Assignment of a right in rem or a public procurement contract: on which side of the court will the ball fall?

Determining the boundaries of public procurement law is a notoriously difficult task, especially when it comes to transactions involving public real estate. 

A few weeks ago, we informed you of the Court of Justice of the European Union's landmark Commission v Austria ruling concerning the lease of an office building by the City of Vienna. 

In this newsflash, we are staying closer to home and focusing on a different type of transaction, namely the transfer of a right in rem relating to land owned by a Belgian public authority. Although it is generally accepted that transfers of rights in rem fall outside the scope of public procurement and concessions law, such exclusions should be handled with care, especially when the transfer is accompanied by the provision of works, services or supplies to a public authority.

A 21 May 2021 ruling of the Council of State is the latest episode in a long-running saga on the setting of boundaries in this context1. This case involved the grant by a Flemish municipality of a 50-year long lease (erfpacht/emphytéose) to a private operator to build and operate padel courts and a clubhouse on land belonging to the municipality.

Other than the obvious question of what on earth is padel2,  this case raised the issue of whether public procurement law applies to such transactions. As mentioned above, in principle, a transfer of rights in rem is excluded from the scope of public procurement law, so the municipality decided to simply organise a flexible competitive bid process, in accordance with general principles of administrative law.

The unsuccessful bidder, however, claimed that the transaction should be considered a public procurement contract or at least a public works concession, subject to rules similar to those of public procurement law3. 

The Council of State began by stating the principle that in order for a real estate construction project such as the one at issue to qualify as a public works contract, within the meaning of the concession rules, it is necessary that (i) the works meet needs and precise requirements specified by the contracting authority, (ii) the contracting authority exercise decisive influence over the type or design of the works,4 and (iii) there be a legally enforceable obligation on the part of the contractor to carry out the works in the manner specified by the contracting authority.

In this case, the Council of State found that these three conditions had not been met. In particular, it held as follows:

- With regard to the second criterion of decisive influence, the municipality had specified only that construction (of six padel courts and a clubhouse) should be carried out “in accordance with the best available and affordable technologies”. This is not sufficient to establish decisive influence.

- In addition, the award criterion “suggested approach to implementation of the lease” was not sufficient to establish decisive influence either. “This seems rather to indicate that the works are to be carried out in accordance with the tenderer's self-imposed requirements to which the municipality has agreed.”

- The plans of the selected bidder were not adapted further to negotiations between the parties.

-The municipality did not reserve the right to inspect the works.

-The operational requirements defined by the municipality were rather limited (e.g. no set rates or opening hours).

- No penalties were provided for delays in the completion date.

Of course, it is necessary to resist the temptation to deduce too far-reaching consequences from a ruling issued in urgent proceedings, in which context the examination of the facts and the law is necessarily more summary. However, in the wake of the CJEU's Commission v Austria judgment, one cannot help but feel that decisive influence on the part of a public authority (and therefore classification as a public procurement contract or public works concession) will be found only when the requirements laid down by the authority are sufficiently precise and specific. In this regard, a simple statement of the purpose of the works is not sufficient.

The Council of State has itself recalled that it is sometimes difficult to distinguish between the assignment of a right in rem and a public procurement contract. This is all the more reason for public authorities and property developers to ask themselves this question before the game starts, rather than leaving it to be decided by the referee…

1 Council of State, 21 May 2021
2 See;
3 See the Act of 17 June 2016 on public procurement and the Act of 17 June 2016 on concessions for public works.
4 See Art. 2(1)(6) of Directive 2014/24/EU and Art. 2(18) of the Act of 17 June 2016.

Related : NautaDutilh


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