Tenant-owner association obliged to demolish parking garage

The Supreme Court clarified in a judgement dated November 12, 2024, that a condition in a leasehold agreement requiring the leaseholder to clear the property upon the agreement's termination is valid. 

The leasehold agreement in question was entered into between the Municipality of Gothenburg (the Municipality) and a housing cooperative (the Cooperative) in 1971. The leasehold was granted to the Cooperative for parking purposes, and the Cooperative constructed a two-level parking facility on the property. The parking spaces were subsequently leased to the Cooperative's members.

On December 3, 2018, the Municipality terminated the leasehold agreement for vacating by December 31, 2020. The parties agreed that, according to the terms of the leasehold agreement, the Municipality had no obligation to redeem the building or other property that constituted accessories to the leasehold, which included the parking facility. Furthermore, the parties included a clause in the leasehold agreement with the following wording:

"The leaseholder shall, within one year from the date of the leasehold's termination as stated above, have properly cleared the plot, under the risk that otherwise the city may, at the leaseholder's expense, take the necessary measures for this purpose or take over the existing buildings and other facilities on the plot without compensation."

Based on this condition, the Municipality considered that the Cooperative was obliged to clear the property upon vacating, including demolishing the parking facility, or alternatively compensate the Municipality for the cost of such clearing. The Cooperative contested the existence of a clearing obligation, arguing that the condition contravened the provisions on leaseholds in Chapter 13 of the Land Code. Against this background, the Cooperative filed a lawsuit against the Municipality, requesting the district court to declare that the Cooperative was not obliged to clear the plot or pay compensation for clearing in accordance with the relevant clause in the agreement.

In its lawsuit, the Cooperative argued that, as a general rule, the property owner is obliged under Chapter 13, Section 17 of the Land Code to redeem buildings and other property that constitute accessories to the leasehold when it terminates due to notice. According to the Cooperative, the possibility to contract out of the redemption obligation as per Section 17, third paragraph, constituted an exception to this general rule, which should be interpreted restrictively. The Cooperative contended that the condition regarding the leaseholder's clearing obligation went beyond what the legislator allowed the parties to agree upon in a leasehold agreement.

The district court, whose assessment was shared by the court of appeal, noted that there is no provision in Chapter 13 of the Land Code addressing the issue of a leaseholder's obligation to clear a property upon the termination of the leasehold. It was also considered that the chapter did not imply a general prohibition against agreeing on matters not explicitly regulated. The district court emphasized that, on the contrary, the preparatory works of the Land Code indicate that it may be appropriate to agree on the leaseholder's obligations to remove buildings when no redemption obligation exists. The district court thus found no obstacle to a clearing condition of the current kind.

The Supreme Court (SC) concurred with the lower courts' assessment. Initially, the SC explained that the applicable law regarding the current leasehold agreement was the old Tenancy Act (1907:36), whose rules in relevant parts were transferred essentially unchanged to the Land Code. Referring to legislative motives and older case law, the court noted that there is relatively broad contractual freedom in the area of leaseholds, and there is no prohibition against agreeing on matters not explicitly permitted under the leasehold provisions. The fact that the exception rule in Chapter 4, Section 17 of the Tenancy Act (Chapter 13, Section 17 of the Land Code) only regulates the obligation to pay redemption was thus not considered to imply that it would be impermissible to agree on a clearing obligation for the leaseholder. The SC thus judged that the parties were free to agree as they did, and that the relevant condition in the leasehold agreement was valid.

Analysis:

Leasehold is a legal institution characterized by mandatory rules regarding the parties' ability to terminate the agreement. The Supreme Court's decision clarifies that the parties in a leasehold agreement still have relatively broad freedom to shape the terms of the leasehold agreement according to the circumstances of the individual case, even concerning the regulation of the agreement's termination.