In his opinion in Case C-537/19 (Commission v. Austria), the Advocate General concluded that the control exercised by a public body over the construction of the head office premises it had agreed to lease was sufficient to trigger application of the EU public procurement rules.

In this case the European Commission claims that Austria has failed to fulfil Directive 2004/18/EC (the predecessor of the current Public Procurement Directive) because in 2012 a public body linked to the City of Vienna (Wiener Wohnen) concluded with a private undertaking (the landlord), without complying with the provisions of that directive, a contract, classified as a lease by the signatories thereto, (the lease contract) for the construction of an office building by the name of ‘Gate 2’ (the building) on land owned by the landlord.

According to the Commission there are a number of factors that show that Wiener Wohnen had a decisive influence over the design of the building and over the execution of the project to construct the building and that, therefore, although the parties concluded the lease contract as a property lease, it is in fact a public works contract within the meaning of the Directive. Meanwhile, Austria argues that the transaction falls within the exemption under the Directive for public contracts for the leasing of buildings.

Views of the Advocate General

The Advocate General concluded that the lease contract did amount to a public works contract within the meaning of the Directive. In reaching that conclusion, he placed particular weight on the contractual rights exercisable (and in fact exercised) by Wiener Wohnen over the eventual structure of the building (the design of which was not final when the lease contract was entered into). 

It is true, as the Republic of Austria submits, that, in the case of large property development that has yet to be built, the (future) tenant may negotiate with the owner in order to have the building adapted to some extent to suit his own purposes. In this case, however, the conditions imposed were so extensive and Wiener Wohnen’s role so significant as to go beyond the customary scope of the landlord-tenant relationship.

In particular, Wiener Wohnen was entitled to require the construction of two extensions to the building (the first for additional floors and the other for a bridge to connect the two wings of the building). According to the Advocate General, those two extensions were “unquestionably an important architectural addition affecting the structure of the property and, under the terms of the contract, would not have been built if Wiener Wohnen had not made provision for them. The wishes of that public body were thus instrumental, inasmuch as the building was built in the form and with the characteristics which it wanted” [para.67]. Those contractual rights were not, in the Advocate General’s view “consistent with the typical position of a mere tenant but, rather, with that of an actual project owner who imposes his own solutions on the plans for the building and their execution” [para.73]. This view was “reinforced by the fact that Wiener Wohnen appointed its own operatives to supervise the execution of the project, in parallel with the owner. This too is a role that does not normally fall to the tenant of a property which has yet to be built, since it is not usual for a tenant to supervise a project which is not his own” [para.76].

Additional considerations

While not relevant to the ultimate conclusion reached to the Advocate General, it is worth noting that there were two factors which were not of themselves sufficient to establish that the building had been designed or constructed in accordance with Wiener Wohnen’s requirements. First, that the building would not have been built if the lease contract had not been signed and, second, that the lease contract imposed handover deadlines for the completion of the building along with penalties for delay (in this case EUR 30,000 per day). 

Interestingly, the Advocate General also appeared to accept that, in principle, the long duration of the lease to be entered into under the lease contract (which was not open to ordinary termination until 2040) might bring the contract within the scope of the Directive to the extent that the sum of the rents accumulated over such a period of time could be regarded as deferred payment for the building works themselves. However, he could not endorse such an argument in the absence of data produced by an economic study taking into account the project’s write-off period and the costs to the owner of maintaining the building during the minimum contract term. 

For further information on this or related matters, please contact Gordon Downie, a Partner in our regulation and markets team, at gordon.downie@shepwedd.com

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