The Didam II ruling: implications for real estate market
The Didam II ruling, issued by the Dutch Supreme Court on November 15, 2024, has implications for the real estate market, particularly for institutional investors, developers, public entities and other stakeholders involved in real estate projects and transactions with the public sector. The Didam II ruling builds on the original Didam I ruling from 2021 that provided critical clarifications that directly impact how public entities (such as municipalities) have to manage the sale of real estate to private parties (together: Didam Rulings).
According to the Didam Rulings, the Dutch Supreme Court confirmed that public entities must adhere to the principles of good governance when entering into commercial agreements. Following the Didam Rulings public entities must ensure transparency, equal treatment, and non-discrimination, fairness and the consideration of public interests, even in commercial agreements, in line with the general principles of good governance.
The Didam Rulings have implications for the real estate market:
1. Retroactive application of the Didam Rulings
A crucial aspect of the Didam II ruling is its retroactive application. The Supreme Court has confirmed that the Didam Rulings also apply to transactions made by public entities prior to the Didam I ruling. This means that any previous real estate transaction in which public entities sold real estate without for instance ensuring transparency or fair competition may be subject to scrutiny under the Didam framework.
2. Validity of contracts in case of Didam Rulings violations
While the Didam II ruling made clear that contracts entered into in violation of the Didam Rulings are not void or voidable, it emphasizes that the public entity may have acted unlawfully towards disadvantaged parties. This opens up the possibility for claims from investors who believe they are or were unfairly excluded from a transaction, for instance a claim for compensation, particularly in the form of opportunity damages.
3. Transparency requirements for single-candidate sales
According to the Didam II ruling, public entities are required to announce their intention to sell real estate publicly, even when they believe there is only one candidate. For real estate investors, this development is significant as it creates more opportunities for market participants to become aware of public sector sales and potentially compete in the bidding process. It also means that public entities cannot simply sell to the first interested party they choose without following a formal process.
4. Impact on project development
Public entities play a key role in facilitating major development projects, including (sustainable) housing, green infrastructure, and energy-efficient buildings. The Didam Rulings may now complicate or delay such projects, as public entities must ensure they follow transparent processes when selling real estate. The increased scrutiny over how public entities sell real estate may i.e. result in delays or additional hurdles in securing land for new developments.
5. Scope Didam Rulings
While the Supreme Court did not provide additional clarification on the scope of the Didam Rulings with respect to lease agreements, ground lease (erfpacht), or the sale of shares in public entities. in the Didam II ruling, some lower courts have already determined that the Didam principles apply to leases, ground lease (erfpacht), and even the sale of shares in public entities.
Should you wish to learn more on how this may impact your business, please do not hesitate to contact us.
