Construction market case law: competitor as stakeholder and deliberately creating oversupply

It now seems to be commonplace: hardware stores fighting each other in legal proceedings in order to remain (longer) protected from competition. These are often lawsuits by competitors against the German chains Hornbach and Bauhaus. A few recent developments in case law are worth noting.

Competitor as stakeholder: be alert to organizational structure

Case law has very recently shown (again) that an emerging competitor must be well aware that it (the legal entity conducting the proceedings) has a sufficient interest in a decision. It is settled case law that whoever whose competitive interest is directly affected by a decision counts as an interested party. But when is there a "directly affected" interest?

A January 20, 2016 ruling shows that the organizational structure of a (DIY) chain can be decisive for the admissibility of an appeal. That ruling concerned an appeal by (among others) Praxis Vastgoed against the new establishment of a Hornbach in Best.

What was going on? Praxis Vastgoed leases the land of two competing Praxis stores in Son en Breugel and Eindhoven from a third property owner. Praxis-Doe-het-Zelf Center is responsible for the operation, raising the question of the relationship between Praxis Vastgoed and Praxis-Doe-het-Zelf Center. It seems to follow from the ruling that a (written) lease agreement between Praxis Vastgoed and Praxis-Doe-het-Zelf Center is lacking. This leads the Council of State to the conclusion that no tenant-landlord relationship exists between Praxis Vastgoed and Praxis-Doe-het-Zelf Center. Since Praxis Vastgoed also does not own the land, the Council of State rules that Praxis Vastgoed cannot be received in the appeal.

It cannot be ruled out that this organizational structure is used in several places. Since, according to the Council of State, the organizational structure is considered of decisive importance, it is advisable to scrutinize the organizational structure - prior to legal proceedings. This will prevent an inadmissible appeal.

Competitor and the ladder for sustainable urbanization (the "ladder"): relevant vacancy rates

For competitors, in addition, it seems to be becoming increasingly difficult to get certain grounds for appeal dealt with substantively by the court, such as an appeal to the ladder for sustainable urbanization. With the entry into force of the so-called relativity requirement, a court cannot annul a decision on the basis of a rule if that rule clearly does not serve to protect the interests of the party invoking it. So what about a competitor's appeal to the ladder?

First, let me remind you what the ladder even means: a municipality is required to follow three essential steps for new urban development:

1. Is there a current regional need for the plan in question?
2. In what location will that need be realized? Are there opportunities for restructuring or transformation of available land?
3. Is there a site that is adequately accessible, appropriate for the proposed development?

In previous case law, the Council of State ruled that the ladder can also serve to protect the interests of a competitor; after all, it is about careful use of space. In a May 20, 2015 ruling, the Council of State saw reason to make this position more precise: only if there is relevant vacancy can a competitor rely on the ladder. To provide immediate clarity, the Council of State ruled that there is no relevant vacancy if the planned development could lead to closure of its own branch. There must be more. The Council of State explicitly mentions two circumstances:

1. if a commercial building has such special or site-specific characteristics that other types of use are not possible or are possible under very onerous circumstances; or
2. if there is vacancy due to the planned development in the vicinity of the premises occupied by the competitor.

The first circumstance will not easily arise in "construction market jurisprudence. The second circumstance will be more likely to arise. An illustrative example is the September 9, 2015 ruling on the establishment of a Bauhaus in the municipality of Venlo. The competing DIY stores (Praxis, Karwei and Gamma) have different positions in that procedure. In that procedure, the Council of State ruled that for both Praxis and Bricorama (as operator of the Karwei), relevant vacancies may occur in their immediate vicinity. They can therefore appeal to the ladder. This does not apply to the Gamma. This is because the Gamma establishment is solitary, so no relevant vacancy in the immediate vicinity can occur.

The lesson that can be drawn from this case law is that it is advisable - prior to any legal proceedings - to have insight into the possible effects that may occur around a particular establishment. After all, only if that is relevant vacancy, does the court get around to a substantive assessment of the ladder.

A municipality that deliberately creates a market surplus: can that just happen?

Of course, if the court gets around to a substantive test against the ladder, the question is how that assessment would be made. For example, can a municipality consciously choose to create a market surplus? For example, the municipality of Den Bosch recently indicated in a memo that it is willing to cooperate with new retail developments (the new establishment of a Bauhaus/Hornbach is planned), which will result in the disappearance of outdated supply in a bad location. The retail structure will then, in the opinion of the municipality, improve on balance. But can this be done just like that? Or will the Council of State then rule that the retail structure is disproportionately affected?

Of relevance to this answer is the question of the purpose of the ladder. The purpose of the ladder is to ensure that available space is used carefully. Thus, the ladder has the character of an accountability requirement. An accountability obligation that rests on the municipality and not on the judge. Therefore, the judge takes a reserved attitude in this assessment, as is also evident from the aforementioned ruling of September 9, 2015. For the judge, "it must have been made clear that the plan will not result in such vacancy that it will lead to a situation that is unacceptable from the point of view of good spatial planning." This is not yet the case if a spatial development will lead to an oversupply in a certain branch. That does not yet mean that the development violates the ladder, the Council of State said.

This line can now be found in more rulings. For example, in a ruling of Nov. 18, 2015, which addressed a surplus of supermarkets. The Council of State agreed with the reasoning that if an existing supermarket is squeezed out of the market, it is expected that another supermarket will take its place. Thus, a sufficient level of facilities is maintained. Deliberate management of the retail structure, even in the case of creating oversupply, is thus possible.

Finally, own business owners first?

A question that may arise is whether then shouldn't the existing business owners first be given the opportunity to move? The answer to this is clear: no. After all, it is established case law that planning decisions (environmental permit/zoning plan) do not serve to regulate competitive relationships. Indeed, spatial planning is not economic planning.

A business owner will therefore have to actively engage with developments in its municipality itself and respond to them in a timely manner, such as by speaking up on municipal retail policies or by considering a new location in a timely manner.