On the basis of the Leidschendam Centrum Project, the Municipality concluded a co-operation agreement with a number of private project developers, including with SJB, on 9 September 2004 (hereinafter: the “2004 Co-operation Agreement”). The 2004 Co-operation Agreement stipulates that the private project developers would, for each of the specific sub-parts of the Leidschendam Centrum Project assigned to them, construct and sell, for their own risk and expense, the envisaged real estate.

According to the 2004 Co-operation Agreement, the construction works would begin once the land had been made ready for construction (see recital (22) below) and the necessary building permits had been obtained. However, as regards the construction of the free sector housing units, the private developers were allowed to postpone construction until 70 % of these units, whether or not in combination with social housing units, in the sub-project area concerned had been pre-sold (Article 7.5 of the 2004 Co-operation Agreement, hereinafter: the “70 % clause”). This 70 % clause is commonly found in construction contracts in the Netherlands and seeks to limit the risks for project developers of constructing real estate which might not be sold. The agreement did not, however, provide for any possibility to postpone construction as regards the commercial premises and the underground parking garage.

The Municipality, as also explicitly emphasised by the Dutch authorities in its submissions, was not involved in the construction phase of the project and bore no risks in relation to the sale of the housing units and commercial premises. Profits from these sales, if any, would accrue directly to the private developers. The construction phase of the project should be distinguished from the so-called ground exploitation phase of the project, where the Municipality was involved through the PPP with SJB and bore 50 % of the risks (see recital 18 below).

Besides making the land ready for construction, the ground exploitation phase also covered the construction, temporary exploitation and reselling of the public part of the underground parking garage and the building of the school (Article 4 of the GREX). To this end, the PPP agreed with SJB that SJB would construct the underground public garage, which was considered to be intrinsically linked to the private section of the parking garage (article 9 of the GREX), for which SJB would receive a maximum amount of approximately EUR 4,6 million (value on 1 January 2003) from the PPP (Article 6 of the SJB Project Agreement). The construction of the private section of the parking garage would be financed by SJB itself. The PPP intended to sell the entire parking garage to a third party and the revenues from that sale were to flow to the PPP, which would share them between the Municipality and SJB.

Finally, the PPP would also contribute 50 % of the costs for the construction of a school in another plan area of the Leidschendam Centrum Project. The remaining 50 % would be financed directly by the Municipality (Article 8 of the GREX).

As follows from recitals 17 to 20 above, the costs of the ground exploitation phase of the project consisted essentially in the costs of the acquisition of the land insofar as it was not already owned by the Municipality, the costs of making the land ready for construction, the costs for the public section of the underground parking garage and 50 % of the construction costs for the school.

The PPP would generate revenues from the ground exploitation phase, first and foremost, through the sale of the land to private project developers, including SJB, after the PPP had made the land ready for construction. Each project developer was to purchase the part of the land assigned to it to construct housing units and commercial premises. The prices for the land were laid down in Article 10 and Annex 3a of the 2004 Co-operation Agreement. The 2004 Co-operation Agreement explicitly stated that these prices were minimum prices, which could be increased if more than the planned floor space was constructed. These prices were based on an independent expert valuation report, dated 11 March 2003, which considered the prices to be market-conform. Payment of the land price was due at the moment the private developer concerned obtained the necessary building permits and would take place, at the latest, at the moment of the legal transfer of the land (Article 10.5 of the 2004 Co-operation Agreement).

The price of the land sold by the PPP to SJB for the overall Leidschendam Centrum Project was determined at minimum EUR 18,5 million (value on 1 January 2003). The land in the Damplein area sold by the PPP to SJB was determined at minimum EUR 7,2 million (value on 1 January 2003), yearly indexed with 2,5 % until payment.

As regards SJB, the total ground exploitation fee was determined at approximately EUR 1,1 million and the quality fee at approximately EUR 0,9 million (value on 1 January 2003), indexed yearly by 2,5 % until payment, for all the housing units it planned to build in the Leidschendam centrum area. The final ground exploitation fee and quality fee due would depend on the number of housing units actually built.

The Dutch authorities claim that the Municipality had a public interest in the realisation of this project. As a large part of the land on the Damplein lay fallow and the area was deteriorating, the Municipality considered starting the constructions works on the Damplein as crucial not only for the development of the Damplein, but for the entire Leidschendam city centre. In particular, delaying the construction of the underground parking garage could jeopardise the realisation of the other sub-projects.

According to the Dutch authorities, the revitalisation of Leidschendam city centre contributes to the objective of economic and social cohesion, as laid down in Articles 3 and 174 TFEU. The revitalisation of the city centre makes efficient use of the scarce space available for new housing units, commercial facilities and underground parking in Leidschendam, while the amelioration of the public infrastructure contributes to the cohesion of the entire city centre.

The Dutch authorities contend that SJB could not be forced to start construction works on the Damplein due to the 70 % clause in the 2004 Co-operation Agreement. By the time SJB received a valid building permit, the credit crisis had had its effect on the Dutch real estate market, which made it even more unlikely that SJB would swiftly pre-sell 70 % of the free sector housing units. The 2004 Co-operation Agreement was therefore re-negotiated, since the Municipality considered it of the utmost importance to start the construction works on the Damplein. The Supplementary Agreement was therefore appropriate and necessary for the Municipality to achieve its goal of revitalising the Damplein.

In order for the Municipality to obtain an immediate start of the construction works, SJB had to give up it right to invoke the 70 % clause and had to start the construction works with the risk that the housing units might not be sold. Therefore, the previously agreed price was recalculated by SJB. Subsequently, this calculation was verified by an independent expert who declared the agreed price as market-conform.

According to the Dutch authorities, the fact that the price is declared market-conform by an independent expert indicates that the price decrease is proportionate. This would also imply that no overcompensation of SJB has taken place. The decrease in the price was the consideration which the Municipality had to pay so that SJB would agree to waive its right to invoke the 70 % clause. Without the Supplementary Agreement, SJB would not have started construction on the Damplein.

Furthermore, through its participation in the PPP, SJB will itself bear 50 % of the risks and the costs of the ground exploitation, thereby participating in the agreed decrease of the sales price. In order to arrive at break-even for the ground exploitation, it was decided that SJB should contribute EUR 2,6 million to the PPP (point 5.2.1 Ground Exploitation Masterplan Damcentrum) and, as the PPP bore 50 % of the costs of the school, 25 % of those costs is at the expense of SJB (EUR 0,7 million).

Finally, he Dutch authorities claim that the retroactive price decrease concerns the building of 67 housing units and 14 commercial premises which will be sold at market-conform prices valued by an independent expert. Therefore, the distortion of competition would be of a very local nature and would not outweigh the positive effects of the completion of the project.

In the present case, no unconditional bidding procedure was organised. While an expert valuation was made in March 2003 to establish the sales prices laid down in the 2004 Co-operation Agreement, the price agreed with SJB for the purchase of the land on the Damplein was subsequently decreased and the fees earlier agreed were waived in 2010 as a result of the Supplementary Agreement.

As regards the expert valuation of February 2009 referred to in recital (30) above, the Commission considers the residual value method used in that ex post assessment inappropriate to calculate the market value of the land sold to SJB, since the expected decrease in revenues from the sale of the housing units would be entirely absorbed by the price of the land. To calculate the value of land, the residual value method starts from the sales price of the housing units. From this price, the construction costs and a profit and risk provision are deducted. What is left is the residual value of the land. It is clear that in a declining housing market such as that in casu the residual value method shifts the deceasing value of real estate entirely to the value of the land. In theory, this could even result in a negative value for the land.

Finally, the Dutch authorities claim that the Municipality, by agreeing to the contested measures, acted in accordance with the MEIT; that is, that a hypothetical private vendor in the same situation as the Municipality would have agreed to the same price reduction and fee waivers, so as to preclude the existence of an advantage as a result of the contested measures. First, according to the Dutch authorities, the Municipality had an important financial and social interest in starting the construction works on the Damplein as soon as possible, since further delays would lead to direct and indirect damages for the Municipality and these damages would be higher than the costs for the Municipality to agree to the contested measures. Second, the Dutch authorities contend that the Municipality behaved as a private investor by accepting a commitment from SJB to waive its right to invoke the 70 % clause of the 2004 Co-operation Agreement in return for the contested measures.

The Commission does not accept this reasoning. As a preliminary matter, the Commission recalls that the Municipality was only involved in the ground exploitation phase of the real estate project, while the construction phase of the project was at the risk and the expense of the private developers concerned, including SJB (see recitals 13 and 16 above). It is unlikely that a private investor, operating in normal competitive conditions, would have decided to take on the risk of a declining housing market from SJB, which it was previously not exposed to, by agreeing to a reduction in the initially agreed sales price for that land and a waiver of fees, without a clear financial compensation that would outweigh the losses stemming from that decision. As explained in recitals 75 to 86 below, neither the fact that the Municipality would suffer damages as a result of further delays, nor the fact that SJB decided to waive its right to invoke the 70 % clause, leads the Commission to a different conclusion in its application of the MEIT to the Municipality’s actions.

Since the contested measures meet all the criteria of Article 107(1) TFEU, the Commission concludes that these measures constitute State aid within the meaning of that provision. Moreover, since this aid was granted to the beneficiaries without the prior notification to and authorisation from the Commission as required by Article 108(3) TFEU, the contested measures constitute unlawful aid.

According to the Dutch authorities, the revitalisation of Leidschendam city centre contributes to economic and social cohesion, as laid down in Articles 3 and 174 TFEU, and without the contested measures SJB would not have started the construction works on the Damplein and the entire Leidschendam Centrum Project would have been jeopardised.

The Commission, however, is not convinced by this line of reasoning. On the one hand, the Dutch authorities have not established that the Damplein is a deprived urban area which suffers from market failure and that the market alone would not have decided to undertake the envisaged reconstruction of the Damplein. On the contrary, when the project was launched, several private developers, including SJB, were apparently willing to participate in the construction phase of the project at their own commercial risk and expense, as laid down in the 2004 Co-operation Agreement.

On the other hand, by concluding the 70 % clause in the 2004 Co-operation Agreement, the Municipality subordinated its interest in achieving the alleged objective of revitalising Leidschendam city centre to the commercial interest of SJB in case it would not be able to pre-sell 70 % of the planned housing units in advance of construction. The Municipality is therefore no longer in a position to argue that the contested measures, agreed to in 2010 on the condition that SJB committed to waive its right to invoke this clause, sought to attain a common interest objective.

Even if it could be accepted that the contested measures sought to achieve the revitalisation of Leidschendam city centre, the Dutch authorities have not shown that those measures were an appropriate means to achieve that objective.

Indeed, it appears from the information provided that the other private developers involved in the Leidschendam Centrum Project also asked the PPP to decrease the initial sales price agreed for the land because of the difficulties they faced on the declining real estate market, but that the Municipality, rather than agreeing to such a decrease or a waiver of fees, considered amendments in the initial planning and development provisions to adapt to the changed demand on the market.

This demonstrates that other, more appropriate measures, which are better suited and less distortive of competition, were available to the Municipality to achieve the intended objective of revitalising Leidschendam city centre in light of the changed economic circumstances.

The Dutch authorities consider the contested measures proportionate to the intended objective of revitalising Leidschendam city centre since, in return for a price decrease and waiver of the fees, SJB agreed to waive its right to rely on the 70 % clause. Furthermore, the Dutch authorities consider the contested measures proportionate since SJB contributed financially to the ground exploitation phase. In particular, SJB paid a financial contribution of around EUR 2,6 million to the PPP and bore, via the PPP, 25 % of the costs for the school to be built in another sub area of the Leidschendam Centrum Project.

The Commission cannot follow this reasoning. Article 107(3)(c) requires that the aid measures must be proportionate to the intended objectives, not that there must be adequate trade-off between the aid that is granted and any concessions made by the beneficiaries to acquire that aid. Thus, the fact that SJB agreed to waive its right to rely on the 70 % clause in return for the price decrease and the fee waivers is of no relevance for the assessment into the proportionality of the contested measures. The same goes for any financial contributions SJB might have made to the ground exploitation phase.

The Dutch authorities have therefore failed to demonstrate that the contested measures were proportionate to the intended objective of common interest.

Finally, the Dutch authorities contest that the contested measures unduly distorts competition, arguing that the positive effects of promptly completing the project outweigh the negative effects of the contested measures.

The Dutch authorities have, however, not substantiated this argument. On the contrary, as stated in recital 80 above, according to the Dutch authorities, a further delay in the contested real estate project would result in a cost of EUR 2,8 million for the PPP, while the agreed price decreases would amount to EUR 3,6 million. The Commission therefore concludes that the Dutch authorities have not demonstrated that the positive effects of completing the contested real estate project outweigh the negative effects of granting the contested measures.

Based on the considerations set out in recitals 93 to 103 above, the Commission concludes that the aid granted by the Municipality in favour of SJB by way of the contested measures is not compatible with the internal market on the basis of Article 107(3)(c) TFEU.

The advantage accruing to SJB as a result of the reduction in sales price for the land on the Damplein therefore corresponds to approximately EUR 4,6 million.

The claim of the Dutch authorities that the decrease of the sales price was less than EUR 4,6 million because the PPP had already decreased the initially agreed sales price of EUR 7,2 million in 2006 and in 2008 (see Table 1 above) cannot be accepted, as no evidence has been provided that these reductions were formalised by way of an agreement or that they led to an amendment of the initial sales price in the 2004 Co-operation Agreement.

The Commission further notes that the alleged 2006 reduction would run counter to the 2004 Co-operation Agreement, which clearly lays down minimum land prices and only foresees in an additional payment where more floor space could be achieved.

Finally, the Commission notes that both the alleged reduction in 2006, which was said to be due to the fact that less commercial space could be realised than initially foreseen, and the alleged reduction in 2008, which apparently related to delays in the construction permit for SJB, were granted under the condition that SJB would receive a building permit by 1 October 2008. This condition was apparently not fulfilled since, according to the Dutch authorities, SJB received the building permit only in November 2008.

The Commission therefore concludes that the amount of the aid granted to SJB by the PPP as a result of the decrease in the sales price originally agreed in the 2004 Co-operation Agreement amounts to approximately EUR 4,6 million (see amount in Table 3 below).

As a result of the Supplementary Agreement, the fees as agreed under the 2004 Co-operation Agreement were no longer due as regards SJB. Thus, the amount of aid granted to SJB as a result of the waiver by the PPP of these fees amounts to approximately EUR 2,3 million (see Table 3 below).

The Dutch authorities contend that, in spite of the wording of the Supplementary Agreement, the PPP had only waived the fees related to the Damplein Project, representing a total amount of approximately EUR 0,6 million (value on 1 January 2003). To substantiate their position, the Dutch authorities refer to the building programme annexed to the 2004 Co-operation Agreement which allocates a ground exploitation fee and a quality fee of approximately EUR 0,6 million (value on 1 January 2003) to the Damplein and mentions a total ground exploitation fee and quality fee of approximately EUR 2 million (value on 1 January 2003) to be paid by SJB for the entire Leidschendam Centrum Project. Reference was also made to a proposal from the Municipality sent to its Council on 18 February 2009, which mentioned that the lowering of the fees would have a negative effect, at that moment in time, of approximately EUR 0,7 million on the result of the ground exploitation project.

The Commission does not consider it possible, however, to conclude on the basis of the building programme or on the basis of the proposal sent to the Council that the waiver of the fees related exclusively to the Damplein Project. In any event the wording of the Supplementary Agreement does not limit the waiver of the fees to the Damplein Project. The Dutch authorities have also not been able to provide any evidence that SJB actually paid all fees due for all housing units of the Leidschendam Centrum Project on 1 July 2004, as it was obliged to do under Article 10.3 of the 2004 Co-operation Agreement.