The Council of State has ruled on the question of whether the conclusion by a contracting authority of a rental contract with an option to purchase should be classed as a contract for the rental of buildings or a works contract.

Introduction

In two recent judgments, the Council of State has ruled on the question of whether the conclusion by a contracting authority of a rental contract with an option to purchase should qualify as a contract for the rental of buildings or a works contract.

The distinction between these two categories is not without consequence since it determines whether or not public procurement law will apply. While works contracts fall – unless other exceptions apply – within the scope of public procurement law, article 28, §1, 1° of the act of 17 June 2016 excludes "public service contracts for the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or concerning rights thereon".

This exception should be understood in the light of the concept of a works contract. A works contract is defined by article 2, 18°, c) of the act of 17 June 2016 as a contract (i) having as its object the realisation of a work, (ii) corresponding to the requirements specified by the contracting authority, which exercises a decisive influence on the type or design of the work. In principle, when a contracting authority concludes a rental agreement for an existing building, this contract does not constitute a works contract since (i) the contract does not concern the construction of a building, and (ii) the contracting authority does not have a decisive influence on the type or design of the building.

The first Silver Tower judgment (Council of State judgment no. 242,094 of 12 July 2018)

The "be together" project aims to relocate in a single building the two administrative centres of the Brussels Regional authorities currently located at the "CCN" premises and at the "City Center" building.

In order to find a building that could accommodate its administrative staff, the Brussels Region launched a call for expressions of interest in 2018. This procedure was conducted without the application of public procurement law, on the basis of the exception applicable to contracts for the acquisition or rental of existing buildings.

Two companies applied to the Council of State for suspension of the procedure. According to the two applicants, the contract being considered by the Region constituted a works contract and therefore the exception relating to contracts for the acquisition or rental of existing buildings did not apply.

The Council of State ruled that the applicants had not demonstrated that the Region had exercised a decisive influence on the type or design of the building it intended to rent and possibly acquire, the identity of which was still unknown at the time of the judgment. This conclusion was based on two elements:

  • On the one hand, the call for expressions of interest expressly targeted buildings already built or designed prior to the Region's call for expressions of interest through the request for an urban planning permit, which should have made it chronologically impossible for the Region to influence the design or type of this building.
  • On the other hand, the Council of State considered that the mere prospect that rental and installation works would be necessary (and were in fact specified by the Region) was not sufficient to conclude that there was a decisive influence. For such a finding, it would have been necessary to establish that these works were more than incidental in relation to the future rental and potential acquisition operation. However, it was impossible to examine this question at the time of the judgment since the building to be occupied by the Region had not yet been chosen and the extent of the rental and installation works would depend on the characteristics of the building. The Council of State acknowledged that the classification of this type of contract is likely to evolve according to the offer chosen.

In the absence of elements indicating that the Region had any influence on the type or design of the building it intended to rent and possibly acquire, the Council of State dismissed the application.

The second Silver Tower judgment (Council of State judgment no. 242,755 of 23 October 2018)

Following the dismissal judgment of the Council of State of 12 July 2018, the Brussels Region continued the call for expressions of interest conducted without the application of public procurement law. This procedure led to the Region's decision to conclude a contract with Ghelamco Invest to rent, with the option to buy, the Silver Tower building to be built on Place Saint-Lazare in Saint-Josse-ten-Noode (Brussels).

The legality of this decision was challenged before the Council of State, which this time concluded that the contract in question was a works contract which should have been awarded in accordance with public procurement law. The Council of State's reasoning was as follows:

As regards the object of the contract, and in particular the question of whether the object of the contract was to realise a work, the fact that the rental did not relate to an existing building but to a building yet to be built was decisive. The Council of State concluded that the main object of the contract was to realise a work since, even though the Silver Tower was already the subject of  an urban planning permit, it still had to be built. Without the construction of the Silver Tower, there could be no rental of the building.

As regards the decisive influence exercised by the contracting authority, the Council of State considered that the Region had exercised a decisive influence on the type and design of the Silver Tower. This conclusion was based on factual elements that were not yet known at the time of the first Silver Tower judgment, namely:

  • The chronology of the case, and more specifically the publication of the Region's needs in recent years and the dates of the applications for urban planning permits and modification permits. The Council of State deduced from these elements that the applications were introduced in order to make the Silver Tower compliant with the requirements expressed by the Region. The existence of a permit dating from before the call for expressions of interest was not considered sufficient by the Council of State to exclude any influence from the Region.
  • The requirements to be met by the building, such as location, availability deadline, etc. The fact that these requirements would be "standard" and not specific to the Region did not seem to be a relevant factor for the Council of State. On this point, the Council of State adopted a stricter position than that adopted by the Court of Justice of the European Union, which had taken into account, in its Commission v Germany judgment, the fact that the requirements imposed by a contracting authority "far exceed the usual requirements of a tenant in relation to newly-constructed premises of a certain size" (Commission v Germany, 29 October 2009, C-536/07, para. 58).
  • The verification of conformity of the Silver Tower, which was contractually provided for at the end of the construction works in order to verify that the tower met the requirements imposed by the Region.

On the basis of these factual elements, the Council of State concluded that the contract was about the construction of a work (the Silver Tower) over which the Brussels Region had exercised a decisive influence that was more than incidental to the future rental and potential acquisition operation. Consequently, the Council of State suspended the Region's decision because of the unjustified non-application of public procurement law.

The position taken by the Council of State in its second judgment seems to us to be quite strict. On the one hand, the Council of State moderates the position taken in its first judgment according to which a building that is to be built but whose design has already been determined through the application for an urban planning permit, prior to the call for expressions of interest by the contracting authority, is equivalent to an existing building. On the other hand, the Council of State adopts a strict interpretation of the notion of "decisive influence" and seems to consider that, as soon as the contracting authority has any influence on the specifications of the building concerned, this influence must be classed as decisive. Undoubtedly the Council of State did not look  favourably on the fact that, in this case, some real estate operators had been able to prepare for the Region’s call for expressions of interest. For contracting authorities, this judgment implies that, in case of doubt, they should prefer to apply public procurement law.