and financial prospects of a project (59). A prudent market economy operator typically assesses ex-ante their interventions by using several different methodologies.










(267)


When applying the MEOP, the Commission assesses the entire lease contract and its amendments in order to determine whether the Ministry has acted as a rational market economy operator in a market economy. When assessing the measures at issue, the Commission examines all the relevant features of the measures and their context (60).










(268)


Therefore, the Commission considers that in the case at stake, in addition to the agreed annual rental fee it has also to consider other features of the contract such as the context in which the measure was adopted, the prevailing market price for similar transactions at the time, the size and quality of the leased area, the revenue generated from the different parts of the leased land, the duration, the financial obligations and the terms of the lease contract that stipulate the conditions for amendments of the lease contract as well as how the lease contract was enforced (recitals 75 to 84). In this framework, the Commission notes that, as regards the initial lease contract or its amendments, the Estonian authorities have not provided any documentary evidence that would have indicated that the Estonian authorities would have performed an ex-ante assessment whether the initial lease contract and its amendments were carried out in line with normal market conditions and prospects of profitability were maximised.










(269)


In light of the case-law (61), the Commission assesses whether the measures could be considered rational from an economic, commercial and financial perspective, taking account of their prospects for profitability over the short or longer term and of the other commercial or economic interests which they involved. The actions of a private operator are in principle guided by prospects of profitability. Thus, where the intervention of a public operator in favour of an undertaking disregards any prospect of profitability, it cannot be regarded as complying with the MEOP.










(270)


In the case at stake, the Commission notes, as regards the 25 years duration without any indexation conditions (see recital 62), that a rational market economy operator may prioritise prospects of profitability in the long term but that should require adequate compensation for the risk and time value.










(271)


As regards the context in which the measures took place, the Commission notes that the measures consist of actions of the Estonian authorities in different points of time during the 25 years duration of the contract. The Commission notes that, for the purposes of its assessment, the relevant evidence is the information which was available, and the developments which were foreseeable, at the time when the decisions of the Estonian authorities were made.










(272)


The Commission notes that, in the case at hand, the impact of the Estonian accession on the lease fees in agricultural sector was not foreseen at the time of the initial lease contract. If follows the mere fact that market rental fee increases during the 25 years duration of the lease contract does not alone establish an advantage.










(273)


Furthermore, as regards the context, the Commission also notes that the arguments of the parties concerning the situation at the time of the initial lease contract or importance of Tartu State farm have limited relevance when the Commission assesses whether the Ministry has acted as a rational market economy operator in a market economy when it has enforced the lease contract post-accession of the Estonia to the EU in the context of an economic transaction regarding an undertaking (see recital 246).










(274)


The Commission considers, taking into account that the agreed low initial rental fee did not adequately take account of the duration and that the Estonian authorities have not utilised all their possibilities for rent increases that the initial lease contract enabled (recitals 403 and 455 to 456), that a rational market economy operator would not have entered into a 25-year lease contract that does not include an indexation condition or other provisions that would have enabled unilateral or automatic annual rent increases without the parties’ agreement.










(275)


A hypothetical rational market economy operator in a comparable position would not have had an economic rationale for such a long duration in the contract. The mere fact that the quality of the leased land is maintained or even increased through active farming does not justify the 25 years duration as the same positive impact for the quality of the leased land could have been achieved using shorter lease agreement and comparable terms to those used by the Land Board. The length of the lease contract has an exceptionally long duration compared to the normal market practice (see recital 130). Not to mention that the lessor had actually no real benefit from the investments carried out by the lessee (see recital 277 and section 5.2.3.3.2.6.4).










(276)


As regards the conditions that the lessee was liable to pay all taxes relating to the subject matter of the lease (recital 61), the Commission considers that a rational market economy operator lessor would have had an interest to include such a condition in its lease agreements as the condition concerns expenses that are a statutory liability to the lessor. According to the Uus Maa report and Land Board’s data, the normal practice on public land leases is for the lessee to pay the land tax (see recitals 361 to 364). Therefore, the obligation for the lessee to pay land taxes, as stipulated in the lease contract in question, is consistent with standard practices for a rational market economy operator. However, the Commission notes that when the advantage is assessed, it is decisive whether that obligation is an additional obligation to Tartu Agro AS compared to other undertakings.










(277)


As regards the commitment for maintenance expenses (recital 68(b)), the Commission considers that a rational market economy operator lessor would have had no interest to include such a condition, which guides the operations of the lessee, in monetary terms in its lease agreements as the condition concerns operative expenses of an undertaking operating in primary agriculture sector and it does not concern reduction of the State’s expenses (See section 5.2.3.3.2.6.4). The Commission notes, as regards an objective to ensure that the quality of the land is preserved, that the Land Board’s lease contracts, which correspond to normal market practice of public land leases, include maintenance obligations without commitments that are expressed in monetary values. Regardless of how those commitments for maintenance expenses were expressed in the lease contract and its amendments, the assessment in section 5.2.3.3.2.6.4 shows that those expenses should not form part of the rental fee (see recital 377 and recital 69).










(278)


Similarly, as regards the sales contract (recital 73), a rational market economy operator would have had no interest or reason to include conditions on detail investments or average number of employees on the sales contract. The context was the sale or privatisation of a public undertaking, where the seller should normally be motivated by the profit on the sales price and not social considerations or the investments on the land that benefit the lessee.










(279)


As regards the commitment for investments (recital 68(a)), since those investments were important to ensure that the quality of the land is preserved, the Commission considers that a rational market economy operator would have had an interest on carrying out the investment itself (in line with the practice and applicable statutory obligations of the lessor) or, if left for the lessee, verified that they are implemented.










(280)


On this matter, the Commission recalls that the Land Board’s lease contracts, which correspond to normal market practice of public land leases, include only certain maintenance obligations without investment commitments that are expressed in monetary values. Furthermore, the Land Improvement Act also establishes that this kind of investments are on the lessor (recital 180). However, the Commission considers that the mere fact that Tartu Agro AS agreed to finance those investments is not sufficient to conclude that the lease contract is in line with the MEOP (62).










(281)


Furthermore, the Commission notes that the commitment for investments has not been enforced as agreed between the Ministry and Tartu Agro AS (recital 99). The amount invested by Tartu Agro AS in the renewal of land improvement systems is less than the agreed investment commitment. A rational market economy operator would have ensured that a lessee finances its commitments as agreed.










(282)


The Commission concludes that a rational market economy operator in a similar situation of a long 25-year contract would have ensured that the commitment for investments is implemented.










(283)


As regards the claims that the initial lease contract has been used to acquire seed services (recital 228 to 230), the Commission notes that Estonia might have had, in particular at the time when Tartu Agro AS operated as a State farm, a genuine need to purchase the services related to the propagation and storage of the seeds and genuine public policy objectives.










(284)


However, the Commission notes that the lease contract and the activity of Tartu Agro in general remains in the domain of economic activity (see recital 246). Furthermore, the Estonian authorities have not provided any documentary evidence that would have shown that they had conducted any ex-ante analysis whether the services in question were priced at market terms and what would have been desired benchmark for those services. Moreover, the initial lease contract did not in no way referred to or specified any specific obligation for propagation and storage of seeds. The Estonian authorities did not invoke let alone show that the activity in question would meet the criteria for services of general economic interest.










(285)


The mere fact that (i) the lease contract (recital 59), (ii) the condition to continue agricultural production activity of Tartu Agro AS (recital 43) and (iii) the sales contract (recital 73(b)) all set out a condition on the continuity of the agricultural production does not indicate that the Estonian authorities would have acted outside of the domain of economic activities when leasing the land. Whatever their motivations were for concluding and amending the lease contract, the lease contract was concluded with an undertaking and had to abide with the State aid rules from the moment of Estonia’s accession to the Union (recital 289).










(286)


As shown in detail in the following sections, taking into account that the Ministry, a public operator, has favoured the undertaking Tartu Agro AS and disregarded prospect of profitability by providing the leased land with an advantageous too low rental fee (recital 457), it cannot be regarded as complying with the private operator principle or the MEOP test. The Commission concludes that Estonia did not operate as a profit-oriented private market operator when conducting, amending and enforcing the lease contract.




5.2.3.3.   Assessment of the measures compared to the market conditions

5.2.3.3.1.   General Observations






(287)


In the case at hand, an alleged preferential rental fee comparable to a lease fee which would have prevailed under normal market conditions provides for an advantage to the beneficiary. In other words, the Commission assesses whether the rental fee set by the Estonian authorities corresponds to the rental fee which a private operator, operating in normal competitive conditions, would have been likely to have fixed, taking into account that the only relevant evidence is the information which was available, and the developments which were foreseeable, at the time when the lease contract was concluded and amended by the parties. The Commission assesses whenever the financial situation of Tartu Agro AS is improved since the date of Estonia’s accession to the European Union, as a result of the lease contract on terms differing from normal market conditions.










(288)


As the Commission concluded, the initial lease was not awarded through an unconditional tender (recital 262). Furthermore, at the time of the initial lease contract Tartu Agro AS was not an independent entity (from the State) but it was operating under the control of the Ministry. It follows that the tender does not provide direct and specific evidence of a transaction in which the parties were acting independently and, in their self-interest, and in compliance with market conditions. That assessment includes a comparison of the measures with normal market conditions, and the financial situation of Tartu Agro AS following the conclusion of the lease contract must be compared with its financial situation if the measure had not been taken place.










(289)


Only the effect of the initial lease contract (recital 28(a)), its amendments (recital 28(b)) and its enforcement (recital 28(c)) since 1 May 2004, the date of Estonia’s accession to the European Union, to the end of 2019 (since this is the period covered by the present decision (see recital 29) are relevant, and not the cause or the objective of the State’s intervention at the time of the initial lease contract (63) i.e. it is irrelevant for what reasons or objectives the Estonian authorities have entered into the lease contract with Tartu Agro AS and whether the Estonian authorities have, for example, aimed to ensure high quality seed production in Estonia.










(290)


The Commission notes that even though 1 May 2004, the date of Estonia’s accession to the European Union was before the end of the limitation period (section 5.5.1), that does not preclude the Commission from finding unlawful aid after the end of the limitation period (i.e. 14 August 2004 (see recitals 497 and 498) or from national courts ordering its recovery in accordance with their own national rules on limitation.










(291)


The land lease, which granted the advantage to Tartu Agro AS was within the realm of economic activities and not the exercise of public power or other non-economic activities by the State (see recital 246). In order to establish the market price of the rental fee, the Commission calculates the difference between the rent actually paid by Tartu Agro AS and a comparable market fee in view of the selected elements, which are directly or indirectly relevant to determining the fair market value within the identified market. Assessing the following elements ensures a comprehensive and accurate determination of the market price of the rental fee reflecting all relevant market conditions and factors:






(a)


the features of the tender preceding the lease (recitals 254 to 263;










(b)


the duration (recital 295);










(c)


the fact that the amount of the agreed rental fee is different than the amount actually paid by AS Tartu Agro (recital 296);










(d)


the financial obligations of the parties in the lease contract (recitals 358, 364, 377 and 390);










(e)


the fact that the amount of the commitment for investments actually paid by Tartu Agro AS is different than the amount of the agreed committed investments (recitals 91 and 99);










(f)


the provisions on rental fee revisions (recitals 391 to 403);










(g)


the enforcement of the right of the parties as the lease contract is not enforced as agreed (recital 456);










(h)


the size and the quality of the leased land (recitals 87, 341 to 343), and










(i)


the status of the lessor as a State and its impact on the market price (section 5.2).














(292)


The rental fee of the lease contract cannot be considered in isolation but only by including the above features in the assessment. These factors are pertinent element of the lease contract and cannot be excluded from a comprehensive assessment to determine and compare it with the normal market conditions.










(293)


In order to assess whether Tartu Agro AS was benefiting preferential lease price, i.e. paying a rental fee below market price, the financial obligations of the lease contract referred to in recital 68 must be analysed. Hence, the Commission assesses in section 5.2.3.3.2.6.2. whether expenses related to those obligations must be considered as part of the rent payments, and whether they can be considered as part of the lessor’s rent income.










(294)


As, regards the duration, the Commission notes that during the course of a long-term contract, the variation of the underlying market price (‘the price risk’) alone does not result in an advantage in the State aid context if the initially agreed price, and the subsequently adapted price after each amendment or modification, has taken into account the duration of the lease contract and the price risk. The mere fact that spot prices fluctuate during a long-term contract does not necessarily generate an advantage, provided that the price risk has been adequately taken into account under normal market practices (see recital 436).










(295)


It follows that in this case, taking into account the 25 year duration, during which several amendments took place, the Commission assesses in recitals 391 to 400 whether the duration has been taken into account in an appropriate manner.










(296)


The Commission considers that, in its assessment and quantification of the advantage, it is decisive what has been the actual enforcement and implementation of the lease contract rather than what has been formally agreed between the parties. In this case, the semi-annual amount of rent actually paid by Tartu Agro AS has been different than the agreed amount of the rental fee. Furthermore, the commitment for investment has not been enforced as defined in the lease contract. It follows that in order to assess the advantage, the amount of rent actually paid by Tartu Agro AS must be compared to the market prices and not the rental fee that was agreed by the parties and only the actual enforcement of the commitment for investments must be added to the rental fee when the rental fee is compared with the market of rental fees price benchmark.










(297)


Further, in order to ensure that the amount of rental fee actually paid by Tartu Agro AS is comparable to the market price of rental fees benchmark, the annual rent payments must be converted to hectare-based values using a denominator that is based on corresponding type of land to the leased land in question. This method will ensure better comparability.










(298)


In general, compliance with market conditions can be directly established where a transaction is based on competitive, transparent non-discriminatory and unconditional tender procedure, which is why the Commission assesses in section 5.2.3.1 the tender procedure described in recitals 42 to 54. As the tender procedure preceding the lease contract did not meet those conditions, but was conditional on the continued operation of the beneficiary on that land, that is already a strong indication of an advantage in itself and it influences also the interpretation of terms in the lease contract as well as the assessment of the rental fee, which was below the market price throughout the duration of the contact, as amended (recital 423).




5.2.3.3.2.   Market conformity of the rental fee






(299)


To calculate the difference between the rental fee paid by Tartu Agro AS and what it should have paid under normal market conditions, the Commission:






(a)


analyses the available data on market prices on land leases (section 5.2.3.3.2.1) and defines the appropriate market price of rental fees benchmark (section 5.2.3.3.2.2);










(b)


defines, taking into account the quality of the leased land (recital 318) and the circumstances of the case and the context (recital 317), the appropriate market price of rental fees benchmark at the time of the initial lease (5.2.3.3.2.3), of Estonia’s accession to EU (section 5.2.3.3.2.4) and from 2005 onwards (5.2.3.3.2.5);










(c)


defines the area that is used as a denominator when annual fees are compared with euro per hectare values (section 5.2.3.3.2.6) in order to ensure that comparable numbers are used;










(d)


analyses in section 5.2.3.3.2.6.1 how revenue generated from leased areas that are not included in the used denominator may be taken into account;










(e)


analyses the economic impact when the selected denominator does not include 100 % of the leased area and how revenue generated from that reduced area may be taken into account (section 5.2.3.3.2.6.1);










(f)


analyses the economic disadvantage and market conformity of the financial obligations in order to define to what extent the annual rental fee has to be adjusted in order to ensure that it corresponds to the selected market price of rental fees benchmark (section 5.2.3.3.2.6.2) and assesses separately each of those financial obligations: (i) the land tax (section 5.2.3.3.2.6.3), (ii) annual maintenance expenses (section 5.2.3.3.2.6.4) and (iii) commitment for investment (section 5.2.3.3.2.6.5);










(g)


calculates the difference between rental fee paid by Tartu Agro AS and the market price of rental fees benchmark on the date of Estonia’s accession to the European Union in order to conclude market conformity of the rental fee on that date (section 5.2.3.3.2.8);










(h)


calculates the difference between the rental fee paid by Tartu Agro AS and the market price of rental fees benchmark when the rental fee was adjusted by the parties in order to verify the market conformity of the rental fee in those periods (section 5.2.3.3.2.9);










(i)


calculates (section 5.2.3.3.2.10) the difference between the rental fee paid by Tartu Agro AS and the market price of rental fees benchmark since 2005;










(j)


analyses the sensitivity of its conclusion (section 5.2.3.3.2.10.1 to 5.2.3.3.2.10.3);










(k)


assesses a claim that the alleged advantage due to calculated difference was eliminated when Estonia sold its shares in Tartu Agro AS (section 5.2.3.3.2.11); and










(l)


presents its conclusion on the presence of an advantage (section 5.2.3.5).














(300)


Furthermore, the Commission






(a)


analyses the economic and financial impact and market conformity of the duration and the provisions on price adjustments (section 5.2.3.3.2.7);










(b)


assesses, in section 5.2.3.4 market conformity of the enforcement of the lease contract.








5.2.3.3.2.1.   Assessment of the available market price of rental fees benchmarks






(301)


As in the case at hand, there is no single source for establishing the market price that would cover the duration of the contract, i.e. from 2000 to 2025 (end of the contract) or even to 2019 (end of the investigation period). On the contrary, the Commission needs to use the various sets of data provided by Estonia and Tartu Agro AS to establish a correct market benchmark.










(302)


To establish the market price of a leased land, the Commission can use an independent expert evaluation prior to the sale negotiations to establish the market value on the basis of generally accepted market indicators and valuation (64). In the present case, the Commission has assessed the experts’ valuation reports and it has requested additional information from the Estonian authorities concerning the available market benchmarks. Furthermore, the Commission has requested additional information from the Estonian authorities concerning the accuracy of the available statistical information on 14 December 2022 and 22 December 2022. Following the request, the Esthonian authorities provided more data on land lease prices.










(303)


In particular, the price data on land lease prices provided by Estonia consist of two statistical data sources (the Land Board and the Statistical Office) and three external expert’s valuation reports (recital 102).










(304)


As regards the data published by the Statistical Office, the Commission concludes that it does not provide an appropriate market price of rental fees benchmark and, for the reasons explained in recitals 109, 113 and 213 to 214, it provides a price proxy that is below the relevant market prices. because the data includes lease contracts that are made free of charge or for which an agreement was in place to pay only the land tax. Furthermore, it does not provide an estimate for a land leased by a public authority that, according to the experts, have higher price levels than land leased by private actors due to the preferential rights to continue to use the land once the lease expires by either buying the land or continuing to rent it subject to the State’s decision. That conclusion is in line with the Uus Maa report (recital 135). It follows from the case law that the methods for determining the market value should take account the updating of the prices, where prices are rising sharply, so that the price actually paid reflects, in so far as is possible, the market value (65). The Commission considers that the data published by the Statistical Office does not fulfil that condition.










(305)


As regards the Pindi Kinnisvara report (recitals 104 and 116 to 118), the Commission notes that it was commissioned by Tartu Agro AS and withdrawn by the Estonian authorities and that report does not specify for which time period its valuation is relevant.










(306)


Furthermore, the Commission notes that, as the Pindi Kinnisvara report assessed a market price estimate for agricultural land located in an attractive location in Tartu county with approximately 90 % of utilised area, given the tenant’s obligation to make targeted investments (see recital 116), its price benchmark takes into account the financial obligations, the location and the size and use of the parcels.










(307)


However, the Pindi Kinnisvara report does not discuss or explain how these features, which are relevant for the assessment, were taken into account, i.e., that report does not specify how EUR 104 per hectare obligation for targeted investments (recital 116) has been calculated and that obligation has impacted on the assessment of the market rental fee paid by Tartu Agro AS.










(308)


It follows that the Commission considers that the Pindi Kinnisvara report does not provide a reliable, accurate and useful price estimate for the leased land. Therefore, the Commission concludes that its market price estimate cannot be utilised in the assessment.










(309)


As regard the Uus Maa report, the Commission notes that it provides precise market price estimates for the time prior to Estonia’s accession to the EU. For the period after the accession, the Uus Maa report notes an increase in price levels and summaries its rental fee price estimates as price ranges in five-year time brackets. Hence, as the price range represents a price development during the time period, an average of the presented price ranges is not an accurate market price proxy at the end or start of the time brackets, in particularly, taking into account the rising prices. It follows from the case law that the methods for determining the market value should take account the updating of the prices, where prices are rising sharply, so that the price actually paid reflects, in so far as is possible, the market value (66). The Commission considers that the fact that the Uus Maa report provides only price ranges after the accession of Estonia to the EU considerably decreases the accuracy of the Uus Maa report’s data in the analysis of the period since 2005.










(310)


The Uus Maa report based its analysis on a detailed assessment of the leased land that Tartu Agro AS leased. Furthermore, the Uus Maa report analysed the lease contract, noting that the lease contract specifies in detail that Tartu Agro AS must carry out maintenance services and what kind of maintenance is due, whereas under normal market practice those maintenance obligations were included in lease contracts in generic terms. Further, the Uus Maa report notes that the lease contract has exceptionally long duration and large area compared to normal market practice (recital 123).










(311)


The Commission notes that the Uus Maa report does not explain or analyse the lease contract’s long duration, large area, the lessor’s obligation to acquire investment made by the lessee at the end of the contract and the financial obligations of the lease contract (see recitals 61 and 68. The Commission considers that this decreases considerably how the Commission can use the Uus Maa report in the analysis.










(312)


Hence, the Commission concludes that the most reliable information that the Uus Maa report provides is its information as regards the quality of the leased land, the market price before the accession and its impact on the market rental fees as it provides specific market price of rental fees benchmarks for those points in time. Thus, the Commission relies on this report for the rental fee in 2004 noting that Land Board data is only available as from 2005 (see recital 314).










(313)


The Domus report assesses in detail approximately 45 % of the leased land of the contract at stake in the Decision (see recital 155). However, as indicated in section 2.5.9, the quality of the land may vary. It also provides a price estimate for a starting price for a public land lease auction for a value date (67) on 18 February 2020. Furthermore, the Domus report does not provide retroactive price estimates (i.e. price estimate for the past), which renders this report of little relevance for the Commission’s assessment since 2020 is outside the investigation period covered by the decision (68) (recital 15).










(314)


The Land Board data provides data on realised agricultural land leases on similar transaction to the one at stake, thus the sale or lease of public land. The Commission recalls that public leases have higher price levels than private leases due to the fact that the highest bidders acquire both the right to rent land and the preferential right to continue to use the land once the lease expires by either buying the land or continuing to rent it subject to the State’s decision (recitals 111 to 113). Further, that data corresponds to market prices that are obtained from transaction that are based on an open and unconditional public bidding procedure. The Land Board data provides realised price data since 2005. The Commission acknowledges that the quality of the leased land by the Land Board varies, as well as the number of the leases in a given year. Further, the lessees are obligated to certain commitments (recital 114) that are partly similar to that included in the lease contract. It follows that the Land Board provides an annual market price benchmark since 2005 that is based on realised transactions in a relevant market (lease of public agricultural land) based on unconditional public bidding procedure.




5.2.3.3.2.2.   Selection of the appropriate market price of rental fee benchmark






(315)


The Commission notes that in order to identify an appropriate benchmark, it is necessary to pay particular attention to the kind of land lease contract (lease of agricultural land), the operator concerned, the type of transaction at stake (long term lease) and the market concerned (land leased by a public authority) (69).










(316)


The timing of the transaction is also particularly relevant when significant economic developments, like the accession of Estonia to EU, have taken place and when the available expert reports have different value dates because they use different years for their estimate of rental fee and there is not a unique report covering the whole duration of the lease contract.










(317)


As regards the circumstances of the case and the context in which the benchmarking method is utilised, the Commission notes that:






(a)


according to the Uus Maa report, before the accession of Estonia to the European Union in 2004 there were few leases for arable land and lease agreements were rarely concluded and land might have been made available free of charge to prevent it from being abandoned;










(b)


the land lease market has evolved and rental fees increased considerably since 2000 (see Table 8, Table 10 and Table 11)










(c)


the land leased by the Land Board is owned by the State (recital 111), which is a factor that impacts the price level of rental fees according to the experts’ opinions, as is the land leased to Tartu Agro AS (see recitals 113 and 144);










(d)


the exceptional duration of the lease contract is a factor that can only increase the value of the alleged advantage when the rent is compared with the market price (recital 403);










(e)


the Domus report (even if it only provides for an estimate rental fee for 2020), which is the most recent expert assessment report that based its assessment on detailed evaluation of the land, is in line with the Land Board’s data, further, it indicates that the Land Board’s data provides a prudent price estimate (section 5.2.3.3.2.10.2); and










(f)


the Land Board’s data is based on realised public lease transactions and corresponds to price data on lease transactions carried out through a competitive, transparent non-discriminatory and unconditional tender procedure.














(318)


The Commission concludes that the accession of Estonia to the European Union in 2004 had a considerable impact on the agricultural lease market. Furthermore, the agricultural land market, including rental fee level, has evolved considerably. It follows from the case law that the method for determining the market value should take account the updating of the prices, where prices are rising sharply, so that the price actually paid reflects, in so far as is possible, the market value (70). An average of a price range that summarises price development over the years is not an appropriate market price of rental fees benchmark in rising prices, since it could fail to properly reflect price fluctuations. When benchmarking market values, it is essential to consider price variations within a selected period that allows to the greatest extent possible for a precise and comprehensive assessment. Accordingly, after evaluating the data at the Commission disposal and their reliability (see section 5.2.3.3.2.1), the Commission concludes that the most accurate market values data comparison is based on annual data. It follows that annual data is the most appropriate rental fee benchmark. As regards the quality of the leased land, the Commission notes that:






(a)


according to the Uus Maa report 2 839,50 ha of the area (92 %) of which was assessed is arable land (recital 148);










(b)


according to the Uus Maa report 22 % of the arable land has good quality and 78 % has average quality (recital 149);










(c)


it follows from the above that as regards the type of land, the leased area corresponds well to agricultural land and the quality of the leased land corresponds well to average agricultural land;










(d)


the Uus Maa report explains that for the land leased to Tartu Agro AS the numerical quality indicator (see recitals 150 and 216(d)) referred to in recital 160 is higher than the average quality indicator in Estonian and Tartu county (recital 151); hence, the quality of the leased land adequately replicates that of the land in Estonia and Tartu county.










(e)


the weighted average of the quality classification of the land leased to Tartu Agro AS is higher than the land leased by the Land Board (see recitals 162 to 163); and










(f)


as the Uus Maa report (recital 154) concludes that the assessed land under the lease contract had a quality type of AA and the Domus report (recitals 156) concludes that the assessed land hand had a quality type of B--, the leased land, firstly, corresponds well to average land in Estonia, and secondly, the Domus report, which assessed only part of the leased land, had a lower quality rating than the Uus Maa report, which assessed 100 % of the leased area.














(319)


Further the Commission notes that the external experts (i.e. the Uus Maa report or the Domus report) that assess in detail the leased land did not conclude that the area would have material disadvantages compared to the leased land in Tartu County.










(320)


Moreover, AS Pindi Kinnisvara was requested to assess the value for the land ‘in an attractive location in the county of Tartu’.










(321)


Moreover, the Commission considers that Tartu Agro AS’ claim that the Land Board data is not comparable to the lease contract is not correct (recital 231). In fact, the Land Board’s auctions specify that, apart from paying the rent, the lessee has to pay the land tax and commit to maintaining the land in good condition. They also establish that, where there is a written agreement with the lessee, modifications and improvements going beyond regular maintenance may also be made to the land being rented which will subsequently be offset against the rent (thus, those costs are to be considered as part of the rental fee). Thus, there is only one difference between the practice of Land Board and the lease contract and it is related to the fact that the investments for land improvement systems are to be financed by the lessee under the lease contract. At the same time, the rental fee, the amount of the commitments for maintenance and investments for land improvement systems are all quantified (recitals 68, 85, 89 and 99), therefore these values can be compared separately to the benchmark. It is sufficient to identify and separate the costs for investments for land improvement systems in order to compare the lease contract to the Land Board data, which has otherwise similar contracts. The Commission thus concludes that the Land Board’s lease contracts are comparable to the lease contract, following an adjustment for the costs for investments for land improvement systems. Finally, as regards the quality of the land under the lease contract, the Commission notes that it does not deviate in terms of quality from the Land Board data and the Commission concludes that the land leased under the lease contract corresponds, except for the duration and the size of the leased hectares, to the land leased by the Land Board. In particular, as the Land Board data is from the land leases owned by a public authority that data is comparable and linked to the same type of transactions (i.e. public transactions).










(322)


In light of the above, the Commission concludes that the Land Board lease transactions in all counties (recital 111) represent the most appropriate benchmark for the market rent for the period after 2004 as the Land Board lease transaction data corresponds to the lease price which a private operator, operating in normal competitive conditions, would likely have fixed. This conclusion stands even if the Commission acknowledges that Land Board data does not use exact type of contracts (i.e. the Commission acknowledges that the quality of the leased land by the Land Board varies, as well as the number of the leases in a given year. Further, the lessees are obligated to certain commitments (recital 114) that are only partly similar to that included in the lease contract (see recital 314). However, these differences do not undermine the value of Land Board data as benchmark because the data is still reliable and coherent and provides sufficient basis to calculate the rental fee that is as close as possible to the market value (71). In this regard (see also recital 321), the Commission considers that the public nature of the agricultural land lease evaluated by the Land Board is the overriding factor since it focuses the assessment on the lease of public agricultural land market (i.e not private land) and the data refers to real transactions, thus the data is reliable. Furthermore, the fact that Land Board data do not include contracts with similar investments to the ones included in the lease contract can be neutralised by adding the costs of those investments in the rental fee (recital 114). Finaly, the differences in quality between the average Land Board data and the estimate quality of the land covered by the lease contract (recitals 162 and 163) are not sufficient to contest the conclusion and the data remains coherent.




5.2.3.3.2.3.   Market price of rental fees benchmark at the time of the initial lease contract in 2000






(323)


The Commission notes that, for the time of the initial lease contract in 2000, the only available information at the Commission’s disposition is the Uus Maa report, and the Estonian authorities have not provided any ex-ante analysis in which they would have assessed the rental fee and the condition of the initial lease contract.










(324)


The Pindi Kinnisvara report and the Domus report do not provide retroactive price estimates, the Statistical Office has published data on agricultural land rents only since 2009 and the Land Board reports data on realised transactions since 2005.










(325)


The Uus Maa report provides a market price benchmark for 2000 (recital 428). The report is based on comprehensive market analysis and in-depth analysis of the leased land covered by the lease contract and also land in the Tartu county. The Uus Maa report includes an analysis of the general market situation and features of the land. Furthermore, although the Uus Maa report does not provide any assessment of the financial obligations, that report includes specificities of the lease contract, namely the duration and the additional financial obligations (see section 2.5.8.4).










(326)


In light of the above, the Commission concludes that the Uus Maa report provides a valid benchmark for market price of agriculture land for the year 2000. Furthermore, the land leased under the lease contract corresponds well to an average land in Estonia (recital 318 and recital 319).










(327)


The Uus Maa report concludes that prior to Estonia’s accession to the EU an imminent exponential increase in arable land was not foreseen. In 2000, the rental fee for decent arable land amounted in the Tartu county is estimated at EEK 100 per hectare (EUR 6,4/ha) (recital 125) (see also Table 10 and Table 11).




5.2.3.3.2.4.   Market price of rental fees benchmark at the time of the Estonia’s accession to the EU in 2004






(328)


The Commission notes that although the rules relating to State aid became mandatory for Estonia on 1 May 2004, the date of Estonia’s accession to the European Union, and the initial lease contract states that its terms may be amended if a modification results from the contract or from legislation, the Estonian authorities did not amend the lease contract in 2004.










(329)


As regards the available data on market fee, the Commission notes that, at the time of Estonia’s accession to the EU in 2004, the only available data is based on the Uus Maa report (see Table 10 and Table 11).










(330)


The Commission, therefore, considers that, at the time of Estonia’s accession to the EU in 2004, the relevant market price estimate should be based on the Uus Maa report.










(331)


In order to follow a prudent approach in selecting the market price of rental fees benchmark in 2004, the Commission notes that the Uus Maa report data shows that:






(1)


there was a general trend of market rental values increase for land in the leased land and in Tartu county over time (see Table 10 and Table 11);










(2)


the range of market rental values for land in Tartu county was between EUR 10 and 20/ha in 2004 (see Table 11);










(3)


the range of the market rental fees for land covered by the leased contract was of EUR 6-10/ha between 2000 and 2004 and EUR 10-20/ha between 2005 and 2009 (see Table 10).














(332)


To establish the benchmark, the Commission considers that the most specific information and therefore the most accurate data, is the one referring to the lease contract itself. However, the data regarding the value of land in the Tartu county can also be used to determine the benchmark if the estimates are coherent and reliable. The Commission notes that for 2004, the Uus Maa report does not provide a rental fee estimate for the land covered by the lease contract for a specific year (see recital 331(3)), it only provides the estimate for the period 2000-2004. However, the Commission considers that, given that 2004 is at the upper end of this period and considering that the lowest end for the subsequent period (i.e. 2005-2009) is EUR 10/ha, a price of 10 EUR/ha is the most reliable market price estimation for 2004 (to which a further 20 % reduction is applied, to account for the sensitivity of the data (recitals 334 and 514). This is substantiated by the general trend of market rental values increase for land over time explained in the same report (see recital 331(1)). This is further confirmed by the market price indication for the specific year 2004 in the other data set contained in the same report, namely the data regarding the value of land in the Tartu county: as described in Table 16, Rental fee estimate of the Tartu county land, the lowest rental fee in that range is also EUR 10/ha. Normally data on a specific year is more reliable and indicative than a broader price range covering a period.










(333)


The 10 EUR/ha market price benchmark for 2004 is also coherent when compared to the Tartu county data (see recital 331(2)), which suggests that fees in 2004 could be higher, up to EUR 20/ha, but still within this specific range.










(334)


Therefore, by cross analysing the two sets of data provided by the Uus Maa report (see Table 10 and Table 11), in light of recitals 331 to 333, the Commission concludes, following a reasonable and prudent approach, that the market price benchmark was EUR 10 per hectare of arable land in 2004, to which a 20 % reduction is applied to account for the sensitivity of the data (recital 514).




5.2.3.3.2.5.   Market price of rental fees benchmark since 2005






(335)


The Commission concludes, as noted in recital 322, that the most accurate and appropriate benchmark price is based on the Land board lease transactions.










(336)


The data on the Land Board’s realised lease transactions is available since 2005, therefore, since 2005 the appropriate market price estimate is based on the Land Board’ data on median lease prices in Estonia.




5.2.3.3.2.6.   Area used to convert annual rent payments as hectare based values






(337)


The rental fee is agreed as an annual payment, whereas the available market data is based on euro per hectare values. It follows that, in order to compare these values, the agreed annual amount of the rental fee has to be converted to a euro per hectare value.










(338)


That conversion must take into account the quality of the land by using a denominator that corresponds to the land for which the market price estimate is given in order to ensure that the two values are comparable.










(339)


The Land Board’s data concerns public leases of agricultural land. The Commission notes that the lease contract in stake in the Decision does not only cover agriculture land but also forestry. In order to be able to compare the rental fee of the lease contract and the Land Board’s data (this being able to compare similar land), the Commission takes into calculation only the area eligible for CAP supports (72). The Commission consider this a prudent methodology to estimate what should have been the rental fee and/or to establish the existence of advantage. Therefore, the Commission concludes that the area eligible for CAP supports should be used as a denominator when the annual rent payments are compared with the Land Board’s data.










(340)


The Commission acknowledges that this method provides only an estimate as:






(a)


both the leased area eligible for CAP support and the land leased by the Land board include areas, whose quality varies; and










(b)


the approach, where part of the leased area is not included in the assessment, assumes that areas not eligible for the CAP agricultural support would have no market value during the 25 years duration of the lease contract.














(341)


However, the Commission considers that the method described in recital 339 provides adequately comparable estimate for comparable areas, which is prudent in order to determinate what should have been the rental fee and therefore whether the lease contract entails an advantage.










(342)


As the Uus Maa report explains that in 2000 there was a market only for decent arable land, the Commission concludes that, for the years before the accession of Estonia to the EU and the data on CAP eligible land, the number of hectares of arable land according to the Uus Maa report (2 839,5 ha) (recital 89) is the most accurate estimate for decent arable land, thus, it should be used as a denominator when the annual rent payments are compared with the market price of rental fees benchmark that is based on the Uus Maa report.










(343)


The Commission summaries in the following table what is the denominator to be used when annual fees are transformed as euro per hectare values by data source.

Table 17


The denominators (are type) to be used when annual payments are transferred to euro per hectare values








Data source


Comment


Conclusion on the denominator





The Uus Maa report



According to that report in 2000 there was a market only for decent arable land.


The denominator (size of the leased land) used to convert the annual rent to euro per hectare basis should include only decent arable land namely 2 839,50  ha (recital 148)





The Pindi Kinnisvara report



That report provides an estimate for agricultural land in an attractive location in the county of Tartu, where around 90 % of that land is arable land. Hence, the use and quality of the land is already taken into account in the price estimate.


The total leased area, and not only the area of agricultural land, must be used as a denominator when the annual rental fee is compared with the market price estimate of the Pindi Kinnisvara report





The Domus report



The assessed land is predominantly arable land (cf. section 2.5.9.2). Thus, that price estimate takes into account that the area is not fully arable land


The total leased area, and not only the area of arable land, should be used as a denominator when the annual rental fee is compared with the market price estimate of the Domus report





The Land Board data



The data of the Land Board covers the market fees of rental fees of agricultural land.



The area of agricultural land, i.e. area eligible for CAP support, and not the total leased area, may be used as a denominator when the annual rental fee is adjusted as euro per hectare rental fee and compared with the Land Board’s data





Land lease price data published by the Statistical Office



The data of the Statistical Office covers the market fees of rental fees of agricultural land



The area of agricultural land, i.e. area eligible for CAP support, and not the total leased area, should be used as a denominator when the annual rental fee is adjusted as euro per hectare rental fee and compared with the data of the Statistical Office.








5.2.3.3.2.6.1.   Revenue from the leased land that is not eligible for the CAP support






(344)


The method to convert annual payments as euro per ha values using only the land that is eligible for CAP support assumes that the land not eligible for CAP support has no value. Therefore, if the rental fee is below market terms even excluding possible revenues in the form of selling timber or renting properties, the existence of advantage can be confirmed.










(345)


As regards the revenue from timber sales the Commission notes that the quantification of the additional income on timber sales cannot be based solely on assumed sales volumes and average selling prices, as such an approach would assume that timber sales does not require any expenses, but either on realised net timber sales income or estimated market lease prices for forest land. In general, the production cycle of the forestry sector is several decades, i.e. considerably longer that the 25 years duration of the lease contract. Therefore, data on market rental fees in the forestry sector might not provide a reliable market price estimate for a given duration.










(346)


As in the case at hand the size of the forest land is relatively small compared with the agricultural land, the Commission concludes that, for the sake of prudence and simplicity the value of the forest land should not be included in the assessment of advantage.




5.2.3.3.2.6.2.   The financial obligations – assessment of economic disadvantage and market conformity.






(347)


As noted in recitals 291(d) and 292, the financial obligations referred to in recitals 60 and 68 may be relevant features of the lease contract when assessing the alleged advantage. As regards their impact on Tartu Agro AS’s financial and economic position compared with other undertakings operating under market condition, it is relevant whether those obligations were:






(a)


in the interest of AS Tartu Agro or the lessor, i.e. the assessment should take into account to what extent the financial obligations are at least partly in the lessee’s own interest;










(b)


executed as agreed under normal market practice; and










(c)


additional obligations when compared with other undertakings operating in the market.














(348)


The Commission notes that, taking into account that the lease contract has an exceptionally long duration and that it covers exceptionally large area, the mere fact that it was not a normal market practice in 2000 to include financial obligations in lease agreements in a form that is measurable in monetary terms (see recital 122) to 123 does not automatically mean that those obligations have an adverse impact on the financial position of Tartu Agro AS so that they should be considered fully or partly as part of the lease payment when the advantage is assessed.










(349)


Also, the alleged objective of the State, in 2000, to ensure that soil fertility and, consequently, the value of State property will be preserved and enhanced, is not alone decisive when the Commission assesses whether the financial obligations are considered as part of the rent payment since 2004.










(350)


The Commission notes that the initial lease contract stipulated that Tartu Agro AS’s obligation was to pay all taxes relating to the leased land as part of provisions on the rent payment, whereas investments for land improvement systems and the obligation to pay maintenance expenses were considered other contractual rights and obligations.










(351)


When the lease contract was amended in 2009, the parties agreed that from 2010 onwards the lessee’s obligation to pay investments upgrading land improvement systems was to be deducted from the rent payment that was depending on the single area aid (recitals 79 to 80).










(352)


However, the Commission concludes that the formal classification of the financial obligations in the lease contract either as part of the rent payments or other obligations is not decisive as it does not define their economic impact.










(353)


The Commission notes that when the existence of the advantage is assessed, the assessment must take into account the fact that the available market price data sources differ considerably from each other in how they consider the impact of the financial obligations.










(354)


Depending on the market price estimate, the financial obligations are either included or excluded from the price estimate or acknowledged only partly.










(355)


Namely, the assessment has to take into account that, for instance, the Domus report explicitly excluded the impact of these financial obligations (recital 143, whereas the Pindi Kinnisvara report provides the market price estimate for agricultural land given the tenant’s obligation to make certain expenses of EUR 104 per ha (see recital 116).










(356)


The Land Board’s lease agreements include certain tax and maintenance obligations for a lessee, however, those maintenance obligations are not defined in monetary terms and no specific annual amount of maintenance expenses are required.










(357)


The Uus Maa report discusses what is normal market practice as regards the financial obligations. However, it does not explicitly describe or explain how the financial obligation, or other features of the lease contract, impact its assessment, which decreases the usefulness of that report on this subject.










(358)


It follows from the above that the Commission assesses in sections 5.2.3.3.2.6.3 to 5.2.3.3.2.6.5 to what extent the lessee’s obligation to pay (i) land taxes and (ii) maintenance and make (iii) investments for the renewal of land improvement systems must be taken in into account, i.e. considered as part of the rent revenue, when the agreed rental fee is compared with the appropriate market rental fee.




5.2.3.3.2.6.3.   The lessee’s obligation to pay the land taxes






(359)


The Commission considers, as the owner of the land has the legal obligation to pay the land tax, that the lessee’s obligation in the lease contract to pay the land tax referred to in recital 61 is in the lessor’s interest, and that condition has a negative impact on the financial situation of Tartu Agro AS.










(360)


It follows that, as regards the calculation of the difference between the actual rental fee paid by Tartu Agro AS and what it should have paid at the time under normal market conditions, it is decisive whether that obligation entails an additional burden for Tartu Agro AS that should be added the rental fee when compared with other undertakings.










(361)


As regards the Land Board’s data the Commission notes that in government leases a lessee pays the land tax (recital 114). Thus, as the obligation to pay land taxes applies to all lessees in public leases, the obligation to pay the land tax in the initial lease contract is not an additional obligation and it does not entail any additional burden for Tartu Agro AS when the rent payments paid by Tartu Agro AS are compared with the market price that is based on the Land Board’s data.










(362)


As the Land Board auctions represent the normal practice on public land leases, this obligation is in line with the normal market practice.










(363)


As regards the Uus Maa report, that report notes that until 2010 it was generally the lessee who had to pay the land tax (recital 124). Thus, as the obligation to pay land taxes by lessees was a normal market practice, the obligation to pay the land tax in the initial lease contract is not an additional obligation and it does not entail any additional burden for Tartu Agro AS when the rent payments paid by Tartu Agro AS are compared with the market price that is based on the Uus Maa data. Therefore, when the rent paid by Tartu Agro AS is compared with the market price estimate by the Uus Maa report for the years 2000 to 2004, the obligation to pay land taxes is not an additional burden for Tartu Agro AS as it is an obligation that is in line with normal market practice.










(364)


It follows from the above that the land tax paid by Tartu Agro AS must not be added to the annual rental payments paid by Tartu Agro AS when compared with the market price of rental fees benchmark that is based:






(1)


on the Uus Maa data in 2000 and 2004 (section 5.2.3.3.2.8);










(2)


the Land Board data since 2005 (section 5.2.3.3.2.9)








5.2.3.3.2.6.4.   The lessee’s obligation to pay maintenance expenses






(365)


By their economic nature, annual maintenance expenses are operative expenses that generate income and/or increase the land value in a short term, regardless of the fact that active and sustainable farming also has a positive impact on the value of the land.










(366)


Any undertaking acting in primary production has to bear those expenses also under normal market conditions.










(367)


The Commission notes that the Uus Maa report discusses what has been the market practice regarding lessees’ other obligations. In particular, that report notes that land improvement and regular roadside maintenance are in the contracts as obligations of the lessee, which is an entity that uses and benefits from the property. However, those obligations have been included in lease contracts in generic terms, whereas in the case at hand the lease contract specifies in detail how the annual maintenance expenses should be used. Further, the Uus Maa report underlines that the lease contract has exceptionally large size and long duration.










(368)


The Commission considers that the mere fact that the commitment for maintenance expenses was drafted in detail in monetary terms does not change their economic nature. Further, it does not change the fact those expenses are in the interest of AS Tartu Agro, as it can benefit on those expenses over the 25 years duration of the lease contract, and likewise any undertaking acting in primary production has to bear corresponding expenses under normal market conditions.










(369)


Respectively, the mere fact that in 2000 the Estonian authorities might have had public policy objectives to exercise control over the operative decisions of Tartu Agro AS through the lease contract by defining the use of the maintenance expenses does not change the fact those expenses are mainly in the interest of Tartu Agro AS when it uses the land in agriculture business as any undertaking acting in primary production has to bear similar expenses also under normal market conditions. Regarding comments referred to in recitals 229 and 230, the Commission notes that it is irrelevant for what reasons or objectives the Estonian authorities have entered the commitment for maintenance expenses to the lease contract.










(370)


Furthermore, the Commission notes that the lease contract includes a condition that enables a rental fee decrease should the rental fee exceed the revenue for normal agricultural management of the leased land (recital 66). Thus, the Commission concludes that that condition transfers effectively operative risk from the lessee to the lessor and decreases any financial burden that commitment for certain operative expenses could have caused to the lessee.










(371)


The commitment for maintenance expenses, i.e. the obligation to pay the annual maintenance expenses referred to in recital 68(b), therefore, does not have a negative impact on the financial situation of Tartu Agro AS compared with other undertakings in the market. Those expenses are part of the lessee’s operative expenses.










(372)


The Commission acknowledges, that a contractual obligation for annual operative expenses could have a material financial impact only if an undertaking would need to cease its operations in the primary agriculture sector. Hence, as long as Tartu Agro AS operates under the going concern principle, a contractual obligation for annual operative expenses does not have a negative impact to Tartu Agro AS’s financial position when it is compared with other undertakings.










(373)


Furthermore, the mere fact that the nominal amount of the commitment for maintenance expenses at the time of the initial lease contract would have been higher than the average maintenance expenses in the sector (recital 222(f)) does not have a negative impact to Tartu Agro AS’s financial position when it is compared with other undertakings operating in the sector during the 25 years duration of the lease contract.










(374)


In addition, the Commission notes that the Uus Maa report describes how maintenance obligations have been included in lease agreements as the land lease market has developed over the duration of the lease contract (recitals 122 to 124, and that the Land Board’s lease agreements include an obligation that lessees are obliged to commit to maintain the land in good condition (recital 114). Hence, the mere fact that the maintenance obligation is expressed in monetary terms does not mean that the Land Board’s lease agreements, which represent normal market practise, would not have an obligation that has a corresponding economic impact.










(375)


Moreover, in the light of recital 60 to 61, the Commission notes that the form of the lease contract does not indicate that the purpose of the parties would have been to consider the annual maintenance expenses as part of the rent payment, as they have not been linked formally with the rent payment.










(376)


Furthermore, the Estonian authorities have not provided any ex-ante analysis that would have indicated that the annual maintenance expenses were considered as a form of rent or even a compensation for lost rent income.










(377)


It follows from the above that, as the commitment for maintenance expenses does not have an adverse impact on the financial situation of Tartu Agro AS, the commitment for maintenance expenses must not be added to the annual rental fee when it is compared with the market price of rental fees benchmark.




5.2.3.3.2.6.5.   The lessee’s obligation for annual investments in land improvement systems






(378)


By their economic nature the investments in land improvement systems referred to in recital 68(a) generate income on a long term that may exceed the duration of the lease contract and, as such, may constitute a benefit for the owner of the land.










(379)


The Commission notes that






(a)


the commitment for EUR […]annual investments for the renewal of land improvement systems (recital 68(a)) has been included in the lease contract, and in addition the sales contract included an obligation for certain investments (recital 73(d));










(b)


the duration of the lease contract is considerably longer than the market practice (recitals 112 and 123);










(c)


only part of the investments in land improvement systems has been financed by Tartu Agro AS, i.e. the commitment for investments (recital 68(a)) has not been financed by Tartu Agro as agreed in the initial lease contract, (recitals 96 to 99) and;










(d)


the parties have agreed (recitals 69 and 133) that at the end of the lease contract, the improvements become the property of the Ministry that must acquire them at normal market value when the lease contract expires.














(380)


The Commission concludes, firstly, in light of recital 379, that only those investments which are additional investments directly due to the lease contract may have a negative impact on Tartu Agro AS’s financial position, i.e. only the investments made in order to fulfil the commitment for investments referred to in recital 68(a) may have relevance when the advantage is established and quantified. As regards Tartu Agro AS’s claim that all of its investments should be taken into account, the Commission notes first of all that investments that are made due to normal business considerations, i.e., investments by Tartu Agro AS that are not required by the lease contract, although their useful life would exceed the 25 years duration, are not based on the lease contract.










(381)


The Commission considers that it is evident that a lessee which operates in primary production a land over 25 years has business reasons also for long term investments. Therefore, the Commission concludes that Tartu Agro AS cannot effectively argue that all of its investments, in particular investments on top of the obligations of the lease contract, in the leased land should be considered as part of the rent payment.










(382)


Secondly, only the investments that are in practice financed by Tartu Agro AS may have a negative impact on Tartu Agro AS’s financial position. The nominal value of the commitment for investments is not decisive but only the part of the commitment that has been in practice enforced and financed by Tartu Agro AS. As regards investments in land improvement systems financed by third parties (recitals 91 to 99), the Commission considers that those investments do not have an adverse impact on Tartu Agro AS’s financial position. Therefore, only the part of the commitment for investments that has been executed at the expense of Tartu Agro AS may be considered as part of the rental fee.










(383)


Thirdly, as regards the condition of the lease contract that improvements may, under certain conditions, become the property of the Ministry, which must acquire them when the lease contract expires (recitals 69, 379(d) etc.), the Commission notes as follows. It may occur that some of those investments still have a residual value at the end of the contract, but it is not certain. It is possible that Tartu Agro AS recovers part of the value of those investments at the end of the contract. However, this is yet uncertain, while the lease contract is still ongoing. Furthermore, in any event, the Commission notes that Tartu Agro AS has in practice assumed a financial obligation that was on the owner.










(384)


In that situation, since data on possible future acquisitions of the residual value of assets by the Ministry is not available before the expiry of the lease contract and is uncertain, for the sake of prudence, the Commission assumes that committed investments that have been financed by Tartu Agro AS should be considered as part of the rental fee (see recital 388(b) and 389(a)).










(385)


As regards the useful life of the investments, the Commission notes that the benefits of the investments in land improvement systems referred to in recital 68(a) are shared between the parties when the useful life of the investments exceeds the duration of the lease contract. Tartu Agro AS can benefit from its committed investments only during the 25 years duration of the lease contract. The remaining part of the useful life benefits the lessor. However, Tartu Agro AS would also have benefitted from those investments if they had been paid by Estonia as provided by Section 16(1) of the Land Improvement Act (see recital 180).










(386)


Furthermore, the cumulative depreciated investments, in a situation where Tartu Agro AS would be able continue its operation under the going concern principle, on the expiry of the lease contract represent the part of the investments that benefits Tartu Agro AS. The rest of the investments benefits solely the lessor. The cumulative depreciations represent the economic value of the investments that is solely in the lessee’s own interest and the part of the investments that are not depreciated, nor acquired by the lessor, at the expiry of the lease contract represents the lessor’s economic benefit of that contractual obligation.










(387)


However, the Commission notes that contrafactual data on cumulative depreciations in land improvement systems, in a situation where Tartu Agro AS would be able continue its operation under the going concern principle, is not available. It follows that, for sake of prudence, the Commission assumes that the investments in land improvement systems have infinite useful lifetime, i.e., the amount of the investments in land improvement systems that has been financed by Tartu Agro AS is not to be reduced by the amount that would represent the economic benefit of Tartu Agro AS.










(388)


Based on recitals 379 to 387, when assessing the existence of the advantage, the Commission, for sake of prudence, assumes that:






(a)


the investments in land improvement systems made due to the commitment for investments have infinite useful lifetime, i.e. no depreciations are made and the lessor can fully benefit on those investments; and










(b)


at the end of the lease contract, the State does not acquire or pay any compensation for the assets that are financed by Tartu Agro AS due to the commitment for investments.














(389)


It follows from recital 388 that:






(a)


if the State will nevertheless acquire or pay any compensation for the assets that are financed by the investment obligation at the expiry of the lease contract, that may entail a new measure that could be assessed under State aid rules;










(b)


the EUR […]nominal annual value of the commitment for investments referred to in recital 68(a) should not be considered as part of the rental fee paid by Tartu Agro AS (given that it was not always fulfilled);










(c)


instead, 100 % of the annual amount of the commitment for investments that was actually paid by Tartu Agro AS in a given year should be considered as part of the rental fee and added to the annual rent fee payment when it is compared with the appropriate market price of rental fees benchmark.














(390)


It follows from the above that the commitment for the investments referred to in recital 68(a) may be added to the annual lease payments when compared with the market price of rental fees benchmark only up to the amount that was in practice financed by Tartu Agro AS.




5.2.3.3.2.7.   The duration and the provisions on price adjustments – assessment of economic impact and market conformity






(391)


As regards the 25 years duration of the lease contract, it is considerably longer than the market practice. Notably, in the case of Land Board’s lease agreements it is generally set for a fixed term of five years (see recital 112). In this context, the Commission notes that:






(a)


the initially agreed annual rental fee, still applicable at the moment of Estonia’s accession to the European Union, was EUR […]per calendar year for […] hectares (recital 85); and










(b)


the lease contract does not include a condition that would enable automatic price adjustments without the parties’ agreement as the lease contract includes only conditions referred to in recitals 63 to 66 that enable parties to adjust the paid rental fee under certain conditions.














(392)


As regards the case at hand and the conditions of the lease contract referred to in recitals 63 to 67, the Commission considers that those conditions, which enable the parties to request a reduction or increase of the rental fee by a reasonable amount if the rental fee payable by the lessee exceeds the revenue or deviates by more than half from the reasonable rental fee corresponding to the contractual obligations of both parties, do not adequately correspond to an appropriate indexation condition. The terms of the lease contract that enable the parties to launch a process in order to change the rental fee do not ensure that the agreed rental fee follows appropriately market prices.










(393)


Firstly, that condition enables rental fee adjustments only if the deviation from the normal market price level is more than 50 %.










(394)


Secondly, it requires that the parties submit a specific request for the rental fee adjustment.










(395)


Thirdly, it transfers also operative risk from the lessee to the lessor as the lease contract included a condition that enabled the lessee to require a reduction in the rental fee if it exceeds the revenue from the regular management of the leased item.










(396)


It follows that the condition does ensure market price conformity of the lease contract during its duration.










(397)


Therefore, the Commission considers that the 25 years duration without provisions, like an index condition, that would ensure market price conformity, is a feature of the lease contract that has a material impact on the economic and financial outcome of the lease contract.










(398)


Furthermore, the Commission notes that:






(a)


the Estonian authorities have not provided any ex-ante analysist that would have assessed whether the initial lease price takes adequately into account the duration of the lease contract;










(b)


the detailed provisions of the initial lease contract, which in practice define the economic and financial impact of the lease contract, were concluded in the restricted negotiation when Tartu Agro AS was a government owned entity (recital 47).














(399)


In light of the above, the Commission considers that an undertaking could not have obtained such conditions under normal market conditions as the initially agreed lease price does not adequately take into account the duration and the lack of an index condition.










(400)


The Commission concludes that the duration and the provisions referred to in recitals 64 to 66 are features of the lease contract that an undertaking could not have obtained under normal market conditions.










(401)


Under normal market conditions a lessee would not have had a rational reason from an economic, commercial and financial perspective, taking account of the duration of the initial lease contract, to limit its possibilities for price increases by the conditions referred to in recitals 64 to 66.










(402)


The Commission also disagrees with the argument expressed by Tartu Agro AS considering that the parties to a lease contract are unable to continually adapt a long-term contract to market conditions (see recital 192). The Commission recalls the principle of supremacy of EU law (73) and the fact that neither national law nor a contract signed by a Member States can infringe State aid rules (see also recital 285).










(403)


Taking into account that the lease contract included conditions, referred to in recitals 64 to 66, that transfer part of the lessee’s operative risk to the lessor, thereby generating an advantage the lessee, the Commission concludes that the duration of the lease contract is an option type feature of the lease contract, hence it has no negative value for the lessor, and the duration can only increase the value of the advantage when the annual amount of the rent payment is compared to the market price of rental fees benchmark that is based on contracts with a shorter duration.




5.2.3.3.2.8.   The difference of the rental fee paid by Tartu Agro AS and the market price of rental fees benchmark on the date of Estonia’s accession to the European Union






(404)


In 2004, the lowest market price of rental fees benchmark was EUR 10 per ha based on the Uus Maa report (recital 128(b)), given that the Land Board data was available only from 2005.










(405)


It follows that for 2 839,50 ha of arable land the annual market price of rental fees benchmark would have been EUR 28 395 ha. Respectively, for 2 920,98 ha of land eligible for CAP support the annual market price would have been EUR 29 209,80.










(406)


In 2004, the annual rental fee paid by Tartu Agro AS, i.e. amount of rental fee excluding the land tax or other financial obligations, was EUR […] (recital 85), i.e. EUR […]per arable hectare (2 839,50 ha) (recitals 148) or EUR […]per hectare eligible for CAP support ([…]ha).










(407)


In light of recital 390, when the rental fee paid by Tartu Agro AS is compared with the market price of rental fees benchmark, the commitment for investments (recital 68(a)) must be included as part of the rental fee up to the amount that is financed by Tartu Agro AS.










(408)


However, no investments in land improvement systems were financed by Tartu Agro AS in 2004 (recital 99).










(409)


In light of the above the Commission concludes that the rental fee paid by Tartu Agro AS (EUR […], EUR […]per arable hectare ([…]ha)) compared to the market price of rental fees benchmark (EUR 29 209,80, EUR 10 per ha (lowest price according to the Uus Maas report, see recitals 128 and 332) was below the market price.










(410)


The conclusion on the existence of advantage remains the same also if the market benchmark fee, EUR 10 per ha, is reduced by 20 % (as proposed by the Uuus Maas report), thereby considering the maximum range of valuations accuracy (see recitals 132, 144 and 424).










(411)


Only in a contrafactual situation, where Tartu Ago AS would have financed the commitment for investments as its nominal annual value, EUR […]per year, the rental fee would have exceeded the market benchmark fee, EUR 10 per ha.










(412)


It follows, taking into account the 25 years duration of the lease contract and the advantageous conditions for future price increases that an undertaking could not have obtained under normal market conditions (recital 399), that the lease contract generated an economic advantage to Tartu Agro AS on the date of Estonia’s accession to the European Union.




5.2.3.3.2.9.   The difference of the rental fee paid by Tartu Agro AS and the market price of rental fees benchmark at the time of the renegotiated rental fees since Estonia’s accession to the European Union






(413)


Because the amount of the rental fee was re-negotiated or unilaterally increased after the accession (see section 2.5.4), the Commission assesses whether the revised rental fees were in line with market benchmark.










(414)


Since 2005, in light of recital 335, the appropriate market price of rental fees benchmark is based on the Land Board’s data on median lease prices in Estonia as shown in recital 111).










(415)


In light of the conclusions drafted in sections 5.2.3.3.2.6 on the conversion of the rental fee in euro per ha and on the market conformity and economic relevance of the financial obligations, the following transformations and adjustments have to be made in order to calculate the difference between the market price of rental fees benchmark, i.e. the Land Board’s data, and the actual rental fee paid by Tartu Agro AS:






(a)


the actual rental fee payment in 2014 (EUR […]) that exceeded the agreed rental fee (EUR […]), i.e. EUR […], must be allocated as a delayed payment for the year 2012 when the rent actually paid by Tartu Agro AS was less than agreed;










(b)


the annual amount of the commitment for investments actually financed and borne by Tartu Agro AS must be added to the annual rental fee payments paid by Tartu Agro AS (recital 99); and










(c)


the annual amount of the rental fee, i.e. the rental fee and the amount added in the previous point, actually paid by Tartu Agro (EUR per year) must be transformed to EUR per ha value by dividing it by the number of hectares that were eligible for CAP support in a given year; or alternatively the hectares eligible for CAP support in a given year must be multiplied by the market price of rental fees benchmark, i.e. the Land Board’s data.














(416)


It follows, when the difference between the actual rental fee paid by Tartu Agro AS and what it should have paid at the time under normal market conditions is calculated, that the re-negotiated and unilaterally increased rental fees were below the market benchmark fees since 2005 when the when the annual rental fee was adjusted as demonstrated in the following table (see Table 18):

Table 18


Rental fee price compared to market price of rental fees benchmark at the time when annual rental fee was adjusted by the parties











Year


Annual paid rental fee


Commitment for investments (amount financed by AS Tartu Agro)


Lease price comparable to the benchmark price


Benchmark for the market price


CAP eligible area
EUR / ha benchmark price





2005



[…]


[…]


5 112,93 


102 014,71 


[…] ha,
EUR 34,60 /ha





2007



[…]


[…]


20 560,91 


107 503,49 


[…]ha
EUR 36,92 /ha





2009



[…]


[…]


56 211,59 


153 903,79 


[…]
EUR 52,90 /ha














(417)


Therefore, the Commission concludes that the parties have agreed a rental fee, which even increased by the annual amount of the commitment for investments financed by Tartu Agro AS, remains below the price it should have paid at the time under normal market conditions since Estonia’s accession to the European Union.




5.2.3.3.2.10.   The difference of the rental fee paid by Tartu Agro AS and the market price of rental fees benchmark since 2005






(418)


In light of the above, the Commission concludes that the difference between the annual rental fee paid by Tartu Agro AS and the market price is result of






(a)


rental fee initially agreed below the marker benchmark (section 5.2.3.3.2.8),










(b)


advantageous conditions as regards the duration and fee adjustment conditions (section 5.2.3.3.2.7) and










(c)


revised rental fees that were agreed below the market price (section 5.2.3.3.2.9).














(419)


It follows that, as regards the calculation of the difference between the actual rental fee paid by Tartu Agro AS and what it should have paid at the time under normal market conditions the Commission (see recital 291) the annual rental fee paid by Tartu Agro AS and the market price of rental fees benchmark must be compared in order to define whether the leased was provided to Tartu Agro AS with advantageous conditions.










(420)


Those transformations and adjustments that are described in recital 415 have to be made in order to ensure that the difference between the market price of rental fees benchmark, i.e. the Land Board’s data, and the actual rental fee paid by Tartu Agro AS is based on comparable values.










(421)


The Commission notes that, for clarity, the advantage is assessed in annual level although the alleged advantage was granted to Tartu Agro AS when the leased land was provided to Tartu Agro AS below the market price, i.e, when the rent payment below the market price was due twice a year, 1 of July and 1 of December (see recital 508).










(422)


As demonstrated in the following table (see Table 19), from 2015 to 2019 the rental fee payment actually paid by Tartu Agro AS, increased by the amount of commitment for investments for land improvement systems actually paid by Tartu Agro AS was below the annual market benchmark fee.

Table 19


Annual rent rental fee paid by Tartu Agro AS compared to market price of rental fees benchmark












Year


Paid Rental fee
(EUR / year)


The commitment for Investments actually paid by Tartu Agro AS
(EUR / year)


Market benchmark fee
(EUR/ha) (land board)


Hectares (CAP eligible)


Market benchmark (EUR/ha) (land board)


Difference
(EUR / year)





Column



A
(recital 85


B
(recital 99)


C = D * E


D
(recital 87)


E
(recital 111)


F = C – (A+B)





2005



[…]


[…]


102 014,71 


[…]


34,60 


[…]





2006



[…]


[…]


68 893,23 


[…]


23,66 


[…]





2007



[…]


[…]


107 503,49 


[…]


36,92 


[…]





2008



[…]


[…]


120 170,02 


[…]


41,30 


[…]





2009



[…]


[…]


153 903,79 


[…]


52,90 


[…]





2010



[…]


[…]


106 548,77 


[…]


36,58 


[…]





2011



[…]


[…]


161 581,10 


[…]


55,88 


[…]





2012



[…]


[…]


233 335,55 


[…]


80,39 


[…]





2013



[…]


[…]


354 266,69 


[…]


122,31 


[…]





2014



[…]


[…]


319 693,27 


[…]


109,85 


[…]





2015



[…]


[…]


315 302,97 


[…]


107,63 


[…]





2016



[…]


[…]


279 097,73 


[…]


95,27 


[…]





2017



[…]


[…]


257 888,79 


[…]


88,00 


[…]





2018



[…]


[…]


295 672,48 


[…]


101,03 


[…]





2019



[…]


[…]


336 331,57 


[…]


115,13 


[…]














(423)


It follows, as the lease contract was not market conform as regards its rental fee, duration, indexation conditions (section 5.2.3.3.2.7) and enforcement (section 5.2.3.4), that the lease contract provided the leased land to Tartu Agro AS below the market price. The Commission concludes that the difference, in particular when compared to the rental fee paid by Tartu Agro AS, shown in the above table demonstrates an advantage in the pricing of the lease contract conducted by the Estonian authorities.




5.2.3.3.2.10.1.   Sensitivity analysis as regards the appropriate market price data






(424)


Sensitivity analysis is a method used to determine how different variables or factors in a model or system can affect the outcome. It involves changing one variable at a time to see how much the result changes. In this context, as regards the sensitivity of the price difference on accuracy of the market price of rental fees benchmark, the Commission notes that the conclusion remains the same even if the appropriate market price of rental fees benchmark would be reduced by 20 %. Further, the Commission notes that:






(a)


the Uus Maa report states that its valuation is of medium accuracy and the actual rent may differ by ± 20 %;










(b)


the most recent expert report (even if providing an estimate only for 2020), the Domus report, states that the accuracy of its valuation is ± 10 %;










(c)


the quality information indicates that the land leased under the lease contract has higher quality that the land leased by the Land board.








5.2.3.3.2.10.2.   Sensitivity analysis as regards the other available market price sources






(425)


As regards, the Land Board data the Commission notes that it represents realised market prices for the leases of agricultural land leased by the government. It follows that, as the lessor is the Government, it represents, in the present case, the relevant land lease market, that is the most comparable set of transactions to the lease contract, available only after 2004.










(426)


As regards consistency of the available rental fee benchmarks, the Commission notes that:






(a)


the Pindi Kinnisvara report, dated 12 April 2013, notes that renewals of contracts currently in force and for new contracts were made between EUR 50 and EUR 100 per ha and sometimes, in logistically well-established and competitive areas, with higher prices;










(b)


the Uus Maa report notes fee range of EUR 30 to EUR 50 per ha from 2010 to 2014, i.e., the Pindi Kinnisvara report reports higher market prices than the Uus Maa report;










(c)


the Land Board data reports EUR 80,39 per ha fee level for the year 2012 and EUR 122,31 per ha for 2013; and










(d)


Statistics Estonia reports EUR 26 per ha fee level for the year 2012.














(427)


The Commission concludes that the Pindi Kinnisvara report, that was commissioned by Tartu Agro AS and withdrawn by the Estonian authorities, does not contradict the Land Board’s data. The Land Board’s data should show higher rental fees than the Pindi Kinnisvara because public leases have higher price level that private leases (recital 314) and the Pindi Kinnisvara report does not limit its observations to public leases, whereas the Land Board’s data is limited to public leases.










(428)


As regards the Uus Maa report the Commission concludes that it presents a reasonable, coherent and prudent market price of rental fees benchmark as its price ranges are close to the data from Statistics Estonia, which, for the reasons explained in recital 109, and confirmed by the Uus Maa report (recital 135), represents a price estimate that is below the market price. However, as explained above, the Uus Maa report is the best available price benchmark for the year 2004, which can still be considered reliable.










(429)


As regards the Domus report, the Commission notes that its value date (74) is 18 February 2020 and that report does not provide retroactive price estimates for the leased land.










(430)


The Commission concludes that the Domus report is of little relevance (recital 313) for this investigation as it – provides estimates for the year 2020 that is not concerned by this investigation (see recitals 15 and 144).










(431)


The summary of the available price data is presented in the following tables.

Table 20


Available price data sources for the year 2014









Year 2014


EUR / ha


Type of data source


Comment





SAP payment



114,09 


SAP support received by the lessee


Income for the lessee, according to the experts, land lease prices follow closely SAP level





Statistics Estonia



58 


Statistical data in Tartu county


According to experts and Estonia, market prices are actually higher than statistical data (see recital 304). Further, the data is not limited to public leases that have higher price levels than private leases.





Pindi Kindisvara



50 -100 , over 100 


Expert opinion based on prices observed in the market


Logistically well-established and competitive areas rental fee might be higher than EUR 100 per ha.





Pindi Kindisvara



20 -30 


Expert opinion having regard the features of the area


Expert opinion having regard that 90 % of land is arable land in an attractive location in the county of Tartu and EUR 104 per hectare investment commitment (the report does not specify a value date and it does not explain how the EUR 104 investment commitment in taken into account in its price estimate) (see recital 116).





Uus Maa



50 


Expert opinion based on prices observed in the market


EUR 50 ha is the price estimate at the end of the time range. The price estimate is given 20 % accuracy. (The report does not provide an explanation how the price levels for years after the accession are estimated).





The Land Board



109,85 


Average of medial transactions in Estonia


Price data on actual public leases in Estonia (see recital 425).














(432)


In light of the above, the Commission concludes, also considering that the SAP support is a factor that has an impact on the land lease prices, that other price estimates do not undermine the conclusion that the price level estimated by the appropriate market price of rental fees benchmark, that is the Land Board data, provides the most accurate price estimate starting from 2005.




5.2.3.3.2.10.3.   Sensitivity analysis as regards the duration






(433)


The Commission






(a)


acknowledges, in light of recital 112, that the Land Board data is in principle based on lease contracts that have 5 years duration, whereas the lease contract has 25 years duration;










(b)


considers that the lease contract does not include an adequate indexation condition (recital 397) although the rental fee contract has been amended and it is depending on the SAP support.














(434)


As regards the difference in duration between the rental fee paid by Tartu Agro AS and the market price of rental fees benchmark in the Land Board data, the Commission considers that a cautious approach is to compare the difference between the lease price paid by Tartu Agro AS with the market price that is fixed every five years.










(435)


A market benchmark fee that is fixed every five years corresponds to the Land Board’s market practice, hence, it corresponds to the lease price which a private operator, operating in normal competitive conditions, would have been likely to have fixed.










(436)


The Commission notes that this approach excludes the price risk from the advantage (see recital 294).










(437)


Furthermore, this approach






(a)


corresponds to a contrafactual situation in which the land under the lease contract would have been leased under similar conditions than the State leases land under normal practise through the Land board actions; and










(b)


considers that the only relevant evidence is the information which was available, and the developments which were foreseeable, at the time when the lease contract was amended by the parties.














(438)


The table referred to in recital 422 (see Table 19) demonstrates that, even if the market price of rental fees benchmark would be fixed 2005, 2010 and 2015, the rental fee paid by Tartu Agro AS would be below the market price that Tartu Agro would have paid under normal market conditions.










(439)


The Commission concludes that, as demonstrated, the conclusion on the existence of an advantage remains the same even if the appropriate market price of rental fees benchmark is fixed every five years.




5.2.3.3.2.11.   Tartu Agro AS’s secondary claim that the alleged advantage was eliminated when Estonia sold its shares in Tartu Agro AS






(440)


Tartu Agro AS has made secondary claims that the alleged advantage would have been eliminated due to the privatisation and the merger. Further, Tartu Agro AS claims that the measures, the privatisation and the merger should be considered as one transaction.










(441)


Firstly, the Commission notes that the merger was not an asset deal but a share deal. It was OÜ Tartland that was merged into Tartu Agro AS, which means that the legal continuity between Tartu Agro AS and the merged entity is clear and uninterrupted. It follows that Tartu Agro AS is the legal successor in every way of the previous legal entity with the same name, Tartu Agro AS. The benefit is not removed in any way but carried by Tartu Agro AS, which is deemed to be the same legal person in law, due to legal succession.










(442)


Secondly, as regards Tartu Agro AS’s claims that the merger and the initial lease of land would be one transaction and the privatisation would have eliminated any advantage, the Commission acknowledges that in certain cases, consecutive measures of State intervention may, for the purposes of Article 107(1) TFEU, be regarded as a single intervention, where consecutive interventions are so closely linked to each other, especially having regard to their chronology, their purpose and the circumstances of the undertaking at the time of those interventions, that they are inseparable.










(443)


The Commission notes that in the case at hand there is no evidence that would support Tartu Agro AS’s claim, referred to in recitals 226 and 227, that the lease, the privatisation and the merger should be considered as one transaction, because Estonia aimed to maximise its sales income by leasing the land below market price.










(444)


The privatisation did not occur immediately after the lease. Secondly, the Commission notes that there is no presumption of general application that solely a sale of an undertaking benefiting an aid eliminates the economic impact of the aid.










(445)


Furthermore, the Commission notes that (75):






(a)


in accordance with the administrative decision to the sell the shares of Tartu Agro AS to OÜ Tartland, the offer of OÜ Tartland was selected because it had higher commitments for investments compared with the bidder that had the highest purchase price offer;










(b)


the sales contract included commitments to maintain employment and continue agricultural production as specified in detail in the sales contract; and










(c)


the sales contract included obligations for the buyer to either make investments or manage Tartu Agro AS to make investments within a period of five years as specified in the sales contract (section 2.5.3).














(446)


The Commission notes that the highest purchase bid was not selected (recital 72). Furthermore, the selection criteria, i.e. amount of investments managed or made by Tartu Agro AS, did not require the OÜ Tartland to invest additional capital but solely to manage the investments of Tartu Agro AS.










(447)


In addition, the sales contract included investment, employment and production commitments that pursue public objectives. A private investor would not have included those commitments in a sales agreement when selling its assets.










(448)


Therefore, the Commission considers that the lease is not solely a preparatory act for the privatisation as claimed by Tartu Agro AS and the lease and the privatisation are two separate transactions. Furthermore, the privatisation does not indicate that Estonia would have acted as a private investor when it leased the land.










(449)


The Commission considers that a normal economic operator would not have been willing to prefer investment commitments over a higher sales price or include detail conditions on future average number of staff. The Commission concludes that the execution of the privatisation does not indicate that the sale price of the shares of Tartu Agro AS would have fully reflected the consequences of the alleged aid and the privatisation should be further examined.










(450)


Finally, the Commission notes that the enforcement of the initial lease contract, namely its amendments defining the rental feel below the market price of rental fees benchmark, occurred after the merger and the date of Estonia’s accession to the European Union.










(451)


In light of the above, the Commission concludes that the privatisation and the merger have not eliminated the advantage, as claimed by Tartu Agro AS.




5.2.3.4.   Market conformity of the enforcement of the lease contract







(452)


An advantage, in the meaning of Article 107(1) TFEU, may be present if the implementation of the lease contract by Estonia is not line with normal market practices and if that reduces the costs which would normally be included in the budget of Tartu Agro AS.










(453)


In the case at hand, the Commission notes that:






(a)


firstly, the initial lease contract included a condition (recitals 62 to 67) that the rental fee was subject to a review once a year with certain conditions, however, such reviews have not taken place systematically as the rental fee was renegotiated and adapted thrice (recital 76);










(b)


secondly, the initial lease contract enabled amendments where a modification results from legislation, hence, when the EU State aid rules came into force in Estonia in 2004, the initial lease contract would have enabled modifications without parties’ agreement, however, such rent increases have not taken place; and










(c)


thirdly, even though the initial lease contract has been modified and the annual rental fee increased since 2004, the rental fee remains below the market price of rental fees benchmark (76) (sections 5.2.3.3.2.4 and 5.2.3.3.2.5).














(454)


It follows that the Commission concludes that, during the time period covered by the decision, Estonia has not enforced all possibilities for rental fee increases that the lease contract would have enabled.










(455)


A private operator operating in normal conditions of a market economy would have used available possibilities for fee increases.










(456)


Hence, the lease contract did not become advantageous solely due to the initially agreed price level of the rental fee and evolution of the common market or price increases but also due to Estonia’s actions or rather inactions from 2004 until 31 December 2019.




5.2.3.5.   Conclusion on the presence of an advantage







(457)


The Commission concludes that the measures granted an advantage within the meaning of Article 107(1) TFEU to Tartu Agro AS.










(458)


The lease contract and its enforcement generate an economic benefit to Tartu Agro AS since the date of Estonia’s accession to the European Union until 31 December 2019. The advantage takes the form of the 25 years lease contract that provides agricultural land below the market price that an undertaking could not have obtained under normal market conditions (77) (recitals 423 and 454 to 456).




5.2.4.   Selectivity







(459)


The measures do not meet the criteria for a scheme because they do not provide the leased land to a beneficiary that is expressed in a general and abstract manner but to a single undertaking specifically selected and named in the initial lease contract, further, the measures are linked to a specific lease of land managed by the lessee and the conditions defining the economic and financial impact of the lease contract were a result of the negotiations between the lessor and the lessee.










(460)


It follows that the measures, as they grant an advantage to a single undertaking, Tartu Agro AS, while other undertakings in a comparable legal and factual situation do not receive the same alleged advantage, is individual aid.










(461)


Where individual aid is at issue, the identification of the economic advantage is, in principle, sufficient to support the presumption that a measure is selective (78). This is so regardless of whether there are operators on the relevant markets that are in a comparable factual and legal situation. Therefore, the Commission concludes that the measures are selective within the meaning of Article 107(1) TFEU.




5.2.5.   Distortion of competition and trade between EU Member States







(462)


By granting an advantage, the measure strengthens the competitive position of the beneficiary on the market. According to the case law of the Court of Justice, the mere fact that the competitive position of an undertaking is strengthened compared to other competing undertakings, by giving it an economic benefit, which it would not otherwise have received in the normal course of its business, points to a possible distortion of competition (79).










(463)


Pursuant to the case law of the Court of Justice, an advantage to an undertaking appears to affect trade between Member States where the undertaking operates in a market open to intra-EU trade (80).










(464)


Intra-EU trade takes place in the primary agricultural sector, where the beneficiary operates, and that sector is open to competition at EU level and therefore sensitive to any measure in favour of the production in one or more Member States. Furthermore, the Commission notes that agricultural production capacity linked to agricultural land is the subject of trade and investment within the European Union. In particular, the Commission notes that the Tartu Agro AS operates in a sector where undertakings are mainly SMEs. Hence, the measures are liable to distort or threatens to distort competition and to affect trade between Member States.




5.2.6.   Conclusion on existence of aid







(465)


The Commission concludes that, during the time period covered by this Decision (recital 240), the lease contract, its amendments and its enforcement provide an aid to Tartu Agro AS, because:






(a)


the measures are imputable to the State and financed through State resources (section 5.2.1);










(b)


it confers a selective (section 5.2.4) advantage (section 5.2.3.5) to Tartu Agro AS, which is an undertaking (section 5.2.2); and










(c)


the measures distort or threaten to distort competition and affect trade between Member States (section 5.2.5).














(466)


It follows that the measures fulfil all the conditions of Article 107(1) of TFEU and therefore entails State aid.




5.3.   Lawfulness of the aid







(467)


The lease contract between the Ministry and Tartu Agro AS was concluded in 2000 and thus it existed prior to Estonia’s accession to the European Union.










(468)


However, it does not fulfil the conditions for being considered to be existing aid, as defined in Article 1(b) of Regulation (EU) 2015/1589 laying down detailed rules for the application of Article 108 TFEU, read in combination with Annex IV to the Act of Accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (81), because according to Annex IV Section 4 Agriculture point 4, to be regarded as existing aid, the aid measure shall be communicated to the Commission within four months of the date of accession, all other aid is considered new aid.










(469)


Since no such notification referred to in recital 468 took place, the current measures are a new aid within the meaning of Article 1(c) of Regulation (EU) 2015/1589. In light of the above, the measures provide unlawful aid as new aid has been put into effect in contravention of Article 108(3) TFEU as by not notifying the measures before putting it into effect, the Estonian authorities have not respected their obligations under Article 108(3) TFEU.




5.4.   Compatibility of the aid







(470)


State aid in the meaning of Article 107(1) TFEU is generally incompatible with the functioning of the internal market, unless if it can benefit from one of the derogations provided for in TFEU.










(471)


The measures referred to in recital 28 are not an aid scheme but constitute an ad hoc aid because the lease transaction allegedly provides for aid to an undertaking, Tartu Agro AS, that is specified in the initial lease contract as the lessee.










(472)


Under Article 107(3), point (c), TFEU, an aid may be considered compatible with the internal market, if it is found to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.










(473)


Therefore, compatible aid under that provision of the Treaty must (i) contribute to the development of a certain economic activity or of certain economic areas and (ii) must not distort competition in a way contrary to the common interest.










(474)


According to the Commission notice on the determination of the applicable rules for the assessment of unlawful State aid (82), all unlawful aid under Article 1(f) of Regulation (EU) 2015/1589 must be assessed in accordance with the texts in force at the time when the aid was granted.










(475)


Although Estonia did not advance any arguments on compatibility, Tartu Agro AS’s claims that State aid would be compatible with the internal market, because of the economic situation in which the lease contract was concluded and the fact that Tartu Agro AS operated as OECD-compliant seed propagation and as a learning and testing base for the Estonian University of Life Sciences (recitals 228 to 230).










(476)


The Commission notes that as Tartu Agro AS operates in the forestry and primary agricultural sectors, the measure must be examined in the light of the Community Guidelines for State Aid in the agricultural and forestry sectors 2000 to 2006 (83) (‘the 2000-2006 Guidelines’) and the subsequent Guidelines (recital 480).










(477)


The Commission notes that the lease contract does not include any features that would bring improvement that the market cannot deliver by itself or change the behaviour of Tartu Agro AS in such a way that it would engage in additional activity, which it would not carry out without the aid or which it would carry out in a restricted or different manner.










(478)


In general, State aid in the form of unduly low land rental fees constitutes operating aid as it reduces the normal operating costs of the beneficiary.










(479)


Operating aid is deemed to be prima facie incompatible with the internal market, in particular under Article 107(3), point (c), TFEU (84).










(480)


It follows that the measures do not address an identified market failure. Hence, the negative distortive effects on competition and trade outweigh possible positive effects of the measures. Therefore, the Commission considers that this measure cannot be declared compatible on the basis of the 2000-2006 Guidelines. Neither can these measures be declared compatible on the basis of the Community Guidelines for State Aid in the agricultural and forestry sectors 2007 to 2013 (85), the European Union Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020 (86) nor the 2022 Commission Guidelines for State aid in the agricultural and forestry sectors and in rural areas (87) currently in force.










(481)


As regards Tartu Agro AS’s claims that any advantage would be a compensation for its services and strategic importance for Estonia, the Commission notes that, although the lease contract included conditions that obliged Tartu Agro AS to operate in the primary agriculture sector, the lease contract or the sales contract did not specify any quantifiable public service obligations. The lease contract and the sales contract only obliged Tartu Agro AS to operate in primary agriculture sector and maintain specific number of employees.










(482)


Furthermore, the Estonian authorities have not claimed and there are no other indications showing that Agro AS would have had specific public service obligations since 2004.










(483)


Moreover, primary agriculture production has been provided in Estonia in a market environment. In particular, the lease of the agricultural land is related to an economic activity. Regarding claims on Tartu Agro AS’s importance for OECD-compliant seed propagation and learning and testing (recitals 228 to 230) those objectives were not clearly defined public service obligations. Furthermore, possible compensation for those services in the form of a rental fee below the market price, in particular by linking the rental fee to single area payment (recital 80), is not calculated and established in an objective and transparent manner. Furthermore, even though the goods or services related to seeds, testing or research would have been financed by selling an entity that benefits the lease contract below market value, those services were not acquired by a transparent and non-discriminatory tender procedure (section 5.2.3.1).










(484)


In any event, it has not been sufficiently demonstrated that the measure was necessary and proportionate to attain any objectives of common interest. Estonia did not advance any arguments on compatibility and in any event the measures at stake are to be regarded as operating aid. Therefore, the Commission has not identified any grounds to declare the aid compatible with the internal market in the light of Article 107(3) TFEU.










(485)


The Commission therefore concludes that the lease of the land to Tartu Agro AS by the Ministry constitutes State aid (section 5.2.6) and that it is unlawful (section 5.3) and incompatible (recital 484) with the internal market on the basis of Article 107(1) TFEU.




5.5.   Recovery







(486)


According to the TFEU and the established case law of the Union Courts, the Commission is competent to decide that the Member State concerned shall alter or abolish aid when it has found that it is incompatible with the internal market (88). The Union Courts have also consistently held that the obligation on a Member State to abolish aid regarded by the Commission as being incompatible with the internal market is designed to re-establish the previously existing situation (89).










(487)


In this context, the Union Courts have established that this objective is attained once the recipient has repaid the amounts granted by way of unlawful aid, thus forfeiting the advantage which it had enjoyed over its competitors on the internal market, and the situation prior to the payment of the aid is restored (90).










(488)


In line with the case law, Article 16(1) of Regulation (EU) 2015/1589 states that ‘where negative decisions are taken in cases of unlawful aid, the Commission shall decide that the Member State concerned shall take all necessary measures to recover the aid from the beneficiary’.










(489)


Thus, given that the measure in question was implemented in breach of Article 108(3) TFEU, and is to be considered as unlawful and incompatible aid, it shall be recovered in order to re-establish the situation that existed on the internal market prior to their granting.










(490)


In light of recital 489, and taking into account that the Estonian authorities have conducted a recovery based on the the initial decision, the Estonian authorities must respect their standstill obligation and define whether the already recovered amount corresponds to the unlawful and incompatible aid in its totality, with interest, or whether future recovery or restitution is needed.










(491)


It follows from the above that Estonia must recover any amount, which is not covered by the previous recovery from Tartu Agro AS since the interruption of the limitation period, i.e. 14 August 2004 (see section 5.5.1.), until 31 December 2019, because of the reasons explained in recitals 29, 239 and the conclusion in recital 498).




5.5.1.   Limitation period







(492)


Article 17 of the Regulation (EU) 2015/1589 states that the powers of the Commission to recover aid shall be subject to a limitation period of 10 years (‘the limitation period’).










(493)


Article 17 of the Regulation (EU) 2015/1589 also specifies that any action taken by the Commission or by a Member State, acting at the request of the Commission, with regard to the unlawful aid shall interrupt the limitation period.










(494)


The limitation period shall begin on the day on which the unlawful aid is awarded to the beneficiary (91). It should be pointed out that the 10-year limitation period provided for in Article 17 of Regulation (EU) 2015/1589 ‘[d]oes not in any way express a general principle whereby new aid is transformed into existing aid but merely precludes recovery of aid established more than 10 years before the Commission first intervened’ (92). It follows from this that, pursuant to Article 17 of the Regulation (EU) 2015/1589, the Commission would be able to order recovery only in respect of aid which had benefited the beneficiary during the 10 years preceding its first action.










(495)


In the context of the measures at hand, the lease contract for the lease of agricultural land was signed between the Ministry and Tartu Agro AS on 16 November 2000 (recital 28(a)) and maintained since then. However, the conditions defining the rental fee were renegotiated on 14 January 2005, on 21 March 2007 and on 12 May 2009. Furthermore, on 29 December 2020, the rent was unilaterally increased by Estonia (see recital 81).










(496)


The unlawful aid is put at Tartu Agro AS’s disposal when the leased land was, since the date of Estonia’s accession to the European Union, provided to Tartu Agro AS below the market price, i.e., when the rent payment below the market price was due twice a year, on 1 of July and 1 on of December.










(497)


In the context of the measures at hand, the Commission contacted the Estonian authorities on these measures for the first time on 14 August 2014, after receiving a complaint on 24 July 2014, when the Commission forwarded the complaint to the Estonian authorities and invited them to submit information and to comment on the allegations made by the complainant. Thus, the limitation period was interrupted on 14 August 2004 by the action of the Commission on 14 August 2014.










(498)


Therefore, the unlawful and incompatible aid received by Tartu Agro AS between 14 August 2004 and 31 December 2019 must be recovered.










(499)


The amount to be recovered shall bear interest, calculated in compliance with Chapter V of Commission Regulation (EC) No 794/2004 (93), from the date the aid was put at the disposal of the beneficiary until full recovery (‘recovery interest’).




5.5.2.   General principles of Union law







(500)


In the context of the measures at hand the Commission considers that Tartu Agro AS’s claims that the recovery of aid would be contrary to a general principle of Union law (94), namely the principles of legitimate expectations and legal certainty are unfounded. The principle of the protection of legitimate expectations concerns any person who can entertain expectations which are justified and well founded, having received precise, unconditional and consistent assurance from the competent institution of the European Union (95).










(501)


Firstly, the Commission notes that it has no discretion to waive the recovery of the unlawful aid.










(502)


Secondly, regarding Estonia’s accession to the EU and the enforcement of the State aid rules in Estonia, the Commission notes that the principle of legitimate expectations cannot be extended to the point of generally preventing a new rule from applying to the future effects of situations which arose under the earlier rule (96). Further, as shown in recitals 468 and 469, measures that have taken place before Estonia’s accession are considered existing aid only if they comply with conditions of Article 1(b) of the Regulation (EU) 2015/1589. Those conditions are known, clear, precise, stable, certain and predictable. Therefore, the Commission concludes that Estonia’s accession to the EU does not establish legitimate expectations or legal certainty that would prevent the Commission to recover the aid.










(503)


Further, the Commission considers that due to the exceptional features of the contract, namely the 25 years duration without an index condition, and conditions referred to in recitals 62 and 64, Tartu Agro AS should have taken into account the possibility that the lease contract provided an advantage differing from normal market conditions. In particular, taking into account the claim presented by Tartu Agro AS that the lease contract was made and compatible because of its strategic importance to Estonia (recital 191), Tartu Agro AS should have considered that the compatibility of aid can be assessed solely by the Commission, while no aid notification took place.










(504)


Thirdly, regarding Tartu Agro AS’s claim that a delay in giving the final decision could in this case establish a legitimate expectation on Tartu Agro AS’s part so that it would prevent the Commission from recovery, the Commission notes that it contacted the Estonian authorities on this measures on 14 August 2014 after receiving a complaint on 24 July 2014, the measures have never been subject to the Commission’s prior authorisation (97), it concerns the sector that is vulnerable for distortions of competition as there operates mainly SMEs and where the Commission has established Guidelines since the initial lease contract (recital 476), the measures concern operative aid that is prima facia not compatible with the internal market and the Commission established its doubts in the opening decision. Consequently, Tartu Agro AS cannot effectively claim that it would have had reasonable grounds for believing that the Commission’s doubts would not exist. Furthermore, in line with the case law (98), the mere fact that there is a long period since the initial lease contract and the Commission decision to open an investigation cannot in itself confer on that measure the objective nature of existing aid, if it does constitute aid.










(505)


In light of recitals 500 to 504, the Commission concludes that a recovery is not against general principles of Union law.




5.5.3.   Quantification of the advantage







(506)


Pursuant to Article 16(1) of the Regulation (EU) 2015/1589, Estonia is required to take all necessary measures to recover the aid from Tartu Agro AS. The Estonian authorities must quantify:






(a)


the aid to be recovered based on the methodology set out in the Decision (section 5.5.4); and










(b)


the exact amount of interest to be recovered from the date when the aid was made available to Tartu Agro AS until the recovery.














(507)


As concluded in section 5.2.6, the measures referred to in recital 28 provide for an advantage as the rental fee has been below the benchmark price (recital 422).










(508)


Although the rental fee is due twice a year, the advantage may be quantified annually (see recital 421).










(509)


The limitation period was interrupted on 14 August 2004 by the action of the Commission on that date (recital 497). Therefore, Estonia has to recover the aid received by Tartu Agro AS from 14 August 2004 until 31 December 2019 (see recitals 29 and 240).










(510)


Further, when quantifying the advantage payments made before 1 January 2011, the date when Estonia became a member of the euro area, payments must be converted to euro values using the appropriate conversion rates, i.e. the Commission’s official monthly accounting rate, at the time of the transaction (99).










(511)


The quantification of the advantage must be based on the annual difference between the market price of rental fees benchmark and the annual rental fee actually paid by Tartu Agro AS. Adjustments and transformations referred to in recitals 390 and 415 must be made before calculating the difference.










(512)


The Commission notes, for clarity, as regards the claims of Tartu Agro AS, that the following adjustments must not be made:






(a)


the obligation to pay the land tax is not to be added to the paid rental fee (section 5.2.3.3.2.6.3);










(b)


the commitment for maintenance expenses, i.e. the obligation to pay annual maintenance expenses referred to in recital 68(b) (section 5.2.3.3.2.6.4); and










(c)


any investment that is made for reasons other than the commitment for investments.














(513)


For 2004, the market price must be based on the Uus Maa report estimate (see recitals 128(b), 331, 332 and 404). Even if the Commission followed a reasonable, coherent and prudent approach as explained in recitals 404 and 428 the market benchmark fee is EUR 10 per ha.










(514)


In 2004, and still following a reasonable, coherent and prudent approach, the appropriate market of rental fees price benchmark is be decreased by 20 %, considering the maximum range of valuations accuracy (recital 410). The annual advantage is the difference between:






(a)


the annual rental fee actually paid by Tartu Agro AS in line with recital 511; and










(b)


the market price of rental fees benchmark in line with recitals 513 and 517.














(515)


The following table (see Table 21) demonstrates the annual advantage in 2004 in line with recitals 506 to 518.

Table 21


Demonstration of the calculation of the annual advantage in 2004












Year


Paid rental fee


The commitment for investments actually paid by Tartu Agro AS


Market benchmark fee
(EUR/ha) (Uus Maa)


Hectares
(CAP eligible land)


Market benchmark (EUR/ha) (Uus Maa report)


Difference




 


A
(recital 85)


B
(recital 99)


C = D *0,8 * E


D
(recital 87)


E
(recital 331)


F = C – (A+B)





2004



[…]


[…]


23 367,84 


2 920,98 


10,00 


[…]














(516)


From 2005, the appropriate market price of rental fees benchmark must be based on the realised land lease prices based on the Land Board’s data in line with recital 335 as shown in recital 110. Although the Commission has systematically selected prudent approach when it has assessed the measures (see eg. recitals 346 and 388), the Land Board data must be reduced by 10 % in order to ensure that only a manifest error in the lease price is considered generating an advantage taking into account that the most recent expert report, the Domus report, states that the accuracy of its the valuation is ± 10 % (recital (b). The Commission considers that, as the market price of rental fees benchmark is not based for a theoretical price but prices from open and unconditional public bidding procedure (recital 314), the aforementioned margin the market benchmark fee must be tolerated.










(517)


As from 2005, the appropriate market price of rental fees benchmark must be:






(a)


decreased by 10 % due to the reasons explained above (see recital 516); and










(b)


fixed every five years since 2005 for the following five years, i.e. the annual adjusted market price of rental fees benchmark must be calculated for the years 2005, 2010, 2015.














(518)


The annual advantage is the difference between:






(a)


the annual rental fee actually paid by Tartu Agro AS in line with recital 511; and










(b)


the market price of rental fee benchmark in line with recitals 513 and 517.




The following table (see Table 22) demonstrates the annual advantage between 2005 and 2019 in line with recitals 506 to 518.

Table 22


Demonstration of the calculation of the annual advantage from 2005-2019












Year


Paid rental fee


The commitment for investments actually paid by Tartu Agro AS


Market benchmark fee (EUR/ha) (land board)


Hectares (CAP eligible)


Market benchmark (EUR/ha) (The Land board)
Fixed every five years


Difference




 


A
(recital 85)


B
(recital 99)


C = D *0,9 * E


D
(recital 87)


E
(recital 111)


F = C – (A+B)





2005



[…]


[…]


91 813,23 


[…]


34,60 


[…]





2006



[…]


[…]


90 673,50 


[…]


34,60 


[…]





2007



[…]


[…]


90 673,31 


[…]


34,60 


[…]





2008



[…]


[…]


90 607,62 


[…]


34,60 


[…]





2009



[…]


[…]


90 596,67 


[…]


34,60 


[…]





2010



[…]


[…]


95 893,89 


[…]


36,58 


[…]





2011



[…]


[…]


95 196,37 


[…]


36,58 


[…]





2012



[…]


[…]


95 557,57 


[…]


36,58 


[…]





2013



[…]


[…]


95 357,44 


[…]


36,58 


[…]





2014



[…]


[…]


95 811,94 


[…]


36,58 


[…]





2015



[…]


[…]


283 772,68 


[…]


107,63 


[…]





2016



[…]


[…]


283 776,22 


[…]


107,63 


[…]





2017



[…]


[…]


283 874,02 


[…]


107,63 


[…]





2018



[…]


[…]


283 489,13 


[…]


107,63 


[…]





2019



[…]


[…]


282 979,50 


[…]


107,63 


[…]














(519)


Under Article 16(2) of the Regulation (EU) 2015/1589, the recovery interest must be calculated from the date when the aid was put at the disposal of to the beneficiary until its effective recovery. The aid is made available to Tartu Agro AS twice a year, on 1 July and 1 December of each year, because the rent payment was due on those days (see recital 496).




5.5.4.   Methodology for the quantification of the recovery amount







(520)


The amount to be recovered, as demonstrated in section 5.5.3, must be calculated by the Estonian authorities based on the annual difference between the appropriate market price of rental fees benchmark and the rental fee actually paid by Tartu Agro AS as follows:





Where for 2004:






(a)



MpL

n
 is, in line with recital 322, the appropriate market price estimate-based average of the Uus maa report (EUR/ha);










(b)



haC

n
 is, in line with recital 339 the number of the leased hectares that were eligible to receive CAP support in 2004 as shown in recital 87;










(c)



a is, in line with recitals 416 and 513, a factor of 0,80 in order to consider the maximum range of valuations accuracy;










(d)



Rp

n
 is the rent payment actually paid by Tartu Agro AS, including the commitment for investments that were actually financed by Tartu Agro AS, in 2004, as adjusted in line with recitals 390 and 415 and shown in recital 99;
Finally, since for 2004 and due to the prescription period, recovery can only be implemented as from 14 August 2004, a prorate per month should be applied.




Where for 2005 to 2019:






(a)



MpL

n
 is, in line with recital 322, the appropriate market price estimate based average of the Land Board’s medium user charges (EUR/ha) in all counties as shown in recital 111 that is fixed every five years since 2005 until Estonia has put the end to the measures;










(b)



haC

n
 is, in line with recital 339 the number of the leased hectares that were eligible to receive CAP support in a given year n since 2005 as shown in recital 87;










(c)



a is, in line with recital 513, a factor of 0,9 in order to ensure that only a manifest error in the lease fee is considered generating an advantage;










(d)



Rp

n
 is the rent payment actually paid by Tartu Agro AS, including the commitment for investments that were actually financed by Tartu Agro AS, in a given year n, as adjusted in line with recitals 390 and 415 and shown in recital 99.








6.   CONCLUSION







(521)


The Republic of Estonia has unlawfully implemented the measures on the case in question (recital 28) in breach of Article 108(3) of TFEU (recital 469).










(522)


The aid in form of a rent of agricultural land for a rental fee below the market price in favour of Tartu Agro AS is incompatible with the internal market (recital 485) and must be recovered from 14 August 2004 until 31 December 2019 (recitals 497 and 509) together with the recovery interest (recital 499).










(523)


The exact amount of aid to be recovered from Tartu Agro AS must be determined by the Estonian authorities in collaboration with the Commission. within the framework of the recovery procedure.




HAS ADOPTED THIS DECISION:



Article 1
The State aid, which the Republic of Estonia has implemented since 14 August 2004 until 31 December 2019 in the form of a lease of agricultural land for a rent below the market price in favour of Tartu Agro AS, unlawfully put into effect in breach of Article 108(3) of Treaty on the Functioning of the European Union, is incompatible with the internal market.


Article 2
The Republic of Estonia shall recover the aid referred to in Article 1 from Tartu Agro AS.


Article 3
The sums to be recovered shall bear interest from the date on which they were put at the disposal of Tartu Agro AS until their actual recovery. The interest on the sum to be recovered shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004, as amended.


Article 4
Recovery of the aid granted under the measure referred to in Article 1 shall be immediate and effective.


Article 5
The Republic of Estonia shall ensure that this Decision is implemented within four months following the notification of this Decision.


Article 6
Within two months following notification of this Decision, the Republic of Estonia shall submit the following information:






(a)


the total amount (principal and recovery interest) to be recovered from the beneficiary;










(b)


a detailed description of the measures already taken and planned to comply with this Decision; and










(c)


documents demonstrating that the beneficiary has been ordered to repay the aid.






Article 7
The Republic of Estonia shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid referred to in Article 1 has been completed. It shall immediately submit, on simple request by the Commission, information on the measures already taken and planned to comply with this Decision. It shall also provide detailed information concerning the amounts of aid and recovery interest already recovered from the beneficiary.


Article 8
This Decision is addressed to the Republic of Estonia.
The Commission may publish the amounts of aid and recovery interest recovered in application of this Decision without prejudice to Article 30 of Regulation (EU) 2015/1589.
If the Decision contains confidential information which should not be published, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to publication of the full text of the decision. Your request specifying the relevant information should be sent electronically to the following address:





European Commission




Directorate-General Competition




State Aid Greffe




B-1049 Brussels





Stateaidgreffe@ec.europa.eu









Done at Brussels, 25 November 2024.


For the Commission

Margrethe VESTAGER
            

Executive Vice-President






(1)  
            OJ C 103, 1.4.2017, p. 4.

(2)  
            OJ C 103, 1.4.2017, p. 4.

(3)  Commission decision C(2017)1286 final on 27 February 2017 (OJ C 103, 1.4.2017, p. 4).

(4)  Commission decision (EU) 2021/104 of 24 January 2020 on SA.39182 (2017/C) (ex 2017/NN) (ex 2014/CP) – Alleged illegal aid to AS Tartu Agro (OJ L 35, 1.2.2021, p. 2, ELI: http://data.europa.eu/eli/dec/2021/104/oj).

(5)  Judgment of the General Court of 13 July 2022, T-150/20, Tartu Agro v Commission, ECLI:EU:T:2022:443.

(6)  Council Regulation No 1 determining the languages to be used by the European Economic Community (OJ 17, 6.10.1958, p. 385/58, ELI: http://data.europa.eu/eli/reg/1958/1(1)/oj).

(7)  See the website of the beneficiary: http://www.tartuagro.ee/


(8)  Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (OJ L 248, 24.9.2015, p. 9, ELI: http://data.europa.eu/eli/reg/2015/1589/oj).

(9)  Decision of the Supreme Council of the Republic of Estonia, RT 1992, 36, 475 (allocation of state land for agricultural purposes for educational, experimental and research institutions, Riigimaa eraldamise kohta põllumajanduslikele õppe-, katse-ja teadusasutustele).

(10)  Judgment of the Court of Justice of 7 December 2000, C-324/98, Telaustria, ECLI:EU:C:2000:669, paragraph 62; Judgment of the Court of Justice of 3 December 2001, Bent Mousten Vestergaard, C-59/00, ECLI:EU:C:2001:654, paragraph 20. See also Commission Interpretative Communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives (OJ C 179, 1.8.2006, p. 2).

(11)  Judgment of the Court of 19 September 2000, C-156/98, Germany v Commission, ECLI:EU:C:2000:467, paragraph 30; Judgment of the Court of 9 June 2011, Joined Cases C-71/09 P, C-73/09 P and C-76/09 P, Comitato ‘Venezia vuole vivere’
             v Commission, ECLI:EU:C:2011:368, paragraph 136 and Judgment of the Court of First Instance of 8 June 1995, T-459/93, Siemens v Commission, ECLI:EU:T:1995:100, paragraph 48.

(12)  As from 1 January 2011, Estonia is a member of the euro area. The fixed conversion rate is EUR 1 = EEK 15,6466 (Estonian kroon). The European Commission’s official monthly accounting rate for the EUR/EEK rate is 15,6466 since February 1999.

(13)  Minutes of the evaluation panel of 27 July 2000.

(*1)  
            Confidential information.

(14)  
            3 July 2000 Invitation to tender from the Ministry of Agriculture and Request No 7-7-1/1582 of 3 July 2000 for publication by the State Chancellery.

(15)  See point 9.3 of the lease contract.

(16)  According to point 16.3 of the lease contract, the starting point for the interpretation of reasonableness is the way in which, on average, the same persons would operate in some circumstances.

(17)  Ibid.

(18)  Government of the Republic of Estonia, RTL 2001, 113, 1606, Acknowledgment of the best offer for the purchase of Tartu Agro AS shares (ASi Tartu Agro aktsiate ostupakkumise parimaks tunnistamine)
https://www.riigiteataja.ee/akt/86303?tegevus=salvesta-link. 8 January 2024.

(19)  Single area payment is a simplified income EU support for farmers in Bulgaria, the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Poland, Romania and Slovakia that enabled national authorities to implement direct aid to farmers without any production if farmers maintain their land in good agricultural and environmental condition and respect basic standards with respect to the environment, food safety, animal health and welfare.

(20)  The Estonian authorities confirmed by letter of 11 June 2021, that Tartu Agro AS had repaid the revised rental fee for 2020 as requested by the initial decision.

(21)  Namely the Rahinge land improvement association, which was registered on 17 April 2003 (registration number 80186585), and the Jänese land improvement association, which was registered on 27 July 2005 (registration number 80224305).

(22)  Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (OJ L 209, 11.8.2005, p. 1, ELI: http://data.europa.eu/eli/reg/2005/1290/oj) created two European agricultural funds, namely the European Agricultural Guarantee Fund (‘EAGF’), for the financing of market measures, and the European Agricultural Fund for Rural Development (‘EAFRD’), for the financing of rural development programmes.

(23)  Statistics Estonia: Statistical database, PM59: Utilised agricultural land prices and rents per hectare by county https://andmed.stat.ee/en/stat/majandus__pellumajandus__pellumajanduse-majanduslik-arvepidamine/PM59, 8 January 2024.

(24)  The report does not provide an estimate rental fee per year but for the period 2000-2004.

(25)  Value data is the date at which the valuation result (rental fee) is reported.

(26)  
             
         

(27)  Land Improvement Act RT I 1994, 34, 534 https://www.riigiteataja.ee/akt/24638.

(28)  Land Tax Act, RT I 1996, 41, 797.

(29)  The Estonian authorities did not confirm the claim concerning the strategic relevance to the Estonian government of Tartu Agro AS. However, Estonia confirmed the importance of maintaining agricultural production on the leased land (see comments from Estonia before the General Court’s judgment – section 3.1.). The obligation to continue agricultural production was also established in the official announcement of the tender (see recital 43).

(30)  Law of Obligations Act, RT I, 31.12.2016, 7, available: www.riigiteataja.ee/akt/võs.

(31)  Land Tax Act, RT I, 10.11.2016, 10, available: www.riigiteataja.ee/akt/110112016010.

(32)  
            http://www.eramets.ee/metsa-ja-puidumuuk/hinnainfo-2/.

(33)  
            http://rmk.ee/organisatsioon/aastaaruanded.

(34)  
            https://www.maaamet.ee/et/uudised/moodunud-aastal-solmitud-rendilepingute-aastatasu-kokku-402-572-eurot.

(35)  
            OJ C 262, 19.7.2016, p. 1.

(36)  Regulation (EU) 2021/2115 of the European Parliament and of the Council of 2 December 2021 establishing rules on support for strategic plans to be drawn up by Member States under the common agricultural policy (CAP Strategic Plans) and financed by the European Agricultural Guarantee Fund (EAGF) and by the European Agricultural Fund for Rural Development (EAFRD) and repealing Regulations (EU) No 1305/2013 and (EU) No 1307/2013 (OJ L 435, 6.12.2021, p. 1, ELI: http://data.europa.eu/eli/reg/2021/2115/oj).

(37)  Judgment of the Court of 1 October 2015, C-357/14 P, Electrabel SA and Dunamenti Erőmű Zrt v European Commission, ECLI:EU:C:2015:642, paragraphs 65-67.

(38)  Judgment of the Court of 16 May 2000, C-83/98 P, French Republic v Ladbroke Racing Ltd and Commission, ECLI:EU:C:2000:248, paragraph 50.

(39)  See also Judgment of the General Court of 28 October 2015, T-253/12, Hammar Nordic Plugg AB v European Commission, ECLI:EU:T:2015:81, paragraph 112.

(40)  Judgment of the Court of Justice of 11 July 1996, SFEI and Others, C-39/94, ECLI:EU:C:1996:285, paragraphs 60 and 61.

(41)  Judgment of the Court of Justice of 11 July 1996, SFEI and Others, C-39/94 ECLI:EU:C:1996:285, paragraph 60; Judgment of the Court of Justice of 29 April 1999, Spain v Commission, C-342/96, ECLI:EU:C:1999:210, paragraph 41.

(42)  Judgment of the Court of 17 November 2022, Volotea SA & easyJet Airline Co. Ltd v European Commission, Joined Cases C-331/20 P and C-343/20 P, ECLI:EU:C:2022:886, paragraph 104; Judgment of the Court of 7 May 2020, C-148/19 P, BTB Holding Investments SA & Duferco Participations Holding SA v European Commission & Foreign Strategic Investments Holding (FSIH), ECLI:EU:C:2020:354, paragraph 45.

(43)  Judgment of the General Court of 24 October 2019, Autostrada Wielkopolska S.A. v European Commission, Case T-778/17, ECLI:EU:T:2019:756, paragraph 31. see judgments of 2 September 2010, Commission v Deutsche Post, C-399/08 P, ECLI:EU:C:2010:481, paragraph 40 and the case-law cited, and of 27 June 2017, Congregación de Escuelas Pías Provincia Betania, C-74/16, ECLI:EU:C:2017:496, paragraph 65 and the case-law cited.

(44)  Judgment of the Court of Justice of 2 July 1974
            , Italy v Commission, 173/73, ECLI:EU:C:1974:71, paragraph 13.

(45)  Judgments of 11 July 1996, SFEI and Others, C-39/94, ECLI:EU:C:1996:285, paragraph 59 and the case-law cited; of 1 July 2010, ThyssenKrupp Acciai Speciali Terni v Commission, T-62/08, ECLI:EU:T:2010:268, paragraph 57 and the case-law cited; and of 28 February 2012
            , Land Burgenland v Commission, T-268/08 and T-281/08, ECLI:EU:T:2012:90, paragraph 47 and the case-law cited.

(46)  Judgment of the General Court of 13 July 2022, Tartu Agro v Commission, Case T-150/20, ECLI:EU:T:2022:443, paragraph 37.

(47)  Judgment of 9 December 2015, Greece and Ellinikos Chrysos v Commission, T-233/11 and T-262/11, ECLI:EU:T:2015:948, paragraph 79.

(48)  Judgment of the General Court of 9 December 2015, Hellenic Republic and Ellinikos Chrysos AE Metalleion kai Viomichanias Chrysou v European Commission, Case T-233/11, ECLI:EU:T:2015:948, paragraph 131.

(49)  Judgment of the Court of Justice of 7 December 2000, Telaustria, C-324/98, ECLI:EU:C:2000:669, paragraph 62; Judgment of the Court of Justice of 3 December 2001, Bent Mousten Vestergaard, C-59/00, ECLI:EU:C:2001:654, paragraph 20. See also Commission Interpretative Communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives (OJ C 179, 1.8.2006, p. 2).

(50)  Judgment of the Court of 17 November 2022, Joined Cases C-331/20 P and C-343/20 P, Volotea SA & easyJet Airline Co. Ltd v European Commission, ECLI:EU:C:2022:886, paragraph 128.

(51)  Point 89 of Commission Notice on the notion of State aid as referred to in Article 107(1) TFEU (‘the Notice on the notion of State aid’), (OJ C 262, 19.7.2016, p. 1).

(52)  Judgment of the Court of 16 December 2010, Seydaland Vereinigte Agrarbetriebe GmbH & Co. KG v BVVG Bodenverwertungs- und -verwaltungs GmbH, Case C-239/09, ECLI:EU:C:2010:778, paragraph 34.

(53)  Judgment of the Court of Justice of 7 December 2000, Telaustria, C-324/98, ECLI:EU:C:2000:669, paragraph 62; Judgment of the Court of Justice of 3 December 2001, Bent Mousten Vestergaard, C-59/00, ECLI:EU:C:2001:654, paragraph 20. See also Commission Interpretative Communication on the Community law applicable to contract awards not or not fully subject to the provisions of the Public Procurement Directives (OJ C 179, 1.8.2006, p. 2).

(54)  Judgment of the Court of 17 November 2022, Joined Cases C-331/20 P and C-343/20 P, Volotea SA & easyJet Airline Co. Ltd v European Commission, ECLI:EU:C:2022:886, paragraph 128.

(55)  Point 89 of the Notice on the notion of State aid.

(56)  Point 94 of the Notice on the notion of State aid.

(57)  Judgment of the Court of Justice of 11 July 1996, SFEI and Others, C-39/94, ECLI:EU:C:1996:285, paragraphs 60 and 61.

(58)  Judgment of the Court of Justice of 5 June 2012, Commission v EDF, C-124/10 P, ECLI:EU:C:2012:318, paragraphs 83, 84 and 85 and 105; Judgment of the Court of Justice of 16 May 2002, France v Commission (Stardust), C-482/99, ECLI:EU:C:2002:294, paragraphs 71 and 72; Judgment of the General Court of 30 April 1998, Cityflyer Express v Commission, T-16/96, ECLI:EU:T:1998:78, paragraph 76.

(59)  Judgment of the Court of Justice of 5 June 2012, Commission v EDF, C-124/10 P, ECLI:EU:C:2012:318, paragraphs 82 to 85 and 105.

(60)  According to the Notice on the notion (point (82) ‘To assess whether certain transactions are in line with market conditions all the relevant circumstances of the particular case should be considered. For instance, there can be exceptional circumstances in which the purchase of goods or services by a public authority, even if carried out at market prices, may not be considered in line with market conditions’. Stress added.

(61)  Judgment of the General Court of 10 April 2024, Commission v Danske Slagtermestre, T-486/18, ECLI:EU:C:2024:217, paragraph 67.

(62)  In this situation, the conclusion on whether the cost of the commitment for investments must be added to the rental fee is assessed in section 5.2.3.3.5.6.5.

(63)  Judgment 17 November 2022 of the Court, Volotea SA & easyJet Airline Co. Ltd v European Commission, Joined Cases C-331/20 P and C-343/20 P, ECLI:EU:C:2022:886, paragraphs 106 and 107.

(64)  The Notice on the notion of State aid, paragraph 103. Cf. Judgment of the General Court of 13 July 2022, Tartu Agro v Commission, Case T-150/20, ECLI:EU:T:2022:443, paragraph 37, according to which the land lease at an allegedly preferential price is comparable to the sale of land by a public authority to an undertaking.

(65)  Judgment of the Court of 6 December 2010, C-239/09, Seydaland Vereinigte Agrarbetriebe GmbH & Co. KG v BVVG Bodenverwertungs- und -verwaltungs GmbH, ECLI:EU:C:2010:778, paragraph 54.

(66)  Judgment of the Court of 6 December 2010, C-239/09, Seydaland Vereinigte Agrarbetriebe GmbH & Co. KG v BVVG Bodenverwertungs- und -verwaltungs GmbH, ECLI:EU:C:2010:778 paragraph 54.

(67)  Value data is the date at which the valuation result (rental fee) is reported.

(68)  The assessment of the quality of the land (section 2.5.9.2). See also recital 315(e).

(69)  See the Notice on the notion of State aid.

(70)  Judgment of the Court of 6 December 2010, C-239/09, Seydaland Vereinigte Agrarbetriebe GmbH & Co. KG v BVVG Bodenverwertungs- und -verwaltungs GmbH, ECLI:EU:C:2010:778 paragraph 54.

(71)  Judgment of the General Court of 13 July 2022, T-150/20, Tartu Agro v Commission, ECLI:EU:T:2022:443, paragraphs 40 and 73.

(72)  The Commission uses the CAP eligible area of the Land Board’s data in order to pursue a prudent estimate. The CAP subsidies the agricultural lands, while the land lease agreement includes different type of land, not only destinated to agricultural use. In this context, the Commission opted to uses the CAP eligible area as the most similar area compared to that underlying the land lease contract.

(73)  Judgment of the Court of 15 July 1964
            , Flaminio Costa v E.N.E.L, Case 6-64, ECLI:EU:C:1964:66.

(74)  Value data is the date at which the valuation result (rental fee) is reported.

(75)  The Commission notes that it does not assess in the context of this Decision whether any additional aid has been granted in the context of the privatisation but it limits its assessment of the advantage in the scope of the opening decision.

(76)  The reference to the amendments of the lease contract excludes the amendment carried out by Estonia in order to comply with the initial decision.

(77)  See judgment of the General Court of 13 July 2022, T-150/20, Tartu Agro v Commission, ECLI:EU:T:2022:443, paragraph 35.

(78)  Judgment of the General Court of 29 September 2021, TUIfly GmbH v Commission, ECLI:EU:T:2021:625, paragraph 65 and case law thereby quoted. See also judgment of the Court of 4 February 2016, Orange v Commission, ECLI:EU:C:2016:78, paragraph 64.

(79)  Judgment of the Court of 17 September 1980, 730/79, Philip Morris Holland BV v Commission of the European Communities, ECLI:EU:C:1980:209.

(80)  See in particular judgment of the Court of 13 July 1988, 102/87, French Republic v Commission of the European Communities, ECLI:EU:C:1988:391 and Judgment of the General Court of 28 October 2015, T-253/12, Hammar Nordic Plugg AB v European Commission, ECLI:EU:T:2015:81, paragraph 123.

(81)  
            OJ L 236, 23.9.2003, p. 17.

(82)  
            OJ C 119, 22.5.2002, p. 22.

(83)  
            OJ C 28, 1.2.2000, p. 2.

(84)  Judgment of the Court of 19 September 2000, C-156/98 Germany v Commission, ECLI:EU:C:2000:467, paragraph 30; Judgment of the Court of 9 June 2011, Joined Cases C-71/09 P, C-73/09 P and C-76/09 P, Comitato ‘Venezia vuole vivere’
             v Commission, ECLI:EU:C:2011:368, paragraph 136 and Judgment of the Court of First Instance of 8 June 1995, T-459/93, Siemens v Commission, ECLI:EU:T:1995:100, paragraph 48.

(85)  
            OJ C 319, 27.12.2006, p. 1.

(86)  
            OJ C 204, 1.7.2014, p. 1. Amended by the Notices published in OJ C 390, 24.11.2015, p. 4; OJ C 139, 20.4.2018, p. 3 and OJ C 403, 9.11.2018, p. 10.

(87)  
            OJ C 485, 21.12.2022, p. 1.

(88)  Judgment of 12 July 1973, Commission v Germany, C-70/72, ECLI:EU:C:1973:87, paragraph 13.

(89)  Judgment of 21 March 1990, Belgium v Commission, C-142/87, ECLI:EU:C:1990:125, paragraph 66.

(90)  Judgment of 17 June 1999, Belgium v Commission, C-75/97, ECLI:EU:C:1999:311, paragraphs 64 and 65.

(91)  Judgment of the Court of 12 January 2023, Dobeles, C-702/20 and C-17/21, ECLI:EU:C:2023:1, paragraphs 108-111.

(92)  Judgment of the Court of 30 April 2002, Government of Gibraltar v Commission of the European Communities, T-195/01 and T-207/01, ECLI:EU:T:2002:111, paragraph 13.

(93)  Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EU) 2015/1589 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union (OJ L 140, 30.4.2004, p. 1, ELI: http://data.europa.eu/eli/reg/2004/794/oj).

(94)  Article 16 of the Regulation (EU) 2015/1589.

(95)  See Judgment of the Court of Justice of 24 March 2011, ISD Polska and Others v Commission, C-369/09 P, ECLI:EU:C:2011:175, paragraph 123 and case law citied therein.

(96)  Judgment of the Court of 11 December 2008, C-334/07 P, Commission v Freistaat Sachsen, ECLI:EU:C:2008:709, paragraph 43; Judgment of the Court of 14 January 1987, C-278/84, Germany v Commission, ECLI:EU:C:1987:2, paragraph 36 and Judgment of the Court of 20 September 1988, C-203/86, Spain v Council, ECLI:EU:C:1988:420, paragraph 19.

(97)  See Judgment of the Court of Justice of 20 March 1997, Land Rheinland-Pfalz v Alcan Deutschland, C-24/95, ECLI:EU:C:1997:163, paragraph 25; and Judgment of the Court of Justice of 8 December 2011, France Télécom v Commission, C-81/10 P, ECLI:EU:C:2011:811, paragraphs 58-60.

(98)  Judgment of the General Court of 30 April 2002, Government of Gibraltar v Commission of the European Communities, T-195/01 and T-207/01, ECLI:EU:T:2002:111, paragraph 129.

(99)  The European Commission’s official monthly accounting rate for the EUR/EEK rate is 15,6466 since February 1999.


ELI: http://data.europa.eu/eli/dec/2025/1270/oj
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