Northern England Property Scheme 2010-13 1. Member State United Kingdom 2. Regions Yorkshire and Humber North east of England 3. Title of aid Scheme Northern England Property Scheme 2010-13 4. Government or statutory bodies authorised to implement the Scheme The implementing bodies are: • Yorkshire Forward: Regional Development Agency for Yorkshire and Humber • One North East (ONE): Regional Development Agency for the North East of England The implementing bodies have a number of statutory functions, including furthering the economic development and regeneration in Yorkshire and Humber and the North East of England. 5. Legal basis The legal basis of the Scheme is: • • • • • • • •
Regional Development Agencies Act 1998 Local Government, Planning and Land Act 1980 Leasehold Reform, Housing and Urban Development Act 1993 Local Government Act 2000 Housing and Regeneration Act 2008 The Public Contracts Regulations SI 2006 No 5 European Communities Act 1972 and European Communities (Finance) Act 20081
6. Duration Aid under this Scheme may be granted until 31 December 2013. 1
Associated legislation Treaty of Accession of the United Kingdom to the European Communities
-1-
7. Basis of Scheme •
Commission Regulation No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 107 and 108 of the Treaty (General block exemption Regulation [GBER]) As such, the Scheme is exempt from the notification requirement of Article 108(3), provided that any aid awarded under the Scheme fulfils the relevant conditions of the Regulation.
•
State aid N 673/2006 – United Kingdom - Regional aid map 2007-2013, which is compatible with the EC Treaty as it fulfils the conditions as stipulated in the Guidelines on national regional aid for 2007-2013. This map is valid from 1 January 2007 until 31 December 20132.
•
Commission Regulation (EC) No1628/2006 on the application of Articles 107 and 108 of the Treaty to national regional investment aid for XR22/2007 Regional Investment Aid Scheme for Speculative and Bespoke Developments.3
•
Council Document 10917/06 adopted on 15/16 June 2006 Renewed EU Sustainable Development Strategy.
•
Commission Communication the Action Plan for Energy Efficiency: Realising the Potential (COM (2006) 545).
•
Commission Regulation (EC) No1628/2006 on the application of Articles 107 and 108 of the Treaty to national regional investment aid for XR22/2007 Regional Investment Aid Scheme for Speculative and Bespoke Developments.4
•
Commission Recommendation C20031422/361/EC, on the new definition for small and medium-sized enterprises, (Official Journal L124, 20.5.2003).
8. Exclusions This Scheme will be aimed at the property development sector and may be used to aid bespoke or speculative property developments for companies in all sectors other than those listed below5: • • • • •
Fisheries and aquaculture, Shipbuilding Coal industrySteel industry Synthetic fibres Primary production of agricultural products (listed in Annex 1 of the Treaty; cork products under CN codes 4502, 4503, 4504; products used to substitute for milk/milk products).
This scheme also does not apply to: • •
export aid or aid that favours domestic over imported products; aid financing the establishment and financing of distribution networks in other countries;
2
Details of the Assisted Areas in GB map and coverage and intensity ceilings. This scheme also builds on Commission Decision on schemes N747a/99 and N747b/99 - ‘Support for speculative developments’ and ‘Support for bespoke developments.’, which along with the Scottish Property Support Scheme XS 51 2007 and XR/07/2007 and The Welsh Property Development Grant XR 50/2007. 4 This scheme also builds on Commission Decision on schemes N747a/99 and N747b/99 - ‘Support for speculative developments’ and ‘Support for bespoke developments.’, which along with the Scottish Property Support Scheme XS 51 2007 and XR/07/2007 and The Welsh Property Development Grant XR 50/2007. 5 Further information on these sensitive industrial sectors are in the Multisectoral framework 3
-2-
• •
undertakings which are in difficulty6 at the date of the award, other than SMEs that have been incorporate for less than 3 years unless they are insolvent under UK legislation7; any beneficiary which is subject to an outstanding recovery following a previous Commission declaring aid illegal.
9. Objectives of the Scheme The objective of the Scheme is to support the development of premises and buildings for industrial and commercial purposes by the private sector, including those elements in mixed use projects in the respective regions of the implementing bodies. Such development can involve the construction of new buildings and/or the renovation and conversion of existing ones. In doing so to the Implementing Bodies shall aim to: •
support the development and regeneration of the local area;
•
create new employment within 3 years of completion of the above investment; lead to a net increase in the number of employees compared to the previous 12 months; and the employment to be maintained for a minimum of 3 years for SMEs or 5 years for large enterprise; and
•
where possible, provide environmentally sustainable buildings that make efficient use of natural resources and are energy efficient; and
The provision of this support is described in the respective published strategies, plans and programmes of the Yorkshire Forward and One North East and can be found at the following links below: • Yorkshire and Humber: Regional Economic Strategy 2006-2015, Corporate Plan 2008-2011, ERDF Operational Programme 2007-2013 and associated value for money criteria, • One North East; Regional Economic Strategy, ERDF Operational Programme 20072013 and the strategy documents available at www.onenortheast.co.uk 10. Mechanism for granting of aid under the Scheme Yorkshire Forward and One North East will use the following instruments of GBER • Article 13: Regional Investment and Employment aid and • Article 15: SME Investment and Employment aid • Section 4 Environmental Protection aid, Articles 18, 21, 22, and 23 to provide, at their discretion, within the respective maximum aid intensities detailed in the above Articles, an amount of aid that is the minimum necessary for the property development projects to go ahead. Implementing bodies will only provide “gap funding” to bridge the gap, wholly or in part, between the estimated cost of a property development project and its market value on completion. As such the aid provided under this Scheme meets the Commission’s incentive effect. Aid will only be provided in situations where there is evidence of a market failure. Market failure will be assessed by the Implementing Bodies taking account of the circumstances 6 7
As set out in Commission Guidelines on State aid for rescue and restructuring firms in difficulty OJ C 244 1.10.2004 For more information go to The Insolvency Service at http://www.insolvency.gov.uk/
-3-
of the development. It may include situations where the estimated development costs of the property are expected to exceed the estimated value on completion (externality) or where there is uncertainty in forecasting future market outcomes which may discourage property development in an area.8 The Scheme will also comply with the conditions relating to incentive effect in Article 8 of the GBER as detailed below: Article 8 (2). Aid granted to SMEs, covered by this Regulation, shall be considered to have an incentive effect if, before work on the project or activity has started, the beneficiary has submitted an application for the aid to the Member State concerned. Article 8 (3). Aid granted to large enterprises, covered by this Regulation, shall be considered to have an incentive effect if, in addition to fulfilling the condition laid down in Article 8 (2), the Member State has verified, before granting the individual aid concerned, that documentation prepared by the beneficiary establishes one or more of the following criteria: (a) a material increase in the size of the project/activity due to the aid; (b) a material increase in the scope of the project/activity due to the aid; (c) a material increase in the total amount spent by the beneficiary on the project/activity due to the aid; (d) a material increase in the speed of completion of the project/activity concerned; 11. Scope of the Scheme The Scheme will operate in Yorkshire and Humber and the North East of England. For the purpose of implementing this Scheme, projects can be classified into two categories: •
Bespoke developments for known end users where the aid is paid to the owner or developer who undertakes the work; and
•
Speculative developments where the aid is to the owner or developer who initiates the project and there is no specified end user. The developer is free to rent or sell the premises thus subsidised.
In each case, an independent valuation expert e.g. Chartered Surveyor will ensure that the developer’s estimated costs are at normal market levels. All applications for investment assistance will be subject to rigorous appraisal by the relevant Implementing Body to ensure propriety and value for money. Priority will be given to projects that support the strategic objectives of the Implementing Body and are based in areas of the greatest need that deliver the best value outcomes. The appraisal process provides an element of competition for resources between applicants. All other public bodies involved in providing projects under the Scheme will be required to carry out their own assessment of the project to ensure it fits within the scope and requirements of the Scheme. Aid for the selected projects will generally be made only on condition that all development expenditures are competitively tendered, where applicable in accordance with the EC public procurement regulations. Where competitive tender is not possible, an independent Chartered Surveyor will verify that the costs do not exceed market levels. Aid awarded will not be greater than the gap between the eligible costs and the value of the development on completion, as determined by an independent Chartered Surveyor 8
For more examples of market failures see OffPAT Market Failures Information Note 01/2008
-4-
i.e. who has no relationship with the project developers of promoters. The aid awarded will be the lower of the gap or the aid intensity. Under this Scheme aid will only be provided using the following aid instruments: •
Regional investment aid for undertakings of all sizes to undertake both speculative and bespoke property developments within the Assisted Areas within Yorkshire and Humber and the North East of England as set out in the approved Assisted Areas Map for GB,
•
SME Investment aid will be limited to property development projects in which the undertakings are SMEs in any location within Yorkshire and Humber and the North East of England
•
Environmental aid for firms of all sizes in both bespoke and speculative developments in any location.
12. Forms of aid Aid for property development projects funded under this scheme may be provided in the form of grants for the development, redevelopment or improvement of land and buildings for business, industrial or commercial uses. The grant will support the development of land and buildings for business, industrial or commercial uses. This includes construction of new buildings, conversion for new uses of existing buildings and improvement or adaptation of business premises to meet modern standards provided development profit is not included in the eligible costs. Mixed use developments may be supported where the residential element forms a minor part of the overall project e.g. less than 10%. The development grant will be a “gap funding” grant sufficient to allow the project to proceed. The maximum award for any project will normally be the gap between the total eligible costs and the estimated market value. In all cases the award shall not exceed the relevant aid intensity ceilings calculated against the eligible costs. The Implementing Bodies will ensure that that the aid awarded will be the minimum necessary to allow a project to proceed. Applicants for aid will be asked to demonstrate that the level of aid sought is the minimum required to allow a project to proceed. Grants for the selected projects will generally be made only on condition that all development expenditures are competitively tendered, where applicable in accordance with the EC public procurement regulations. Where competitive tender is not possible, an independent Chartered Surveyor will verify that the costs do not exceed market levels. Aid awarded will not be greater than the gap between the eligible costs and the value of the development on completion, as determined by an independent Chartered Surveyor i.e. who has no relationship with the project developers of promoters. The aid awarded will be the lower of the gap or the aid intensity. On occasion the Implementing Bodies may be able procure services (development services) to support a property development project without charge or at lower than cost. The aid shall be the difference between the cost of the services and the amount charged. 13. Maximum aid intensity and notification thresholds Each award of aid will respect the relevant aid intensity ceilings stipulated in the GBER aid instruments, depending on the location and status of the aid recipient: The maximum
-5-
investment aid intensities permitted for the GBER aid instruments are set out in the following table Maximum % aid intensity levels for: Aid Measure
Large Enterprises
Medium Enterprises
Small Enterprises
15-25%
+10%
+20%
Notification thresholds (€)
REGIONAL AID: GBER Section 1 Article 13: Regional Investment and Employment Details of assisted areas, and maximum % aid intensity levels can be found in the State Aid N673/2006 UK Corrigendum Regional Aid Map 2007-13
(depending on assisted area status of the proposed investment and applicable the maximum % aid ceiling)
Large investment projects where there is an initial single investment9 in capital assets at or above €50m. Sum greater than 75% of maximum allowable grant sum in respect of eligible costs of €100m in area in question (e.g. in area subject to 10% regional aid cap €7.5m)
Note that in some areas the maximum % aid intensity level reduces after 31st December 2010 AID FOR SME INVESTMENT AND EMPLOYMENT: GBER Section 2 Article 15: SME Investment and Employment
N/A
10%
20%
€7.5m per undertaking per investment project
ENVIRONMENTAL AID MEASURES : GBER Section 4 Article 18: Environmental Protection Investment Beyond Community Standards
€7.5m per undertaking per investment project
35%
45%
55%
Article 21: Energy Saving Measures if net of operating benefits
60%
70%
80%
not net of operating benefits
20%
30%
40%
€7.5m per undertaking per investment project
Article 22: High Efficiency Cogeneration
45%
55%
65%
€7.5m per undertaking per investment project
Article 23: Promotion of energy from renewable energy sources
45%
55%
65%
Where funding sought from all public sources exceeds the above thresholds it must be separately notified to and obtain permission from the Commission prior to any aid being approved or granted. 14. Eligible costs and conditions All eligible costs must be transparent and directly and exclusively related to the project. Eligible costs are the extra investment costs to develop tangible and intangible assets. The eligible costs for bespoke and speculative development projects include: • • • •
Purchase price of land and/or property at market value Professional fees (such as legal expenses, design fees) Site investigation and preparation, remediation and decontamination* Provision of infrastructure (utilities, roads etc) and landscaping
9
A single investment project is when the initial investment is undertaken within a period of three years by the same undertaking or undertakings and consists of fixed assets combined in an economically indivisible way.
-6-
• • • •
• • •
Construction or refurbishment of buildings, including plant, equipment and fitting out Extra cost for meeting environmental standards above UK Building Regulations Planning obligations Initial investment10 costs Irrecoverable VAT Finance charges taking account of any savings due to grant provision Development fee, at the discretion of the implementing body (but not to owner), based on the type and scale of development, its risks, the market conditions and an appropriate return on capital, as determined by competition or by an independent Chartered Surveyor. *Please note remediation and decontamination of land may be alternatively supported under PSR Land Remediation N385/2002, prolonged in N221/2006. Eligible costs of remediation and decontamination cannot be cumulated with any other scheme.
For the aid instruments the following conditions apply Regional Investment Aid applies to project investment in tangible assets and/or in intangible assets in Assisted Areas, other than those owned by the implementing body. In this case the • aid will be calculated as a percentage of eligible expenditure. • enterprises – aid can only be given within the Assisted Areas and within the intensity as set out in State Aid N673/2006 UK Regional Map 2007-13. • property owner or developer (speculative) or owner or beneficiary (bespoke) must provide a minimum financial contribution of at least 25% of eligible project costs, either through its own resources or by external financing, in a form which is free of any public support; • resulting asset must be maintained in the respective recipient region, for the purpose for which the aid was provided, for at least 3 years in the case of SMEs and at least 5 years in the case of large enterprises. (Please note that these time frames relate to State aid requirements only, and individual funding providers may impose longer timeframes. Users of this Scheme are advised to seek advice from the respective funding providers as to their specific requirements).
SME Investment aid applies to project investment in tangible assets and/or in intangible assets in other than those owned by the implementing body. Aid will be calculated as a percentage of eligible expenditure. Environmental Protection Aid is provided in support of the Scheme objectives and the European Union and the UK government’s policy on sustainable development to deliver environmentally friendly buildings above the standards required under European standards and the UK UK Building Regulations the development costs will cover those relevant to the lifetime of the building. All projects that require aid must achieve a recognised environmental accreditation standard e.g. BREEAM, CEQUEL and seek to achieve excellent ratings for new developments or very good for refurbishment unless there are sound reasons these cannot be achieved. Using accredited standards allows the extra investment in environmental protection to be identified and meets the requirements to establish the costs against the counterfactual situation. The aid can be used to invest in tangible or intangible assets that will enable the beneficiary to increase the level of environmental protection above or in the absence of 10
Commission Regulation (EC) No 1628/2006 Article 4 and Article 2 (c)
-7-
applicable Community standards without taking into account of operating costs and benefits. Environmental protection is action designed to: • remedy or prevent damage to physical surroundings or natural resources by
beneficiary’s own activities11
• reduce risk of such damage or to lead to a more efficient use of natural resources,
including energy-saving measures an the use of renewable sources of energy (wind, solar, geothermal, wave, tidal, hydropower installations, biomass, landfill gas, sewage treatment plant gas and biogases)
Energy saving measure eligible costs are to be calculated net of any operating costs and benefits related to the extra investment for energy saving during the first years of the life of the investment for: • SMEs – 3 years • Large enterprises not part of the EU CO2 Emission Trading System – 4 years12 • Large enterprises part of the EU CO2 Emission Trading System – 5 years10 These eligible cost calculations are to be certified by an external auditor. High Efficiency Cogeneration eligible costs include the extra investment costs necessary to realise a high efficiency cogeneration plant as compared to reference investment and must make overall primary energy savings compared to separate production13. Eligible costs should be calculated as set out in Article 18 (6) and (7) of GBER and without taking account of operating benefits and operating costs. Promotion of Energy from renewable sources eligible costs are the extra costs compared with a conventional power plant or heating system with the same capacity in effective production of energy. Eligible costs should be calculated as set out in Article 18 (6) and (7) of GBER and without taking account of operating benefits and operating costs. 15. Cumulation The aid exempted in this Scheme may be cumulated with any other aid under the General Block Exemption Regulation as long as those aid measures are for different identifiable, eligible costs. It may not be cumulated with any other aid exempted under the GBER or de minimis aid or Community funding for the same eligible costs if that would result in exceeding the highest aid intensity or aid amount applicable. 16. Clawback and Overage The public investment in the development of a property must be protected and it must be retained for the use agreed at the time the investment was made and for the time periods identified above. During this period plant and equipment that has become outdated may be replaced, provided that the economic activity is retained in the region for the minimum period. The funding agreement will stipulate the right for the granting authorities to seek repayment in the event of breach of the conditions of the award; and where the costs are lower than projected, and market values are higher than projected on practical 11
Subject to compliance with the Polluter Pays Principle - European Directive (2004/35/CE) on Environmental Liability with regard to thePrevention and Remedying of Environmental Damage 12 Where the depreciation time of the investment can be demonstrated not to exceed 3 years this may be reduced to 3 years. 13 As provided by Directive 2004/EC and Decision 2007/74/EC
-8-
completion. The specific conditions will follow the principles in the UK government’s Managing Public Money14 and DAO(GEN) 07/05 – Clawback: Disposal of publicly funded assets. 17. Administration This notice of the details of the Scheme shall be published on the Yorkshire Forward and ONE websites: • •
http://www.yorkshire-forward.com/about/our-funding/state-aid/notification-scheme, www.onenortheast.co.uk/page/stateaid.com
There is no defined budget for aid under the Scheme. Each implementing body, at its discretion, will grant fund projects from its annual programme budget that support its own published corporate or business plan and value for money criteria. When using this Scheme and ensure compliance with the GBER rules the implementing body will communicate its usage to the Commission so that it can be published in the Official Journal of the European Union by providing the summary information required in the GBER Annex III Part I and II; for large investment projects Annex II would also be completed. The information will be provided using the State Aid Notification Interactive (SANI) system within 20 working days of its effective date. Each Implementing Body will ensure that detailed records are kept of the individual aid granted under this Scheme. As a minimum this should include the • Scheme title • Commission block exemption reference number • the decision date • the name and address of recipients • the amount of aid and evidence of gap calculations • the date and amount of aid payments • the status of any undertaking where the level of aid is dependent on its status as an SME15. The records will be kept for 10 years from the date of the last payment. The implementing body will provide the Commission with an annual report of expenditure under this Scheme, including the internet address of its publication. If the Commission requests information necessary for it to assess whether the aid conditions have been complied with the funding body will provide it within the agreed time period. Where individual funding sources require records to be kept for periods longer than required for State Aid, these must also be complied with. Advice must be sought from the respective funding providers as to their record keeping requirements.
14
Chapter 5 and Annex 5.2.
15
The SME model declaration can be found at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do? uri=OJ:C:2003:118:0005:0015:EN:PDF
-9-
APPENDIX 1: GLOSSARY OF TERMS Aid intensity: is the amount of aid expressed as a percentage of the eligible costs. In calculating it all figures used should be taken before any deduction of tax or other charge. Aid payable in instalments must be discounted to its value at the moment of granting using the applicable Commission Reference Rates Assets:
Tangible land, buildings, and plant, machinery and equipment, including investments in land, buildings, plant and equipment intended to reduce or eliminate pollution and nuisances Intangible assets entailed by the transfer of technology through acquisition of patent rights, licences, know-how or unpatented technical knowledge.
Assisted Area: those areas eligible for regional aid, as determined in the approved GB regional aid map 2007-13. Cumulation rules: The cumulation rules provide that where aid is granted concurrently under several aid schemes, the total value of all the aid must not exceed the aid intensity ceilings. Development of single use and also mixed-use sites provided that any residential element forms a minor part of the overall project. In all cases the developer must have applied for aid before the work is contracted otherwise there is no incentive effect.
Bespoke for new or extended or refurbished premises where the developer will occupy all of the floorspace or where the developer has signed up a purchaser or occupier for all of the floorspace at the time aid is applied for. The aid will cover the works specification including the particular requirements for the known end user. For these projects, as there is less risk, the profit allowance should be substantially lower and where the developer intends to occupy the premises on completion no development profit should be allowed.
Speculative for new or extended premises where there is no known end user (purchaser or occupier) or the floorspace has not been sold or let to a potential purchaser or occupier. The works specification should ensure that the premises are suitable for a range of potential occupiers whilst meeting the relevant BREEAM or equivalent standard.
Energy-saving measures action which enable undertakings to reduce the amount of energy used Gap funding: Gap funding means the provision of public support, in the form of a grant, to bridge the gap between development costs and end value to make a project economically viable. It is typically applied to projects where there is a market failure or in areas that are experiencing deprivation. Gap funding meets the Commission’s incentive test as it is:
only available to projects which have not commenced activities prior to the investment decision
the viability of the project with and without aid has been assessed by the beneficiary and appraised by the public funder
for large enterprises there is a material increase in size or scope of project/activity, a material increase in beneficiary spend or speed of completion.
in Assisted Areas where the project would not have proceeded without the aid.
Initial Investment: An investment in fixed capital relating to the setting-up of a new establishment, the extension of an existing establishment, or the starting-up of an activity that involves a fundamental change in a product or process of an existing establishment
- 10 -
(through rationalisation, diversification or modernisation). Initial investment does not include plant and machinery. Investment (extra) costs for environmental aid: are based on a simplified calculation not taking account of operating costs/benefits over life of the investment, cost savings, or additional ancillary production. Any energy saving costs to be certified by an external auditor. Large investment project: an investment in capital assets with eligible costs of â‚Ź50million calculated at prices and exchange rates on the date the aid is granted. To avoid risk of a project being split account will be taken if the work is undertaken within a period of 3 years by the same undertaking(s) and consists of fixed assets combined in an economically indivisible way (technical, functional, and strategic links and geographical proximity not ownership). Market Value: Market value means the price at which land and buildings could be sold under private contract between a willing seller and an arm's length buyer on the date of valuation, it being assumed that the property is publicly exposed to the market, that market conditions permit orderly disposal and that a normal period, having regard to the nature of the property, is available for the negotiation of the sale. Site Preparation: Site preparation includes site investigation, remediation, reclamation, decontamination and demolition works. Transparent Aid: aid where the gross grant equivalent ex ante can be precisely calculated without the need to undertake a risk assessment
- 11 -