What lessons does Weis v GMCA have for public authorities delivering regeneration projects?

In June 2024, property developer Mr Aubrey Weis appealed to the Competition Appeal Tribunal (CAT), challenging approximately £120m in loans (the Loans) made by the Greater Manchester Combined Authority (GMCA) to support a high-quality housing project within its area.

Mr Weis argued that the Loans breached the Subsidy Control Act 2022 (the Act) because they were granted on non-commercial, "non-market terms", effectively constituting a subsidy that distorted competition in the local property market.

In this article, we cover key points from the respondent's argument and its implications for public sector lending in regeneration projects.

The respondent's argument

• The decision to make the Loans did not amount to an unlawful subsidy at the time of the Appellant’s application in June 2024, as the decision was still in principle and not yet formally executed. On that basis, it could not amount to a subsidy decision capable of being challenged under section 70(1) of the Act; and
• That the Loans did not amount to financial assistance conferring an economic advantage for the purposes of the Act even once they had been entered into, because they had been made on commercial terms that were in line with the market. 

The argument made by the respondent in relation to the second point was based on the Commercial Market Operator (CMO) principle – this is the principle that where a public authority enters into a transaction on terms which would be acceptable to a private sector comparator, there will be no economic advantage to the recipient.

Many regeneration projects will involve a public authority making loans in order to bridge a viability gap, or to support a special purpose vehicle established for the purposes of the project.

Generally, loans are sought from public authority funders because the recipient is unable to obtain funding from private sector sources, or unable to obtain that funding at an acceptable rate. This is where the CMO principle comes in – if the public authority is satisfied that it is making a loan on the same terms as a private sector lender would consider appropriate, then it can make the loan without granting a subsidy.

However, there is always a tension here, particularly in the case of loans because, if a private sector lender would provide the support on the same terms, why should the public sector need to step in at all?

Sometimes, this is about the additional expertise or knowledge the public sector may have in the specific market, which allows them to take a view that a private sector operator stepping into their shoes might take, but which the actual private sector operators don’t have.

In other cases, it may be about the relationship between the parties. As a result of that tension, it is important that public authorities adopting a CMO approach carefully consider and record their justification for using the approach and stay live to the changing caselaw in this area.

Key takeaways for regeneration projects

1. GGE Regulations are not determinative of compliance

Firstly, applying the rates set out in the Subsidy Control (Gross Cash Amount and Gross Cash Equivalent) Regulations 2022 (the GGE Regulations) is not an automatic route to compliance. The GGE Regulations are used to determine a proxy for commercial loan rates – however, the Competition Appeal Tribunal’s (the CAT) judgment indicated that whilst the GGE Regulations are a useful indicator in setting rates, they were not determinative of whether the Loans conferred an economic advantage.

This means that the GGE Regulations alone are not enough to base a CMO principle argument on, and public authorities will need to take into account other factors in their decision as to the appropriate loan rate.

2. External expert opinions are not always required

Secondly, it is not always necessary to have an external expert opinion on whether a loan rate and terms would be acceptable to a private sector comparator. In Weis, the CAT considered that the Respondent’s funding team possessed the expertise to have been aware of commercially available rates upon which the indicative rates were based, and that the proposal for Loans had been overseen by individuals with considerable lending experience within the Gateway Panel and Credit Committee.

However, a cautious approach should be taken. Whilst very large public authorities certainly may have teams with sufficient depth and breadth of experience and market knowledge to make these decisions, smaller, and less well funded authorities may not. In those circumstances, careful consideration should be taken in appointing an expert commercial advisor to support the authority’s decision making.

3. Timing of subsidy decisions may be earlier than expected

Finally, public authorities should be aware that the decision in Weis also raises questions about when the decision to make a subsidy is made.

The Statutory Guidance suggests that, generally, the decision to make a subsidy will coincide with entering into the documents which give the recipients an enforceable right to the subsidy, although it does acknowledge that an earlier date may be possible. The CAT in Weis took the view that a subsidy decision had been made at the point that the Respondent authority had decided to go ahead with the loans, subject to due diligence.

Whilst the point at which a decision is made will depend on the facts of each case and the governance processes of the relevant authority, it is important to be aware that the decision to give a subsidy may be made at an earlier point than indicated by the guidance. This impacts on both timescales for making an entry on the subsidy database, but also the point at which a decision may be challenged.