Swedish Supreme Administrative Court clarifies the scope of the lease exemption

To determine whether a contract falls within the scope of the lease exemption has long involved difficult questions of classification. These difficulties are particularly pronounced in relation to mixed contracts containing elements of both a non-procurement lease agreement and a procurement-regulated works contract. On 11 September 2026, the Swedish Supreme Administrative Court (Sw: Högsta förvaltningsdomstolen) handed down a judgment addressing how the principal subject matter of a contract should be determined where the contract concerns the lease of premises in both an existing building and an extension that the landlord is required to construct. The principal subject matter is decisive in determining whether a contract is subject to public procurement rules.

In the case concerning a procurement penalty, the Swedish Supreme Administrative Court concluded that the lease agreement entered into between Nacka Municipality and Sickla Industrifastigheter KB principally concerned the continued lease of existing school premises. The extension was regarded as ancillary to the agreement, both from an economic and a functional perspective, and could therefore not be considered the contract's primary purpose. As the principal subject matter of the agreement was the acquisition of leasehold rights, the agreement fell outside the scope of the Swedish Public Procurement Act (LOU) pursuant to the so-called lease exemption. The municipality was therefore not required to conduct a competitive procurement procedure, and there were consequently no grounds for imposing a procurement penalty.

The case

The case arose when Nacka Municipality, which had long leased premises for school operations, needed additional space to accommodate a growing number of pupils. Without conducting a prior procurement procedure, the municipality therefore entered into a new ten-year lease agreement with its existing landlord.

The agreement covered approximately 8,155 square metres in a building already leased by the municipality for educational purposes, as well as approximately 2,120 square metres in an extension that the landlord was to construct immediately adjacent to the existing premises. The Swedish Competition Authority took the view that the agreement should have been procured in accordance with the Public Procurement Act and applied to the administrative court for an order requiring the municipality to pay a procurement penalty.

The Swedish Supreme Administrative Court found that, insofar as the agreement related to the premises within the extension, it constituted a works contract. This was because the municipality had exercised a decisive influence over the design process and had requested tenant-specific modifications that went beyond what a tenant would ordinarily require for a building of that nature. The agreement therefore constituted a mixed contract comprising both the lease of premises in an existing building and a works contract. The question was therefore how the contract's principal subject matter should be determined. 

In making that assessment, the Swedish Supreme Administrative Court attached importance to the fact that the municipality had already been operating a school on the site and that, in response to the need to accommodate more pupils, it entered into discussions with the landlord that resulted in the landlord exercising an existing development right immediately adjacent to the school building. The extension increased the overall floor area by approximately 26 per cent. 

Following an objective assessment of the procurement and with reference to the case law of the Court of Justice of the European Union, the Swedish Supreme Administrative Court concluded that the contract was primarily intended to enable the municipality to continue leasing and operating the school in the existing premises. This was the defining feature of the agreement. The extension, by contrast, was merely ancillary and supplementary, both economically and functionally. Accordingly, the principal subject matter of the contract was the acquisition of leasehold rights, meaning that the Public Procurement Act did not apply. No procurement procedure was therefore required, and there was no basis for imposing a procurement penalty.

CMS Wistrand's comment

The Swedish Supreme Administrative Court’s decision to address the scope of the lease exemption is both significant and welcome. The judgment provides important clarification regarding the determination of the principal subject matter of a lease agreement that covers both existing premises and an extension to be constructed by the landlord.

One key takeaway is that an extension may be regarded as ancillary even where, viewed in isolation, the procurement of that extension satisfies the criteria for a works contract. In other words, the classification of one element of an agreement does not necessarily determine the classification of the contract as a whole.

At the same time, the judgment does not eliminate all uncertainty as to where the boundary lies between lease agreements and works contracts. The Swedish Supreme Administrative Court does not identify any general threshold regarding the size of an extension, noting only that the leasable floor area in this case increased by approximately 26 per cent. Instead, the decisive question remains whether the relevant element is the defining feature of the contract or merely ancillary and supplementary in nature, both economically and functionally. The assessment of a contract's principal subject matter must therefore continue to be carried out on a case-by-case basis.

It is also worth noting that the fact that the municipality was already operating from the existing premises and intended to continue doing so was likely of decisive importance to the outcome of the case. The assessment may therefore be different in the context of a newly developed building where the tenant has not previously conducted any activities on the property. In such circumstances, and particularly in the case of larger new-build developments, the lease exemption should continue to be applied with caution.

Should you have any questions regarding the judgment or its implications, please do not hesitate to contact CMS Wistrand.