Friday, 18 September 2026
A ruling by Sweden’s Supreme Administrative Court has provided new guidance for property owners and public-sector occupiers entering lease agreements that combine existing premises with additional space to be constructed by the landlord.
The case concerned Nacka Municipality and school premises it had occupied for several years. Faced with the need for additional capacity, the municipality entered a new ten-year agreement with its existing landlord, Sickla Industrifastigheter KB, without conducting a public procurement procedure. The agreement covered approximately 8,155 sqm in the existing building together with around 2,120 sqm in an adjoining extension that the landlord would develop.
The Swedish Competition Authority challenged the arrangement, arguing that the construction component meant the agreement should have been competitively procured. The dispute eventually reached the Supreme Administrative Court, which issued its judgment on 11 September 2026.
An important part of the case concerned the planned extension. The municipality had influenced its design and requested modifications specifically suited to the school’s requirements. The court therefore concluded that the construction of the additional premises had the characteristics of a public works contract when considered separately.
That finding did not determine the treatment of the entire agreement. Because the contract combined the continued occupation of an existing property with the construction of additional premises, the court considered which element represented the main purpose of the overall transaction.
The municipality was already operating the school at the property and required additional capacity to accommodate more pupils. Discussions with the landlord resulted in plans to use development potential immediately beside the existing school rather than establishing an entirely new facility elsewhere.
After considering the arrangement as a whole, the court concluded that its main purpose was to allow the municipality to continue occupying and operating the existing school. The additional building was considered supplementary to that objective from both financial and operational perspectives.
The overall agreement was consequently treated as a property lease falling outside the procurement requirements that would otherwise apply to a public works contract. Nacka Municipality was therefore not required to conduct a competitive procurement process for the agreement, and there was no basis for imposing the procurement penalty sought in the case.
The decision has wider implications for Swedish commercial property because municipalities and other public bodies are significant occupiers of privately owned buildings. Landlords can be required to refurbish, extend or adapt properties when negotiating leases with public-sector tenants, creating uncertainty over when property arrangements cross into procurement-regulated construction.
The ruling indicates that the inclusion of substantial construction work does not automatically determine the legal treatment of the entire property agreement. Instead, the purpose and structure of the transaction have to be considered as a whole, including the relationship between the existing premises and any additional development.
At the same time, the judgment does not establish a fixed percentage of new construction that can automatically be incorporated into an exempt property lease. In the Nacka case, approximately 2,120 sqm was being added alongside 8,155 sqm of existing premises, but the court focused on the function of the extension within the wider agreement rather than creating a general floor-area threshold.
This distinction is particularly relevant for developers considering projects involving public-sector tenants. An extension supporting an organisation already occupying a property may be assessed differently from a purpose-built development where the public body substantially determines the design and delivery of a new building.
The judgment therefore provides additional guidance for extensions and adaptations associated with existing public-sector leases without creating a general exemption for landlord-led development. Larger build-to-suit projects and agreements primarily concerned with delivering new premises will still require individual assessment to establish whether public procurement rules apply.
For property owners and developers, the decision makes the underlying purpose of the agreement particularly important. Where construction supports the continuation of an established tenancy, it may remain secondary to the property lease. Where delivering a new building is effectively the central objective, the legal position may be different, leaving the boundary between a property lease and a procurement-regulated construction contract dependent on the circumstances of each project.
Source: CMS
