On the 27th of March 2009, in Belgium a decree on land and real estate policy of the Flemish Region was adopted. It constitutes the existence of a condition that sufficient connection between the prospective buyer or tenant and the respective (target) commune has to exist, in order for the purchasing or leasing of a real estate to be permissible. The decree also imposes an obligation on developers and investors to provide social housing units, while the decree provides them with tax incentives and subsidy mechanisms when acquiring or leasing.
The Flemish Decree on land and real estate policy sets out three conditions regarding the requirement for sufficient connection with the target commune to exist, and each one of these conditions has to be met, so that the requirement can be satisfied. Firstly, a person to whom immovable property shall be transferred must have been a resident of the target commune for at least six years prior to the transfer. In connection with the first condition, the potential buyer or tenant has to carry out activity in the target commune prior to the transfer date. The final condition requires that the prospective buyer or tenant has a professional, social, family or economic connection with the target commune and this connection has to be of significant circumstance of long duration. A provincial assessment committee has to ascertain whether the prospective buyer or tenant of the immovable property meets the placed conditions.
The Belgian Constitutional Court has received several applications for annulment of the Flemish Decree and the Court has raised the question if the decree is compatible with EU law, and more specifically with the fundamental freedoms and the rules on State aid and public contacts. This question has been sent to the Court of Justice (the Court) for a preliminary ruling.In its adjudication, the Court finds that the Flemish Decree provides for a prior authorisation procedure determining whether there exists “sufficient connection” between the prospective buyer or tenant of immovable property and the target commune. Such a procedure actually prohibits certain individuals from purchasing or leasing for more than nine years land or the buildings thereon. Therefore, the Court finds that these provisions constitute restrictions on the fundamental freedoms pursuant to art. 21, art. 45, art. 49, art. 56 and art. 63 of the Treaty on the Functioning of the European Union (TFEU) and these restrictions should be justified.
Responding to this, the Flemish Government has claimed that the “sufficient connection” condition is justified by satisfying the housing needs of the less affluent local population in the target communes. The Court accepts that such an objective constitutes an overriding reason in the public interest justifying the imposed restrictions by the decree, however, the Court finds that the imposed conditions do not accurately attain the pursued social effect or do not attain it at all.
Thus the constituted measures go beyond the necessary to attain the pursued objective.
The Court also finds that different investors and developers, on whom a ‘social obligation’ is imposed when building or land subdivision authorization is granted, cannot freely use the land they have acquired. Therefore this measure can discourage citizens of one Member State from investing in real estates in other Member States and this is a restriction on the free movement of capital.
The Court also considers that the tax incentives and subsidy mechanisms constituted by the Flemish Decree can be classified as State aid. However, the referring court should determine whether those measures should really be classified as State aid under art. 107, para. 1 TFEU.Lastly, the Court finds that social housing, which should subsequently be sold with predetermined capped prices to a public organization for social housing fall in the meaning of “public works contract” determined by article 1, para. 2, item b) of Directive 2004/18/EO. However, the referring jurisdiction has to check whether the criteria from the abovementioned provision have been met.
The article above is intended for information purposes only by drawing your attention to the newest practice of the European Court. It should not be construed as binding legal advice. For a thorough understanding of the subjects covered and prior acting on any issue discussed we kindly recommend Readers consult Ilieva, Voutcheva & Co. Law Firm attorneys at law.
Please feel free to circulate the newsletter. To be added to or removed from the newsletter mailing list please send an e-mail to: email@example.com.