The GC underlines the importance of clearly and precisely defining the scope of Services of General Economic Interest

Joined cases T-202/10 RENV II and T-203/10 RENV II
PartiesCourtChamberJudge-RapporteurAdvocate GeneralSubject-matter
AppealStichting Woonlinie and Others
European Commission
General Court8th Chamber, Extended
G. de Baere/State aid - SGEI
KeywordsState aid — Social housing – Aid schemes in favour of social housing corporations – Existing aids – Member State commitments — Decision declaring the aid compatible with the internal market — Article 17 of Regulation (EC) No 659/1999 — Service of general economic interest — Article 106(2) TFEU — Definition of the public service mission
Significant pointsOn 15 November 2018, the General Court (the “GC”) dismissed an appeal against a Commission decision on a Dutch aid scheme in favour of social housing corporations.

By decision in 2009, partially modified in August 2010, the Commission had accepted proposals for appropriate measures submitted by the Netherlands concerning a social housing financing scheme considered as an existing aid scheme by the Commission. The Commission’s main finding was that the public service mission for which compensation was granted was not defined precisely enough.

Stichting Woonlinie and other Dutch non-profit social housing corporations sought the annulment of the Commission’s decision before the GC. The latter declared their actions inadmissible (cases T-202/10 and 203/10). On appeal, the Court of Justice of the European Union (the “CJEU”) found the actions admissible and referred the cases back to the GC for judgment on the merits (cases C-132/12 P and C-133/12 P). The GC dismissed the actions as manifestly unfounded (cases T-202/10 RENV and T-203/10 RENV). However, its judgments were annulled by the CJEU by judgments of 15 March 2017 (C-414/15 P and C-415/15 P). The Court again referred the case back to the GC, giving rise to the judgment at hand.

In the judgment on 15 November 2018, the GC dismissed the actions on the main ground that the definition of the service of general economic interest (“SGEI”) for social housing at stake, which was provided for in Dutch legislation, was insufficiently precise (2nd to 6th and 8th pleas). It also dismissed the pleas relating to the concepts of aid scheme and existing aid (1st and 7th pleas).

The GC recalled that public compensation for SGEIs does not constitute State aid if four conditions are fulfilled as per the Altmark judgment. The first of these conditions is that the recipient undertaking must have public service obligations which are clearly defined. This condition must also be fulfilled in cases where the derogation provided for in Article 106(2) TFEU is to be applied, i.e. when some of the other Altmark conditions are not met.

The GC also recalled that Member States enjoy broad discretion as to the definition of what they consider to be an SGEI. Therefore, this definition can only be called into question by the Commission in the event of a manifest error. In this regard, Member States must demonstrate that the scope of the SGEI is necessary and proportionate in relation to the public service need, which must be genuine. The absence of evidence that these criteria are met may constitute a manifest error of assessment.

In the case at hand, the GC considered that the definition of the SGEI was vitiated by a manifest error because it provided that housing for rental be prioritised for people “who had difficulty in finding suitable housing", without precisely defining the target group of disadvantaged people (2nd plea).

The GC found that the Commission did not require a definition of the SGEI based on an income ceiling as alleged by the applicants and was entitled to demand a more precise definition of the target group than that provided for by Dutch legislation (4th and 6th pleas).

The Court also found that the Commission had not erred in its assessment of the scope of the SGEI. On the contrary, it had correctly noted that the absence of a precise delimitation of the SGEI entailed the risk that the compensation granted to housing companies would also benefit their ancillary (profitable) activities, which would therefore not be exercised under market conditions (3rd plea).

The Court also held that, although the Commission cannot make the definition of the SGEI dependent on its method of financing, a clear definition of the SGEI is nevertheless necessary to ensure compliance with the condition of proportionality of the compensation to the public service mission and to avoid that the activities carried out by housing companies outside the SGEI do not benefit from State aid (risk of cross-subsidies) (5th plea).

In addition, the GC found that, contrary to the applicants’ allegations, the Commission had not imposed an exhaustive list of buildings that could be qualified as "social”. The list was established by the Dutch authorities in order to address the concern, expressed during the procedure, that the aid granted for the financing of the SGEI could benefit buildings in which commercial activities were carried out (8th plea).

As regards the first plea according to which certain measures were wrongly considered by the Commission to form part of an aid scheme even though they were individual aid measures not provided for in a legislative text, the GC objected that the fact that individual aid was granted did not exclude the existence of a scheme on the basis of which such aid was granted. Moreover, Regulation 659/1999 does not require that an aid scheme be based on a legislative provision.

The applicants also argued that the Commission erred in failing to examine the existence of overcompensation in the original system of financing social housing. However, the GC objected that such an examination is not, in itself, necessary to properly assess appropriate measures for the future in respect of an existing aid scheme (7th plea).

As a result, the GC dismissed the appeals brought by the applicants.
NoteworthyThis judgment is the latest episode in the case of Dutch non-profit social housing organisations.

It follows that, although the Commission is not competent to define a SGEI since this task falls to the Member State concerned, SGEIs must nevertheless be clearly and precisely defined.

In this regard, it is for the Member State to demonstrate that the scope of the SGEI is necessary and proportionate in relation to the public service need, which has to be genuine. A precise definition ensures that there is no overcompensation and that the ancillary activities carried out by the companies in charge of the SGEI do not benefit from State aid. Moreover, national authorities must provide information on any additional costs incurred by the companies in charge of the public service missions.

It is not for the Commission to give indications or propose elements of definition concerning the method of determining the beneficiaries of the SGEI. The GC also judged that there is no requirement to indicate an income ceiling. Conversely, reducing the maximum value of housing that can be considered as social housing does not make it possible to identify the persons to whom the SGEI is opened.

Finally, an ancillary profitable activity is permitted for operators in charge of SGEIs. In this case, for example, in the event of overcapacity in housing, the operator could rent housing to people who did not fall within the category of target persons. However, the ancillary activity will not be regarded as a public service and may not be included in the scope of the SGEI. In addition, it must be subject to separate accounting to reflect the absence of cross-subsidy. Finally, the activity must be carried out under market conditions.