Lease extension - subject to procurement?

In a decision dated December 20, 2024 (case T-8222-23), the Svea Court of Appeal examined the issue of a landlord's liability for damages upon termination of a commercial lease because the landlord intended to procure the business in the premises according to the Act (2016:1147) on Procurement of Concessions (LUK).

Note that the judgment addresses more issues than those covered in this summary.

Legal Foundations

LUK came into force on January 1, 2017, and is based on EU Directive 2014/23/EU. LUK applies to the procurement of works concessions and service concessions conducted by a contracting authority or entity as defined in the law. A service concession is a concession through which a contracting authority or entity entrusts the concessionaire with the provision and management of services other than those intended for a works concession (Chapter 1, Section 19 LUK).

Circumstances of the Case

In the case, a tenant had operated a restaurant business in premises leased from Swedavia at Arlanda Airport. The original lease term ran from October 1, 2016, to September 30, 2019. Termination of the agreement had to be made in writing at least nine months before the end of the lease term; otherwise, the agreement was extended by three years at a time. The lease agreement contained provisions regarding the business's focus, product range, and opening hours. The parties had agreed to waive the right to possession in certain situations.

Swedavia terminated the lease agreement at the end of the lease term, citing that the business in the premises would be procured according to LUK. In the case, the tenant claimed that the court should determine that Swedavia was liable for compensation to the tenant due to the termination according to the rules on indirect possession protection in Chapter 12, Sections 57 and 58b of the Land Code.

Court of Appeal's Assessment

The court initially found that the reasons Swedavia based the termination on were covered by the agreement to waive possession protection. The court therefore did not examine whether Swedavia had a justified reason to terminate the lease agreement according to the so-called general clause in Chapter 12, Section 57, first paragraph 4 of the Land Code, which Swedavia also claimed.

The Court of Appeal's examination focused on whether the lease agreement constituted a service concession, whether LUK was applicable to the agreement when it expired on September 30, 2019, and whether LUK meant that Swedavia was legally obliged to terminate the agreement.

The Court of Appeal assessed that the lease agreement constituted a service concession

The court noted that Swedavia is a contracting entity under LUK if the company awards someone a concession for operating an airport (Chapter 1, Section 20 LUK and Appendix 2 to the law). Regarding the meaning of the term "operating an airport," the court referred to Recital 25 of the LUK Directive, which states that relevant activities at airports also include services to passengers that contribute to the smooth functioning of the airport facility and are expected of a well-functioning modern airport, such as retail, restaurant services, and car parking.

Regarding whether Swedavia had entrusted the tenant to provide a service, the court noted that the boundary between renting a premises under the Land Code and a service concession under LUK is not entirely clear, and at the time of the court's decision, there was limited case law in the area. The court stated, among other things, that for it to be a service concession, it must be clear that the contracting authority or entity's purpose with the individual agreement was to procure a specific service and not merely to rent out a premises. The court also referred to legal literature according to which the decisive factor for whether a lease agreement constitutes a service concession is whether it is possible to identify a clear performance on the part of the tenant/supplier towards the authority/entity beyond the usual lease terms.

The court emphasized that the terms of the current lease agreement showed, among other things, that the tenant had committed to operating the business in the premises under a specified name. Before entering into the agreement, the tenant had presented a product range and profile that Swedavia deemed fit the overall profile for the airport and which was a decisive reason for Swedavia to enter into the lease agreement. Through the agreement, the tenant committed to maintaining the agreed focus for the business unless the parties agreed otherwise in writing. Changes and additions to the product range were only allowed after written approval from Swedavia.

Overall, the court assessed that the tenant provided Swedavia with a service through the lease agreement and that the agreement constituted a service concession. The court considered that the fact that similar contractual terms regarding product range and opening hours occur in commercial lease agreements between private parties, such as in lease agreements for premises in shopping malls, did not affect the assessment.

Was there an obligation for Swedavia to conduct a procurement according to LUK when the lease agreement expired?

The court assessed that LUK was applicable to the extension or change of terms that would occur when the lease agreement expired on September 30, 2019. The question then was whether the applicability of LUK meant that Swedavia had a legal obligation not to allow the extension of the lease agreement.

The court noted that LUK does not contain any explicit provision that imposes an obligation on a contracting authority or entity to terminate a lease contract entered into before the law came into force. However, the purpose of LUK is that the procurement of concessions should be subject to competition at regular intervals. If Swedavia had failed to terminate the lease agreement and conduct a procurement according to LUK, the extension of the lease agreement could have been equated with an unauthorized direct procurement (cf. HFD 2022 ref. 4 II, paragraph 23 with further references). The extended agreement would then have been subject to the provisions on the review of a contract's validity in Chapter 16, Section 4 LUK.

The court also noted that LUK's provisions on changes that are not substantial could not be applied because the current lease agreement had not been procured according to LUK on a previous occasion.

The court therefore assessed that Swedavia had a legal obligation to terminate the lease agreement by September 30, 2019.

Swedavia was not liable for compensation to the tenant according to Chapter 12, Sections 57 and 58b of the Land Code.