BOURNEMOUTH council’s BIC hotel scheme may fall afoul of EU law, claim those pushing for a judicial review.

Earlier this week Peel Hotels and Bespoke Hotels, representing several operators in the town, published a legal letter to the borough warning of their intention to pursue legal action over the £70 million taxpayer funded proposal.

On Tuesday Bill Cotton, council executive director for environment and economy, said the move by “two of the town’s major hotel operators” was “disappointing”, and that “external legal advisors” were looking at the case.

Among the criticisms levelled in the letter is that the council’s involvement in the project constitutes ‘state aid’, which is prohibited by EU treaty.

“State aid is not permitted under EU law unless an exception applies or advance permission has been sought from the European Commission through notification,” states the letter, prepared by London law firm Dentons.

“We are not aware of any such exemption which covers the project.”

The hotels’ lawyers claim the provision of 100 per cent of funding for the project by the council via the Public Works Loan Board constitutes an aid using state resources, and that it will “distort competition”.

“Clearly the preferred bidder will be benefitted by the provision of funding on non-market terms and, as described above, result in the construction of a hotel which is not commercially viable.”

For this claim to be upheld the lawyers would have to justify the above, but also demonstrate that the council’s project will affect trade with EU member states.

The letter makes certain demands of the council, chiefly that it hold off signing a development agreement with its two agreed partners, Mill Lane Estates and Marick Real Estate, until numerous conditions are met.

These include securing a 10 year rental insurance policy, which the borough has committed to doing anyway, but also demonstrating there is no treaty breach and no state aid is being granted.

Furthermore the letter requests numerous documents from the council which have yet to be made public, including any reports on the project by Savills, which was commissioned by the council to carry out valuation.

Other documents requested include the minutes of those parts of council meetings discussing the project which were held in private session with the public excluded.

In a further line of attack, the letter claims the changes to the scheme since the council unsuccessfully advertised for tenders, including it being 100 per cent council funded and with a 10 year rental guarantee, mean the borough should have subsequently retendered the entire project.

It states that the borough’s VEAT notice, published in the EU Journal and inviting challenges to the tender process, may yet be subject to a separate action.