State Aid for Historic Building restoration for use by local retail outlet

Not sure if this has been addressed before I would like to invite you view on the matter of whether providing lottery funding to restore a historic building from which a single retail outlet trades comes within State Aid parameters? (De Minimis excepted) This is for a c£260k grant in West Wales; an assisted ara under EU clisification. An outline of my thoughts and research follows and would be grateful to call on any other experance on this.

My approach, as the first test, is to establish whether such grant aid is within scope for State Aid; I consider that it is not.

Is it State Aid: Does the assistance affect trade between Member States?

The effect on trade between Member States for the purposes of Article 107(1) TFEU must be established on a case-by-case basis apart from cases covered by the de minimis Regulations.

The first relevant reference I can find is as follows: Where the beneficiary of state support supplies goods or services to a limited area within a Member State, and is unlikely to attract customers from other Member States, there may be no effect on intra-EU trade and therefore no state aid within the meaning of the EU rules. To be free of aid, the measure should also have no - or at most marginal – foreseeable effects on cross-border investment in the sector or on the establishment of companies within the EU's Single Market.

The building will be used by a start-up company, so certainly meets the test as described above

A much older Commission Staff Working Document: State Aid Control And Regeneration Of Deprived Urban Areas  includes the following statement: “Even measures designed to promote economic activities in deprived urban areas need not constitute state aid in the meaning of Article 87(1) EC Treaty. In line with the former Guidelines on state aid for undertakings in deprived urban areas, aid to individual shops and enterprises in such areas that carry on a purely local activity will normally(a) not affect trade between Member States.” ((a) The exception would be an enterprise located sufficiently close to the border that clients might be tempted to cross the border for their purchases or for the services provided.)

If this test fails, then the second test would be to see if there an exemption in place

General Block Exemption Regulation (GBER)

The measure may be exempted from notification if it is granted in compliance with the conditions of the GBER. In particular, Article 53 of the GBER can apply, allowing investment aid for culture and heritage conservation up to EUR 150 million per project, as well as operating aid up to EUR 75 million per undertaking per year.

Article 53: Aid for culture and heritage conservation

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02014R0651-20170710&qid=1513261597398&from=EN

Aid for culture and heritage conservation shall be compatible with the internal market within the meaning of Article 107(3) of the Treaty and shall be exempted from the notification requirement of Article 108(3) of the Treaty, provided the conditions laid down in this Article and in Chapter I are fulfilled.

The aid shall be granted for the following cultural purposes and activities:

Tangible heritage including all forms of movable or immovable cultural heritage and archaeological sites, monuments, historical sites and buildings; natural heritage linked to cultural heritage or if formally recognized as cultural or natural heritage by the competent public authorities of a Member State;

The aid may take the form of: Investment aid, including aid for the construction or upgrade of culture infrastructure;

 

For investment aid, the eligible costs shall be the investment costs in tangible and intangible assets, including: Costs for safeguarding, preservation, restoration and rehabilitation of tangible and intangible cultural heritage, including extra costs for storage under appropriate conditions, special tools, materials and costs for documentation, research, digitalisation and publication;

 

For aid not exceeding EUR 2 million, the maximum amount of aid may be set at 80% of eligible costs.

More general guidance

The English Aid for Cultural and Heritage Conservation State Aid Scheme, although specific to DCLG, does have ‘read across’ relevance to grants for historic buildings.

This scheme provides the case for investment aid such that , the eligible costs shall be the investment costs in tangible and intangible assets, including:-

Costs for safeguarding, preservation, restoration and rehabilitation of tangible and intangible cultural heritage, including extra costs for storage under appropriate conditions, special tools, materials and costs for documentation, research, digitalisation and publication;

Beyond the block exception, there are test cases which establishes the principle of investment into restoration of cultural heritage items being permitted under from State Aid consideration.

Test case

State aid No N 393/2007 – The Netherlands

Finance costs created by the renovation of the 19th century Ijsselhotel in Deventer.

The Beneficiary of the measure is NV Bergkwartier ("the Beneficiary" or NV Bergkwartier henceforth). NV Bergkwartier is the owner of the Ijsselhotel, having acquired it in 2002 for approx. EUR 1.4 million from the private limited company Het Wapen van Deventer BV. Ijsselhotel is a building dating from the second half of the 19th century that figures on the Dutch list of State Monuments. It is located in Deventer, in the Dutch province of Overijssel.

The overall aid granted to the Beneficiary will not exceed 81% of the foreseen eligible costs, independently of the financing source.

According to Article 87(3)(d) of the EC Treaty, "aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Community to an extent that is contrary to the common interest" may be considered to be compatible with the common market.

The present measures pursue a real objective of conservation of cultural heritage, as the building for the restoration of which the subsidy is granted is present on the list of National Monuments.

It should be noted that without the intervention of the Beneficiary, the Ijsselhotel would undergo further deterioration and would eventually collapse or be destroyed. When renovating the Ijsselhotel the Beneficiary shall respect the authenticity and the existing architectural character of the building. Such constraints are usually not supported by other real estate companies and involve additional costs. Consequently, a subsidy for a part of these additional costs is needed in order to ensure that the restoration takes place and warrant market conform price when renting out the building. The Commission therefore considers that the aid is necessary in this case.

As far as the effects of the measures on competition are concerned, they do not appear to be substantial. In this case the subsidies concern only one building. Next to that, on the market for renting out monumental real estate the Beneficiary behaves as a normal market player. Indeed, since the aid is limited to the minimum necessary to finance the extra costs of the restoration, the Beneficiary cannot use the State aid to lower rent prices below competitive levels.

Whilst the effects of the measures on intra-community trade cannot be excluded, they appear to be very limited in this case. Not all operators that restore and put on lease real estate in other Member States will necessarily have interest in a Dutch historic monument like the Ijsselhotel. In addition thereto, demand from abroad was not excluded, as the lease of the Ijsselhotel was announced on the internet. As a matter of fact, in first instance NV Bergkwartier intended to lease the hotel building to an international hotel chain. However, none of the international hotel chains was interested in the Ijsselhotel, because in their view it does not contain enough rooms.

In the light of the foregoing the Commission has concluded that the measures at stake constitute State aid within the meaning of Article 87(1) of the EC Treaty.

On the basis of the preceding assessment, however, the Commission has come to the conclusion that the measures at hand preserve national cultural heritage without adversely affecting competition and trading conditions in the Community to an extent contrary to the common interest. They are hence compatible with Article 87(3)(d) of the EC Treaty

http://ec.europa.eu/competition/state_aid/cases/220943/220943_783368_7_1.pdf

In practice, I think I’ll pass over the ‘is this state aid’ test and turn to the GBER.

My conclusion is that this work is covered under Article 53 of GBER, but from the commission perspective, I expect notice of approval by silence rather than confirmation.