Retail branching schemes in violation of European law?

In the Netherlands we know no other way than that not all forms of retail are allowed in every location. The reason is that not every location is suitable for every form of retail and that municipalities often want to protect the center area. But are these restrictions allowed or are these restrictions possibly in violation of European regulations? And if so, what are the consequences?

It is standing practice in the Netherlands to include branching regulations in zoning plans, which for retail - simply put - mean that only certain forms of retail are allowed and other forms of retail are not. A hardware store on the edge of town and a clothing store in the center. Despite the fact that the restrictions themselves appear to be mostly motivated by legitimate reasons, it has been argued for many years by attorneys and legal experts that the Dutch system in which zoning plans distinguish between permitted forms of retail trade would violate European regulations (the "Services Directive"). Early this year, the Administrative Law Division of the Council of State put several questions to the European Court of Justice in the 'Woonplein Appingedam' case, which will have to provide clarity on this point. Clarity that may have far-reaching consequences for the Dutch system of spatial planning!

What was going on?

The Appingedam City Council has adopted the zoning plan "Stad Appingedam," which includes a "Woonplein" on the outskirts of Appingedam. The Woonplein is a shopping area for high-volume retail, such as furniture, kitchens and building materials. The zoning plan provides that only bulky retail - retail in bulky goods - is allowed in the Woonplein (with a few exceptions). In those proceedings, it was argued by a real estate company that the restriction that only retail trade in bulky goods is allowed, a so-called "branching regulation," violates the European Services Directive, since - simply put - the Services Directive prohibits (in principle) the setting of assortment restrictions. The Division used these proceedings to put a number of questions to the European Court of Justice about the relationship between retail (regulation) in zoning plans and the Services Directive.

Why important?

This case - more specifically the European Court's answer to the questions raised - is potentially of great importance for Dutch spatial planning policy. After all, should the European Court rule that the Services Directive applies as well as that the regulations stipulating that smaller retail outlets may not establish themselves on the Woonplein are contrary to this Directive, then in fact assortment restrictions for retail in spatial plans are contrary to the Services Directive. It goes without saying that this has major consequences for the spatial planning policy of municipalities with regard to retail, where branching regulations are considered necessary precisely to combat (especially) vacancy in city and village centers. But of course also for the possibilities that business owners has (or should have) to carry out retail activities.

Does the Services Directive even apply?

That the Division is putting questions to the European Court is in itself already special, because the Division has already ruled several times that retail trade is not a service in the sense of the Services Directive, and the Services Directive is therefore not applicable to zoning plans. The reason that the Division has (apparently) started to have doubts seems to be that the European Commission does refer to retail trade as a service in policy documents. Other European courts are also of the opinion that the Services Directive applies to retail regulation. Despite the fact that the Division "for the time being remains of the opinion that retail activities relating to goods are not services," the Division wants an explicit opinion on this from the European Court.

The Division (fortunately) did not stop at that one question. Because even if these retail activities can be considered "services", this does not mean that the Services Directive already applies. After all, regulations that - in short - are inspired by spatial planning can be exempted from the Services Directive. The Division has also asked the European Court whether this is really the case. In Appingedam, the municipal council had indicated that the purpose of the branching regulation is to preserve the livability of the city center and to prevent vacancy in inner-city areas, and that certain forms of retail trade in the area outside the city center are not possible. Therefore, the Division asked the (follow-up) question whether the Services Directive applies to zoning regulations that aim to preserve the livability of the city center and prevent vacancy. If the European Court rules that these regulations fall under the "exception," the Services Directive would still not apply.

The final question that the Division has put to the European Court regarding the applicability of the Services Directive is whether the Services Directive also applies to 'purely internal' situations, in this case a planning regulation for only a small part of Appingedam. So far it has been assumed that a 'cross-border situation' must exist for the Services Directive to apply. For that to be the case, is it sufficient that it cannot be ruled out that a retail company from another Member State wishes to establish itself on the site? The European Court will have to clarify this.

The Division has thus already raised a number of relevant questions at the outset in order to obtain an answer from the European Court as to whether the (limitations of the) Services Directive do apply to branching rules in zoning plans. If the European Court comes to the conclusion that the Services Directive does not apply to these regulations, the current system will continue without further ado.

Do the regulations do violate the Services Directive?

But what if the European Court, unlike the Division so far, concludes that the Services Directive does apply to branching schemes? Are these regulations then automatically in conflict with European regulations? And should retail trade then be allowed without any restrictions?

The Division was also (fortunately) aware of the possible consequences of the applicability of the Services Directive and immediately seized the opportunity to request clarity on this from the European Court. After all, it is important that branching restrictions can be justified by an "overriding reason of general interest. In other words, the European Court will have to give an opinion as to whether preventing vacancy and dilapidation of municipal centers can be a (compelling) reason to establish a restrictive branching regulation. Only in case of an affirmative answer are restrictions allowed.

Lock: No restrictions on retail in the future?

The outcome in the 'Woonplein Appingedam' case will be of great importance for 'branching practice'. However, the judgment of the European Court of Justice will have to be awaited. That judgment is expected to be delivered in late 2016, early 2017. It is expected that the Administrative Jurisdiction Division of the Council of State will hold proceedings involving reliance on provisions of the Services Directive until the ruling of the European Court.

There is a chance that the European Court - unlike the Division so far - will rule that retail does fall under the Services Directive and that spatial restrictions on retail outside city centers are not permissible. If the ECJ actually reaches that judgment, it will put a stop to the ever-increasing regulation of retail.

To be continued!