In the Didam I ruling (delivered following interim relief proceedings) the Dutch Supreme Court formulated a number of rules, from which it follows that (i) a government agency (overheidslichaam) that intends to sell any real estate owned by it must allow potential candidates (gegadigden) to compete in a public selection procedure, (ii) a government agency may reach the conclusion on the basis of objective, verifiable and reasonable criteria that there is only one serious candidate for the real estate, and (iii) government agencies, taking account of equal opportunities, will have to publish the intention to sell the real estate (hereinafter: the Didam rules). The Didam II ruling sets out the decision of the Supreme Court in the Didam-case on the merits and can be summarised as follows:

  • The Didam rules from the Didam I ruling have no temporal limitation and therefore also apply to government actions prior to 26 November 2021.
  • The Didam rules are based on the general principles of good governance which, tied in with Section 3:14 of the Dutch Civil Code, carry over into civil law. From a civil law point of view, however, acting contrary to the general principles of good governance does – in this case – not conflict with mandatory law, as per Section 3:40(2) of the Dutch Civil Code. An agreement that conflicts with the Didam rules or has been entered into between a government agency and another party is therefore not null and void or voidable on this ground.
  • If, contrary to the Didam rules, a government agency proceeds to sell real estate, it is in principle acting unlawfully vis-à-vis a potential buyer who at the time of the sale has wrongly not been given an equal chance to bid for such real estate. The government agency may then potentially be liable for damages.
  • As long as no agreement has been signed that obliges the government agency to transfer the real estate, or transfer has not yet taken place, there may, under certain circumstances, be grounds to uphold a third-party claim to prevent the government agency from selling or transferring the real estate to another party.
  • The Didam rules do not curtail the possibility of the government agency to adopt development and spatial plans. However, the moment that such a plan leads to the government agency selling – or intending to sell – the real estate, that government agency will have to apply the Didam rules.
  • The Didam rules do not compel the government agency to hold an auction or sell to the highest bidder. The candidate to whom the real estate may be sold will depend on the government agency’s objective, verifiable and reasonable criteria, with due regard for its margin of appreciation in terms of policymaking. The Didam rules allow for including these criteria in policy rules.

Implications of the Didam II ruling in practice

Whereas the Didam I ruling had caused quite a stir in November 2021, the Didam II ruling has gone a considerable way to calm things down. The fact that with the Didam II ruling the Supreme Court has removed some of the challenges that had arisen from its earlier ruling is good news for the real estate sector. For various stakeholders, from government agencies to real estate developers and from third-party candidates to financiers, the Didam II ruling provides more guidance and clarity than the Didam I ruling in important respects.

For municipalities and other government agencies the Didam II ruling clearly encourages policy to be adopted on how to deal with the Didam rules. To the extent that government agencies had not already done so following the Didam I ruling, it is expected that they will do so now. The emphasis in the Didam II ruling on potential liability for damages if the Didam rules are violated will reinforce the tendency of government agencies to organise the process of land allocation carefully. Drafting policy can be a useful tool in this regard. In this context, government agencies will have to ask themselves whether principles to be laid down in policy should mainly be procedural, or whether they should also pave the way for formulating detailed allocation criteria, as suggested by the Supreme Court in the Didam II ruling. We could imagine that, in principle, more process-based content would be logical, as this would give the government agency in question more leniency to formulate location-specific criteria when allocating a specific site, which could take account of the policy requirements applicable to that area at that particular moment.

Irrespective of the policy, it will at any rate still be important in specific cases of a proposed land allocation that, if a government agency believes that there is only one serious candidate for the transaction, the government agency provides proper justification for this and publishes its intention to proceed with this one serious candidate whilst stating a response deadline. If a third party does not oppose the plan following this publication within the response period and still believes that the government agency has not complied with the Didam rules after the plan has been carried out, we deem that this enables the government agency to reduce the risk of being accused of unlawful conduct and to put forward a good defence against the third party by invoking the third party’s own fault.

For owners of land, the added value of the Didam II ruling is of course that a significant, potentially prolonged period of uncertainty regarding the purchase mandate is almost entirely removed (perhaps with the exception of an extreme situation where the buyer has, for example, bribed a councillor). One of the most burdensome effects of the Didam I ruling was that owners and buyers of land had to take account not only of the Didam issue if they purchased land from a government agency, but also of a situation where real estate had already been allocated by a government agency several transactions earlier. After all, the Didam I ruling did not rule out the sanction of nullity in the case of non-compliance with the Didam rules. In fact, under the Didam II ruling it is no longer necessary to seriously consider that a transfer of ownership can still be reversed after closing. This certainly provides a very welcome degree of legal certainty in cases of resale and the intended development or redevelopment of a site.

For real estate developers purchasing real estate, the knock-on effect of the Didam II ruling, in addition to the above-mentioned legal certainty regarding title, is also likely to be expressed in a desire by the municipalities to pass on to the developer any potential damages resulting from future ‘Didam claims’ in the context of land allocation for project or area development. We have already seen examples of this in practice since the Didam I ruling. While the risk that actually successful claims for damages may arise should be limited, especially if the government agency in question complies with the Didam rules and gives notice of its intention to enter into a transaction with the intended developer (or a legal predecessor), developers do not have to simply acquiesce to the municipality’s wish to pass on this risk regardless. In any case, the system for recovering costs under the Environment and Planning Act (Omgevingswet), and prior to this the Spatial Planning Act (Wro) and the Environmental Permitting (General Provisions) Act (Wabo), provides no basis for this.

Third-party candidates that would like to lay claim to land to be issued by a government agency will have to keep a close eye on which proposed transactions are published by these government agencies. After all, that is the ideal moment to come forward as another candidate, whether or not by instituting legal proceedings in which, in line with the Supreme Court's considerations, an injunction against closing can be claimed. If a third-party candidate does not do so, first and foremost it will no longer be able to invoke the nullity or voidability of the sale and purchase agreement executed between the municipality and its contracting party at a later date. Moreover, in the event of a possible claim for damages against the municipality this third-party candidate may later find itself confronted with the counterargument that this loss was wholly or partly its own fault.

For financiers, it is also important that the underlying principle now is that transactions that have been or will be entered into between a government agency and its counterparty in breach of the Didam rules cannot lead to nullity or annulment of that agreement, as set out Section 3:40(2) of the Dutch Civil Code. This principle brings peace of mind, also with regard to a right of mortgage – a financier will not have to fear for the validity of its right of mortgage.

While the last word will certainly not yet have been said on the Didam issue, also in view of the referral of the case to the Hague Court of Appeal, the most pressing attention points of the Didam I ruling have been clarified and mitigated with the Didam II ruling. The Didam II ruling offers the real estate sector more options to significantly mitigate potential Didam risks.