COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND EUROPEAN PARLIAMENT on the exercise of the option to purchase under long-term leasehold contracts concluded by the Commission under buildings policy in the Brussels region

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND EUROPEAN PARLIAMENT

on the exercise of the option to purchase under long-term leasehold contracts concluded by the Commission under buildings policy in the Brussels region

Brussels is one of the seats of the European institutions, and in particular the Commission, which occupies 63 buildings in Brussels at present. Most of these buildings are rented. However, the Commission's status as a tenant is not compatible with its departments' need for continuity. Moreover, it involves frequent negotiations with landlords, who try to take advantage of the fact that the Commission's geographical seat cannot be moved. Tenancy also involves the Commission in a supplementary financial cost in relation to what it would have to pay if it could purchase the buildings it occupies.

In view of these factors, the Commission has considered other possibilities for contracts that would remedy these drawbacks.

Over recent years, the Commission has concluded 18 long-term leasehold contracts with option to purchase (emphytéose acquisitive), representing an annual index-linked financial cost of about EUR75 million altogether (estimate for the end of 2002) out of a total budget of EUR150 million. The area covered by this type of contract now represents 38% of the office space occupied by the Commission, which will increase to 57% of office space after the Commission has moved back into the Berlaymont.

The Commission, like the other European Institutions, intends, in the absence of other solutions such as borrowing on the financial markets, to continue using this kind of contract for most of the buildings it occupies (up to a maximum of about 80% of the space occupied).

Contracts of this type, governed by Belgian law, have the following advantages.

* As they are long-term contracts (at least 27 years), they give the Commission some stability.

* The leasing fee is less than the rent that would be payable under a normal tenancy agreement, although the saving is partly offset by the financial cost of major maintenance work to the buildings.

* The contracts provide for an option to purchase, which the Commission may exercise before the end of the leasehold; this would enable the Commission to become the outright owner of the property at no significant extra cost; until the Commission takes up this option, the landlord retains ownership of the ground.

* The contracts enable the Commission to exploit the property in accordance with its specific criteria and needs.

* Under the special tax status of these contracts vis-à-vis the Belgian authorities, no property tax (précompte immobilier) is due.

The disadvantage of these contracts is that in event of insolvency or bankruptcy on the part of the owner, i.e. the other contracting party to the long-term leasehold agreement, it might not be possible for the Commission to acquire ownership of the property on which it had paid the leasehold fees for 27 years, since third parties other than the bankrupt owner of the property would not be bound to honour the purchase option in the long-term leasehold contract concluded by the Commission.

It is highly advisable to eliminate this risk so as to preserve the Commission's financial interests.

To this end, the Commission wishes to inform the budgetary authority that:

* as a first step, it intends to take up the purchase option under the long-term leasehold contract for the Palmerston nursery on avenue Palmerston; this was mentioned as a possibility in the note from Commission departments with prior information to the budgetary authority on the long-term lease with option to purchase on the Palmerston building sent on 18 March 2002 to the President of the Council's Budget Committee and the President of Parliament's Committee on Budgets;

* the budgetary and financial cost is a symbolic sum of EUR1; taking up this option will not change the financial conditions of the contract, since the Commission will continue to pay the leasing fee, in accordance with the contract, for the remaining term.

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FINANCIAL STATEMENT

The budgetary and financial cost is a symbolic sum of EUR1; taking up this option will not change the financial conditions of the contract, since the Commission will continue to pay the leasing fee, in accordance with the contract, for the remaining term.

Exercising the option to purchase will eliminate the risk to the Commission of the owner's becoming bankrupt, and preserve the Commission's financial interests.

Budget heading : A 02000-C1-OIB - Rent and ground rent