In April 2023, the European Court of Justice (CJEU) ruled that Italian municipalities’ practice of automatically renewing concessions for the use of state-owned beaches is unlawful under Art. 12(1) and (2) of Directive 2006/123/EC on services in the internal market (EU Services Directive, SD). Although the Italian seafront is public property, municipalities can grant concessions to private “balneari” owners that set up restaurants, sunbeds, umbrellas, and so on. During the COVID-19 pandemic, the municipalities extended these contracts automatically until 2033. Now, Italy must open up the practice of distributing the naturally limited state resources to competition and potential new entrants and provide for a fair and transparent selection procedure. The Court’s decision was received with disappointment by the concession holders, who said they had invested a lot of money in their Balneari. At the same time, the Commission has been keeping an eye on Portugal and Spain, which have similar beach concession systems.

What does this judgement mean for Germany? The term “concessions” could point towards the application of §§ 97 et seq. of the Competition Act (GWB), in which the principles of public procurement are listed: competition, transparency, cost-effectiveness, proportionality, and the principle of equal treatment of the participants, at least if the threshold in Art. 8 of Directive 2014/23/EU is met. § 3 (1) of the KonzVgV (Regulation on the Award of Concessions) states that “the duration of concessions is limited” and it follows from § 3 (2) that concessions with a duration of more than five years should be an exception. However, with reference to recital 15 of Directive 2014/23/EU, according to which the use of public areas or resources is not to be regarded as concessions, the CJEU clarified in its judgment C-458/14 and C-67/15 – Promoimpresa that “those concessions may therefore be characterised as ‘authorisations’ within the meaning of the provisions of Directive 2006/123 (…).” (para. 41).

Beach “concessions”, therefore, fall within the scope of the SD. The SD had to be implemented into the national law of the member states by 28 December 2009 (which Germany initially failed to do). In the years that followed, the Commission initiated several complaints and infringement proceedings against Germany, inter alia, because it considered the German fixed-price system for architects and engineers to be incompatible with the SD, but not raising the issue of Art. 12 not having been transposed into national law. It appears that the Commission had assumed that the Member States would in any case apply Art. 12 SD as a guiding principle via their national procurement and authorisation laws. The Court’s judgement raises the question of whether this is really the case and whether the federal and state legislators need to include new rules in their administrative laws in order to avoid a breach of higher-ranking EU law.

It is only logical to first take a look at Germany’s beaches which – like the Italian beaches – are public property. As in Italy, privates can rent out beach chairs that are so typical of the Baltic and North Sea (Standkörbe). The beach bylaws of several municipalities such as the Binzer Bucht or the Ostseebad Kühlungsborn stipulate a public tender for the placement of beach chairs and a right of use for a maximum of five years, which is not automatically extended. It is not unlikely that these municipalities have closely followed the Commission’s complaints against the Italian beach concessions system since 2008 and the CJEU ruling in the Promoimpresa case, where the Court had first stated that Art. 12(1) and (2) SD and Art. 49 TFEU “must be interpreted as precluding a national measure, (…) which permits the automatic extension of existing authorisations of State-owned maritime and lakeside property for tourist and leisure-oriented business activities, without any selection procedure for potential candidates.”

However, some norms and cases fall less obviously within the scope of the SD. In a recent ruling, the Administrative Court of Berlin decided that the priority principle as stated in § 18 of the Berlin Water Act (Berliner Wassergesetz, BWG) is not applicable due to Art. 12 SD (Berlin Administrative Court, 10^th Chamber, Judgment of 23 May 2023, 10 K 302.21). In this case, the plaintiff had applied for a permit for the construction of a ferry pier for electric boats for touristic proposes on a lake in Berlin, which is considered a federal public waterway. In addition to this approval, several other authorisations must also be granted (e.g., a permit from the river and shipping police, possibly a permit under monument protection law). Two other interested parties had submitted an application for the construction of a pier before the plaintiff, but had not yet received all the other authorisations. Since there is only space for one ferry pier, the defendant had not wanted to decide the plaintiff’s request before deciding upon the other two applications. § 18 BWG states that in the case of applications for a permit or authorisation for several intended uses of the waterway being “of equal importance, the water owner’s application shall be given priority over applications from other persons, and then the application that was submitted first” (translation the authors).

The priority principle was developed in immission control law and is particularly relevant for neighbouring wind turbines. In the case of several competing installations, the Federal Administrative Court generally considered it appropriate to process an application received earlier first and to prioritise this installation over later applications. However, this principle – although stated in § 18 BWG – could not be applied in the present case. The Administrative Court found that, in accordance with the CJEU’s decision in C-243/22, the SD was directly applicable to the case, even though it was a purely domestic legal matter (para. 41). It argued that the term “authorisation” in Art. 12 SD should be interpreted broadly and therefore not only concessions within the meaning of German law, i.e. the official authorisation to start a business or operation (as argued by the defendant), fall within its scope, but also the official authorisation for the de facto use of public assets (para. 43). It held that the defendant’s refusal to decide on the plaintiff’s application on the basis of the priority principle was unlawful in the light of Art. 12 SD and called on the authorities to organise a fair and transparent selection procedure among the applicants (para. 48).

The Court’s judgement is also likely to have an impact on access to local markets (such as weekly and speciality markets). In order to comply with the SD, German municipalities and cities amended regulations on access to markets in early 2010 and in particular provisions on compliance with the authorisation procedure under Art. 13 SD, However, an analysis of various German market bylaws shows that the regulations are likely not in line with the new interpretation of Art. 12 SD. For example, the cities and municipalities of Ahrensburg, Achern, Esslingen am Neckar, Jülich, Geislingen, Hagen, Preetz, Öhringen, Thurnau, Waiblingen, to name but a few, have included the priority principle as one of the selection criteria in the event that the authorities receive more applications than there are places available.

Several cities and municipalities also issue open-ended (unlimited) authorisations or such that are automatically renewed at the end of each year if the market vendor does not cancel them. In some municipalities, these permanent authorisations account for up to 80% of the local market (see, for example, § 4(1) of the bylaws on the weekly market in the city of Herne), which means that newcomers have little chance of setting up a stall unless a vendor voluntarily gives up their space. Since the CJEU has decided that Art. 12(1) and (2) SD has a direct effect because the wording is unconditional and sufficiently precise, many bylaws on the access to markets will probably no longer be applicable and cities and municipalities will have to apply a new impartial and transparent selection procedure for potential applicants, which cannot be based on the priority principle. Also incompatible with the CJEU’s ruling would be the automatic renewal of permanent authorisations if the market vendors do not cancel them themselves.

Ferry piers and markets are just a few examples where the recent CJEU judgement will have consequences. In 2018, the Higher Regional Court of Celle (OLG Celle) did see the possibility of a violation of the European freedom to provide services enshrined in Art. 56 TFEU of the plaintiff who is a mobility service provider in a case where the defendant (the city of Hannover) had granted approval to a request of a competitor a four-year authorisation for a new mobility service in the urban area of the defendant with up to 250 vehicles. A selection procedure was not carried out. The Higher Regional Court found that it did not have jurisdiction and referred the case to the Hanover Administrative Court (OLG Celle (Award Council), Order of 16 October 2018 – 13 Verg 3/18). Thus, public authorities need to be aware that a fair and transparent selection procedure may be necessary not only when they actively encourage potential candidates to apply for a particular activity, but also when someone proposes something to the authorities on their own initiative, such as car or bike sharing concepts.

This new legal uncertainty following the CJEU’s decision requires new rules for the implementation of fair, transparent and neutral authorisation procedures when natural resources and technical capacities are limited at all levels of government, from local to federal. Although Art. 12(1) and (2) has direct effect, the norm does not specify how member states should conduct this process. These criteria must be defined in advance by the legislator. The Administrative Court of Berlin expressly pointed out this necessity: “The CJEU’s decision of 20 April 2023 clarifies that the German legislator (still) has the obligation to implement the provisions of Art. 12 SD into national law. This obligation applies irrespective of the direct applicability of the provision. This means that there must be a legal regulation on how the obligation to carry out a fair and transparent selection procedure is implemented in the respective cases” (para. 62, translation the authors).

In our opinion, it would make sense for the federal and state legislators to take a similar approach to the regulations on the Point of Single Contact. Consequently, implementation standards should be inserted into the respective Administrative Procedure Acts by means of so-called simultaneous legislation. These implementing standards should incorporate the general framework conditions of Art. 12 SD and then be declared applicable by reference in the respective specialised law – as it is the case, for example, with § 6b (1) of the Trade Regulation Act (GewO) and the rules of the Point of Single Contact in §§ 71a et seq. of the Administrative Procedure Act (VwVfG).

Whether Art. 12 SD is applicable or not, may not always be easy to determine, due to the exceptions listed in Art. 2 (2) SD – for example in the case of passenger transport, where the question arises as to whether the focus of an activity is to move passengers from A to B or whether it is for leisure purposes (as the decision of the Administrative Court of Berlin demonstrates, see also Calliess/Korte, Dienstleistungsrecht in der EU 2011, § 5 para. 62). This approach has the advantage that the applicability of Art. 12 SD can be answered directly in the respective specialised law.

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Ass. iur. Dr. Manuela Niehaus / Prof. Dr. Stefan Korte (DUV Speyer)