Agreement for lease or public works contract? Austria is destined to find out the hard way…

A case at the end of 2020 acts as a warning for contracting authorities using agreements for lease and similar development agreements to commission buildings and developments from developers.

In Commission v Austria, Wiener Wohnen (a contracting authority linked to the City of Vienna), contracted for a landowner developer to construct and grant to them a 25-year lease of a new head office building.

Although the arrangement was classified as a lease by the parties, and no premium was payable at the start of the lease, the Commission challenged the arrangement as being an unlawfully let public works contract. This was because Wiener Wohnen had exercised a ‘decisive’ influence over the design and construction of the building. The final plans and the execution of the construction works were heavily influenced and dictated by the requirements of Wiener Wohnen, and their involvement in determining these “went beyond what would normally be agreed between a landlord and a tenant”.

The Advocate-General, who makes recommendations to the European Court on how to decide on procurement challenges, agreed with the Commission.

This has implications for similar arrangements, including “package deal” developments, where a contracting authority has significant controls over what is built “for” them by a developer. Whilst the decision is in line with existing case law, it emphasises how difficult it is to balance the desire for reasonable control over what is built (including under a “package deal”) with the risk that too much control will make the arrangements an unlawfully let public works contract.

There is nothing in the Government’s proposals in the Green Paper on public procurement that is likely to change this analysis, so this will still be something that registered providers and local authorities who buy buildings from developers will need to be careful of going forward.

For more information

For advice on whether a potential development structure is likely to be classified as a public works contract and how to deal with this, please contact Andrew Millross or your usual contact within our construction and procurement department.

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