State and municipal property may be the subject of transactions for sale, limited real rights or rent only in strict compliance with the statutory framework set forth in the State Property Act, the Municipal Property Act, and their secondary implementing legislation. This article focuses on the renting of real estate – public and private municipal property, intended for non-residential purposes.
Municipal non-residential properties are of significant interest to commercial entities due to their strategic location, developed infrastructure and long-term stability in rent relations. Such premises may include school canteens and cafeterias in educational or medical institutions, commercial premises, offices, garages, parking lots and others. Unlike standard real estate transactions, the renting of municipal property is subject to a specific procedure – holding a public auction or a publicly announced competition, unless a different procedure is provided by law.
Within the statutory framework, each municipality in the country adopts an ordinance containing detailed terms and conditions for the renting, management, and disposition of properties owned by the respective municipality.
What is the general procedure for conducting a public auction and a publicly announced competition?
Despite their fundamentally different rules of conduct, public auctions and publicly announced competitions mostly follow the same legal framework. In both cases, the procedure is initiated by a decision of the municipal council or an act of the body to which these authorities have been delegated. Based on this decision, an official notice is published, which must contain a description and intended use of the property, the starting monthly rental price, the term of the renting relationship, the amount of the participation deposit, the conditions for purchasing the auction/competition documentation, the place and deadline for submitting offers/proposals, among other details.
On their part, candidates purchase pre-prepared auction or competition documentation, which includes detailed rules and requirements for conducting the procedure, templates of the necessary documents accompanying the offer, as well as a draft rent agreement with which clauses the participants agree in advance.
The actual conduct of the auction or competition is carried out by a commission specifically appointed for that purpose, whose powers include examining the candidates’ offers/proposals, as well as ranking them in accordance with the conditions provided for each of the two procedures. The process officially concludes with issuing an order by the mayor or by the body to which this authority has been delegated, announcing the winner or terminating the procedure in cases provided for by law. The winner of the auction or competition must present themselves at the respective institution within a specified period to enter into a rent agreement.
What is the difference between a public auction and a publicly announced competition?
The most fundamental and essential difference between the procedures for conducting a public auction and a publicly announced competition lies in the method of evaluating the participants’ proposals. While in a public auction the participant’s proposal is limited to submitting a price offer, a publicly announced competition involves additional specific requirements for the candidates to fulfill alongside submitting the monthly rental price proposal. Such an additional requirement may include, for example, presenting an investment program with planned renovation works on the property that the tenant proposes to carry out.
In view of the above, the evaluation and ranking of the participants’ proposals in a public auction includes a comparison of the amounts of the proposed monthly rental prices, with the candidate proposing the highest price being announced the winner of the auction.
Evaluating the participants’ proposals in a publicly announced competition is significantly more complex, as an evaluation methodology is established in the competition documentation, incorporating specific criteria and their respective weights in the overall score. In this case, the participant who receives the highest overall score based on the criteria and the evaluation method is announced as the winner of the competition.
Another essential difference between the two procedures is that the public auction may be of two types – with secret or with open bidding. The type of auction must be specified in the initial decision and stated in the official notice. Meanwhile, a publicly announced competition is conducted solely based on proposals submitted in advance by the candidates.
What are the most common mistakes when applying for an auction or competition?
The regulation of the procedures for conducting auctions and competitions is exceptionally extensive and covers both statutory provisions and secondary legislation, such as ordinances and regulations issued by the respective municipalities. It is common for candidates in public auctions or publicly announced competitions not to be admitted or to be disqualified from participation due to formal errors and omissions.
Such an omission may be the submission of an incomplete set of documents with the proposal for participation, where the absence of even a single item required under the auction/competition documentation can lead to disqualification.
Another ground for non-admission to the auction/competition may be offering a price lower than the initial price announced. In this case, the proposal is not subject to evaluation, and the candidate is disqualified from participating in the procedure.
A frequently overlooked condition when participating in these procedures is the requirement for the absence of public obligations owed to the respective municipality. Although not always contained in the initial notice initiating the procedure, this requirement is usually regulated in the auction/competition rules and/or in the secondary legislation applicable to the respective municipality.
In conclusion, the procedures for conducting a public auction and a publicly announced competition require particular attention, both during their preparation and conduct by the authority renting the property, and during the preparation of the participation documentation by the candidates.
If you intend to initiate a procedure for conducting a public auction or a publicly announced competition for the rent of public or private municipal property, or you intend to apply under such a procedure, you may contact Dilyan Kolev, Attorney-at law, for comprehensive assistance in drafting the auction/competition documentation, from the initiation of the procedure to the announcement of the winning participant, as well as in preparing a complete set of application documents for an already announced procedure.