With public authorities under increasing budgetary pressure, schemes such a leasing floor space for retail units or advertising space in order to generate revenue are becoming attractive propositions. Many of these schemes will involve allowing the private sector to exploit public land or functions.
The relatively new, Concessions Contracts Regulations 2016 ("CCR") brought service concessions into the regulated procurement regime. The punitive remedy of a declaration of ineffectiveness, can now be sought against concession contracts, so categorising a transaction correctly is vital.
The recent judgement in Ocean Outdoor UK Ltd v London Borough of Hammersmith & Fulham (2018) EWHC 2508 (TCC), considered the definition of a concession contract and is the first published case brought under the CCR.
Ocean Outdoor UK ("Ocean") leased two plots of land from the London Borough of Hammersmith & Fulham ("the Council"). Ocean constructed two towers on these plots. Those towers showed advertisements and were visible to drivers on the Hammersmith flyover. As part of the arrangement, Ocean paid 85% of its profits from the selling of advertising space on the two screens to the Council. Over the years the revenue declined and the Council's consultants (Wildstone Property) advised the Council that there was an opportunity to increase the revenue obtained. There were various interactions between Ocean and the Council but ultimately the Council decided to retender the opportunity. It did so by contacting providers directly and advertising in a trade journal. The outcome was that Ocean lost the land to Outdoor Plus, who entered into new leases with the Council.
Ocean made a number of complaints but of key interest is Mrs Justice O'Farrell's analysis of an arrangement that will fall under the definition of a concession under the CCR.
1. Did the arrangement constitute the provision of services caught by the CCR?
The Court looked at the purpose of the leases alongside the recitals in the Concessions Directive and CJEU case law. To be a concession contract the services under the concession must be for the benefit of the contracting authority or its residents, in the furtherance of the strategic objectives of the contracting authority, or to satisfy the contracting authority's statutory objectives. Although the Council received income from the arrangement, it had no statutory obligation to provide advertising services to residents, the advertising was not required by, or provided for the Council and the Court concluded that there was no public benefit to the community from commercial advertising. The arrangement was therefore not a service concession.
2. Was there a legally enforceable obligation?
The new leases with Outdoor Plus required Outdoor Plus to use all reasonable endeavours to market and promote the site but only for the purpose of producing revenue. Outdoor Plus was not required to procure or carry out any particular scope, volume or value of advertising. Lack of a legally enforceable obligation to deliver any advertising at all meant the arrangement could never be a service concession.
3. Genuine land transactions will be exempt in any event
Ocean asserted that the arrangement as a whole was an advertising concession and that the leases were to facilitate the operation of the concession. The Court looked at what the main object or purpose of the transaction was. The primary objective was to obtain a guaranteed income stream from rental payments and the essential feature of the leases was exclusive possession of the land and the structures on it. This meant that even if all the other requirements for a service concession were met, as true leases, the arrangement would be exempt and therefore not require a procurement under the CCR.