When is a land transaction not state aid?

10th July 2019

Real Madrid has been successful in its application to annul the Commission’s decision of 4 July 2016, which ordered Spain to recover €18.4m in illegal State aid relating to a land transfer agreement between Real Madrid and the Madrid City Council.

On 22 May 2019, the General Court handed down judgment in Case T-791/16 Real Madrid Club de Fútbol v Commission, overturning the Commission’s initial decision based on its failure to show that the land transfer agreement unfairly advantaged Real Madrid and thus held that within the meaning of Article 107(1) TFEU, the land transfer did not qualify as State aid.

The decision in this case raises some important questions as to when land transactions do not satisfy the requirements for State aid.

Within the meaning of Article 107(1) TFEU, classification of ‘state aid’ requires all of the following conditions to be fulfilled (Commission v FIH Holding and FIH Erhvervsbank C-579/16):

1) Intervention by the State or through State resources.

2) The intervention must be liable to affect trade between Member States.

3) It confers a selective advantage on the recipient.

4) It must distort or threaten to distort competition.

If any of these elements is not made out by the party alleging unlawful aid (in this case the European Commission), then there is no unlawful aid.

This case turned on the requirement for the Commission to establish whether the recipient received an advantage that it would not have obtained under normal market conditions. The meaning of aid is objective; the test being whether there has been an advantage on the recipient attributable to intervention by the State.

The facts of the case are complex, reaching back to an agreement made in 1991 to renovate Real’s famous Bernabéu Stadium, following which there was a series of transactions.  The essential facts are:

  • In 1996, the Madrid City Council agreed to transfer certain land to Real, including ‘plot 32-B’;
  • The Council failed to transfer that plot;
  • The resulting dispute was settled in 2011;
  • Under the settlement agreement, the Council agreed to compensate Real by transferring to it other land and paying it money which together matched the 2011 value of Plot 32-B.

The Commission considered this to be a transaction which conferred unlawful aid on Real.  In coming to this conclusion, having determined that an overvaluation of Plot 32-B. amounting to €18.4m gave Real Madrid an unjustified advantage over other clubs and consequently Real Madrid should be liable to pay this amount back.

Real’s challenge was made on several grounds, including that the Commission’s valuation was wrong.  All but one of the club’s arguments were dismissed by the General Court.  The ground on which they succeeded however was that the Commission, in focusing only on the valuation of Plot 32-B had not adequately considered all of the aspects of the transaction at issue and its context.  In particular it had not carried out an evaluation exercise on the other plots of land which were transferred to the club under the settlement agreement. As a result, it could not have conducted adequate analysis of all of the relevant factors to justify its valuation of the amount of aid and moreover, whether there was in fact any advantage arising from this.

Since at least one of the standard requirements within Article 107(1), namely, to confer an advantage on the recipient had not been met; on appeal, the General Court found the Commission mistaken in declaring the measure state aid for the purpose of Article 107(1).

The case underlines the importance in any transaction involving the transfer of public land or other assets of ensuring that there is proper valuation of those assets and that value of the benefit received by the transferee is matched by value it has given up.

This includes where such transfers occur as part of settling claims or litigation.  In a sense Real Madrid were fortunate, because the Commission had missed a trick in not carrying out a full analysis of the settlement agreement.  It is unlikely that they will make a similar mistake again.  Indeed, it is likely that they will subject such agreements to even more careful scrutiny, highlighting the need for public bodies and those in dispute with them to carry out a careful state aid analysis of any proposed settlement of this sort, supported by good evidence and reasoned justification.

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