Dutch Court of Appeal clarifies the consequences of public entities selling land without organizing a selection procedure
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On 26 November 2021, the Dutch Supreme Court (“Supreme Court”) ruled that a public entity must organize a selection procedure prior to selling land based on transparent and objective criteria, unless the public entity substantially motivates that there will be only one ‘seriously’ interested party for the land or rights concerned. However, even then, the transparency principle within the meaning of EU law (which stems from the underlying equality principle) obliges a public entity to announce its intention to sell and provide a motivation for why it believes there is only one ‘seriously’ interested party.
This so-called Didam-doctrine caused a seismic shift in the Dutch legal and administrative landscape. Especially, because the Supreme Court, under reference to the administrative doctrine of the so-called ‘scarce rights’, indicated that the selling of land was similar to granting a ‘scarce right’. Until then public entities were more or less free to choose to whom to sell to directly. The Supreme Court, however, reasoned that a public entity must comply with the principles of good administration, such as the principle of equality. To ensure equal treatment public entities must ensure that potentially, seriously interested parties, can compete for a plot of land.
Importantly, the Supreme Court held that this doctrine applies retrospectively. This led to legal uncertainty for both the buyer and the public entity, even more so as the Supreme Court was rather vague on the legal consequences of the selling of land without a selection procedure. The question was whether acting contrary to the Didam-doctrine would lead to voidness or voidability of the contract. The uncertainty continued with lower courts ruling differently on this matter.
The dust has settled
The Dutch Supreme Court referred the case, in part, back to the Court of Appeal of The Hague (“Court of Appeal”), which ruled on 4 April 2023 on the legal consequences of the selling of land without a prior selection procedure. It held that by analogy to public procurement law the legal consequence of selling land without a prior selection procedure is a voidable contract. In other words, the contract remains valid until it is avoided, which is not so far-reaching as voidness.
This outcome makes sense as public procurement law, albeit not applicable to the sale of land, is more stringent by nature than the obligation to organize a selection procedure prior to selling land. The far-reaching consequence of voidness in a regime that is lighter than public procurement law, made little sense.
It does not come as a surprise that the judgment by the Court of Appeal is warmly received by practitioners. After more than two years practitioners can finally advise with a higher degree of certainty on the risks involved with the past and future acquisition of land from public entities.
Final remarks
Despite the judgment of the Court of Appeal, some uncertainties remain. For instance, only recently a lower court clarified that the Didam-doctrine applies to the renting out of land by a public entity. The question therefore remains, which other rights with regard to land are covered by the Didam-doctrine?
Furthermore, the Court of Appeal held that a contract is voidable depending on the circumstances of the case at hand. It is not clear form its judgment under which circumstances the contract is voidable.