For establishing or expanding a hotel, you may need to conclude a land purchase agreement with public authorities. This may be a purchase or a leasehold agreement. Since the Dutch Supreme Court rendered the two Didam judgments, public bodies are bound by specific rules for concluding such contracts. This comes with consequences for their (private) contracting parties too. In this article, I will present an outline of the relevant points of attention and the risks.
Contracting with the authorities
Public bodies are bound by the general principles of good governance, including the principle of equality. Authorities have to observe these principles when they decide with whom to conclude a land purchase agreement, and on what conditions. This means that public bodies cannot simply contract with an interested party one-on-one. First, they have to examine whether there are several interested parties, and if there are, they have to offer room for competition by organising a public selection procedure. This rule applies to all agreements under which the authorities allocate land, such as sale, lease, or leasehold agreements.
This rule derives directly from the Didam judgment of the Dutch Supreme Court of 21 November 2021.[1] In this respect, contracting with public authorities differs from contracting with private parties. The authorities have less freedom than private parties in concluding land purchase agreements.
Exception: One serious candidate
However, when concluding a land purchase agreement the authorities need not always organise a public selection procedure. If it is established in advance (or it can reasonably be assumed) that, on the basis of objective, verifiable and reasonable criteria, only one serious candidate is eligible for the agreement, the authorities do not have to offer room for competition. Under that circumstance, the authorities can rely on the ground for exception and are free to contract one-on-one. The authorities have policymaking discretion to determine the criteria on which they conclude that only one serious candidate is eligible.
The obligation to publish
Public bodies have to make a public announcement of a (projected) allocation of land at all times. The authorities are in compliance with this obligation to publish if they organise a public selection procedure and conclude a land purchase agreement on the basis thereof. Also if the authorities rely on the ground for exception, they must announce and give reasons for their intention to conclude this (private) land purchase agreement long before the contract is concluded. This is usually done 20 days in advance. Public bodies may publish the announcement in the municipal journal (Gemeenteblad), on the bidding site biedboek.nl, or on the website of the (local) government body.
Risk: Ban on concluding and/or performing agreement
(Possible) candidates have the option of bringing legal proceedings within the 20-day term (in other words, until the conclusion of the contract). In such proceedings a candidate may claim, for example, that the authority be prohibited to conclude the contract. This candidate may take the position that the authority could not reasonably assume that the intended buyer or leaseholder was the only serious candidate eligible for the allocation of the land.
If the court finds for this candidate, the authority will have to organise a public selection procedure for the allocation of land after all. This way, a disregarded candidate may still stand a chance. An intended contracting party, on the other hand, may lose its right to the land concerned by losing its exclusive position. In order to be eligible for the conclusion of the contract, this party will have to participate in the selection procedure.
However, if a court rules against the candidate (or if no preliminary relief proceedings are brought within the 20-day period), the authority will be free to conclude the agreement one-on-one with the intended buyer or leaseholder.
Land transactions may involve risks because of the special position of public authorities. Competitors may oppose a private allocation of land by attempting to enforce a public selection procedure. This may lead to delays as well as uncertainty, as it unsettles the intended land allocation.
What you can do to limit the risks?
When concluding or renewing a land purchase agreement, you should be aware of the rule of law from the Didam judgment. Talk about this with the public body concerned, and examine whether it can be established on the basis of objective, reasonable and verifiable criteria that you are the only serious candidate who is eligible for the land transaction. When preparing your planning, please take into account the term of the mandatory publication and possible preliminary relief proceedings as a delaying factor. During negotiations, you may insist on a letter of intent or a cooperation agreement with the public body, in which you could agree (for example) that the public body will keep you posted of any complaints and/or pending proceedings regarding the publication on the intended one-on-one allocation of land. You may also agree in advance that the public body will allow you to take part in the public selection procedure for the allocation of land concerned in the event that the public body is forced to break off the one-on-one negotiations. As a final word of advice, you could think about and make arrangements for compensation of the costs your business will incur in the preparation of an allocation of land, in case it falls through after all.
Didam II Judgment
The Supreme Court recently[2] shed more light on the consequences of non-compliance with the Didam rules, which had been the topic of much debate and mystery. In the ‘Didam II judgment’, the Supreme Court ruled that an agreement concluded in conflict with the Didam rules is not void or voidable; such an agreement will remain in force. However, it is possible that a public authority acts unlawfully and is liable for compensation to injured parties.
A buyer who has entered into a direct land transaction with the authorities (whereas there should have been a public selection procedure) basically need not worry anymore that this transaction will be undone. A candidate who is also interested in the land concerned will have to take (or should have taken) action before the land transaction, such as the purchase and/or transfer, is effected.
Although the Didam judgments and the rules set out therein by the Supreme Court are directed at public bodies, the obligations arising from these judgments may also directly affect hotel operators as (potential) contracting parties. Compared to the past, there will be less room (and willingness) for concluding agreements directly with the authorities for the purchase of a plot of land or the allocation of leasehold land. On the other hand, new opportunities will arise for plots of land you may not have been eligible for earlier, because the authorities would have negotiated exclusively with another party. Vigilance is in order, and in some cases it may be necessary to seek legal advice.
Would you like to receive more information or are you in need of advice? Please contact Gracia de Vries.
