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State aid and urban renewal: the two can easily go hand in hand

State aid and urban renewal: the two can easily go hand in hand

In a decision dated 5 October 2011 published last week the European Commission assessed the plans of the municipality of Apeldoorn and the province of Gelderland for the redevelopment of Kanaalzone Zuid in Apeldoorn.

The project
The Kanaalzone Zuid urban renewal project will be carried out by the municipality of Apeldoorn and the province of Gelderland together with the housing corporations De Woonmensen and Ons Huis. The project involves the development of 75 public rental homes, 21 public owner-occupied homes, 156 private sector homes, approximately 1,300 m2 in social property and approximately 1,080 m2 in commercial property and a public space. The development will be realised at the joint expense and risk of the partners by means of a joint project budget. The redevelopment is expected to make a loss, primarily because of the decontamination costs. The parties will bear these losses together. The decision indicates that the share of the municipality and province is estimated at an amount of € 5.8 million.

A large part of the Kanaalzone Zuid is already owned by the municipality and the housing corporations. It is expected that the remaining land will have to be acquired via expropriations. All the parties will ultimately contribute the land to the land development. The area covered by the plan will be made suitable for development and homes, which will involve activities such as demolition and, where necessary, decontamination. The building plots will be transferred to the corporations at market value, which is calculated according to the residual land value method.

Assessment by the Commission
The European Commission looked into whether the plans of the municipality and province should be designated as state aid and if so, whether these plans are compatible with the internal market. The European Commission distinguished three measures:

1. The purchase of the contaminated land
2. The land sales to the land development
3. The partial coverage of the loss of the land development

The purchase of contaminated land does not constitute state aid, according to the European Commission. After all, the owners’ liability for the contamination is taken into account in the purchases. If, according to the Dutch rules, the owner can be held liable for the contamination, the damage is factored into the purchase price. In this way the owner pays for the decontamination costs.

The municipalities’ sale of the land to the land development also does not constitute state aid, according to the Commission. The municipality will contribute the land at market value. This market value is based on the residual land value method. Moreover, the costs included in the land development are in line with the market.

The partial coverage by the municipality and province of the losses of the land development, on the other hand, does constitute state aid. After all, this benefits the housing corporations that are involved in the project. This benefit also distorts competition because homes will be put on the market that would not be available if not for the aid. Since companies from other member states are also active in the construction sector, the measure could distort trade between the member states.

The Commission then looked into whether the state aid is compatible with the internal market. Since some of the state aid is intended to clean up contaminated sites, the Commission first examined whether the Community guidelines on State aid for environmental protection were satisfied. These guidelines prescribe that no aid may be granted if the national regulations stipulate that the polluter must bear the costs of the decontamination. The municipality and province have promised to respect this requirement. The maximum aid intensity according to the guidelines is 100%. This percentage will not be exceeded since the housing corporations will bear some of the costs. According to the Commission, the aid for the decontamination costs is therefore compatible with the internal market as set out in the Community guidelines on State aid for environmental protection.

Finally, the Commission examined whether the aid is directly compatible pursuant to Article
107 (3) (c) of the Treaty on the Functioning of the European Union. In this examination, the Commission took into account (i) whether the aid measure is aimed at a clearly defined EU objective and (ii) whether the aid measure is an appropriate instrument for solving the problem, compared to other policy instruments. The aid must, in this light, be (iii) targeted and necessary to achieve the envisioned goal. The aid must also be (iv) proportional to the envisioned goal and (v) the conditions in which the commercial transactions take place may not change such that the common interest is damaged.

The revitalisation of available urban space serves a general public interest and has been actively encouraged by the Commission in a number of publications. This can therefore be regarded as a clearly defined objective of the Union. The Commission found that the partial covering of losses is an appropriate instrument for revitalising urban space. The project cannot be realised without the aid. Because of the ex-post valuation of the costs and income of the corporations, the aid amount is indeed proportionate and overcompensation is excluded. The housing corporations must themselves bear a portion of the losses. This means that the housing corporations’ position is not strengthened with respect to their competitors. The trade conditions are not altered such that the common interest is damaged, therefore.

Eric Janssen

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