NL: Financing of real estate projects and the Bibob Act05 December 2023
In some cases, anyone applying for an environmental permit must provide information to the municipality about the way in which the construction project will be financed. This is regulated in the Bibob Act (Promotion of Integrity Assessments by Public Administration Act). This obligation can differ per municipality and is usually made dependent in policy rules on the amount of the building sum. Especially in the case of higher construction sums, the importance of a preventive bibob assessment is greater. It is not the case that a bibob assessment only comes into play in multi-million euro projects. In many municipalities, a bibob investigation is always carried out for a contract price above EUR 250,000 and below that in some cases (e.g. in the case of an increased risk profile).
The legal obligation to provide sufficient information about the financing of a construction project in an application should not be underestimated. Providing insufficient information about the financing of the construction project may lead to the dismissal of an application for an environmental permit. This was exactly what happened in the case that led to the judgment of the District Court of Amsterdam of 14 November 2023 (ECLI:NL:RBAMS:2023:7203).
What was going on?
A company (developer) applied to the municipality of Uithoorn for an environmental permit for the transformation and expansion of a former business premises into 91 short stay apartments. The municipality wanted to know how this project of more than 11 million euros was financed and asked the applicant to submit a signed financing agreement. However, the applicant did not have a financing agreement, according to the applicant, because a financing agreement is not entered into by financiers without being able to submit an environmental permit. After repeatedly requesting the financing agreement, the municipality subsequently rejected the application. The applicant appealed against this, but was not successful in court.
In its ruling, the Court first considered that the Bibob Act gives the municipality the authority to ask an applicant for information about the financing of a construction project. The practical objection of the applicant that financiers without an environmental permit do not want to enter into a financing agreement was not heard by the court:
'In the opinion of the court, the municipal executive did not act negligently, disproportionately or biasedly, or abused its powers, by asking for the provision of a signed financing agreement. If an applicant is unable to provide the information relevant to the assessment, as SPS argues, this circumstance should not be at the expense and risk of the administrative body.'
Apparently, the applicant had also proposed a practical solution, which meant that the financing agreement could be assessed even after authorisation. The court did not agree with this either:
'Due to the aforementioned preventive nature of the integrity assessment, the municipal executive also did not have to agree with BTR's proposal to grant the environmental permit and to attach the condition that it may only be used if a financing agreement is submitted before the start of the work.'
The court also found that other data from which, according to the applicant, the financing should be sufficient:
'BTR has not submitted sufficient data and documents to be able to carry out and complete a substantive bibob investigation, among other things because BTR had not yet provided sufficient information about real estate transactions in Israel and transfers from Israel and Spain, with which the project would be partly financed. Furthermore, SPS merely provided an indicative loan proposal from a financing institution, which was significantly lower than the costs estimated by SPS and was no longer valid at the time of the application. BTR also merely stated that it wanted to finance the project by accepting 'an offer' from 'a financier'. BTR has thus failed to provide insight into the structure, size and origin of the outside capital with which BTR intends to finance the project. As a result, the Executive Board was unable to conduct a substantive bibob investigation.
In the letter of 6 December 2021, BTR made a reasoned request for permission to suffice with a statement from the lawyer involved in these real estate transactions. However, in the opinion of the court, the statement of that lawyer does not provide a complete insight into the financing of the project, so that the Board was right to reject this request.'
It is not clear from the judgment why the municipality did not want to agree to the applicant's proposal to grant the permit on the condition that the permit could only be used after the submission of a financing agreement. This proposal does not seem unworkable to us, since the municipality also has the power to revoke an environmental permit that has been granted as soon as it should be concluded on the basis of the agreement that there is a serious Bibob risk.
A possible solution in such cases could be to enter into a financing agreement under, for example, the suspensive or resolutive condition of (no) granting of a permit by the municipality. In our opinion, this makes it possible to meet the requirement to submit a financing agreement, while limiting the risks for the contracting parties involved by the conditionality of the agreement.
For further information, please contact:
Ramon Ridder, Partner
Labré advocaten, Amsterdam
t: +31 20 3052030
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