Background
Nacka Municipality entered into a ten-year agreement with Sickla Industrifastigheter KB without prior advertising. The agreement covered approximately 8,155 square meters in an existing building already used by the municipality as a school and approximately 2,120 square meters in a new extension that the landlord would construct next to it. The extension would also be used for school operations.
The Swedish Competition Authority sought a procurement penalty, arguing that the agreement was a mixed contract combining a lease with a public works contract and that the works were its main subject matter. The municipality maintained that the extension was not a public works contract and, alternatively, that the lease was the contract’s principal element. The Stockholm Administrative Court found that the agreement included both elements but that the lease predominated, and the Stockholm Administrative Court of Appeal affirmed.
The Court’s Holding
The Supreme Administrative Court agreed that the portion concerning the extension constituted a public works contract. The municipality had exercised decisive influence over the design and requested tenant-specific adaptations exceeding those ordinarily demanded by a tenant for a building of this kind. The overall agreement was therefore a mixed contract involving both a lease of existing premises and public works.
Assessing the procurement objectively as a whole, however, the Court held that acquisition of the leasehold interest was its main subject matter. The municipality had already operated a school at the property, and the agreement principally enabled it to continue renting and using the existing premises. The extension increased the leased area by about 26 percent and was merely ancillary and complementary, both economically and functionally. Because Sweden’s Public Procurement Act does not apply to contracts whose main subject is the acquisition of leasehold rights, prior advertising was unnecessary and no procurement penalty could be imposed.
The Court dismissed the Competition Authority’s appeal. It also refused to request a preliminary ruling from the Court of Justice of the European Union because existing EU case law left no reasonable doubt about the applicable provisions’ interpretation in these circumstances.
Key Takeaways
- A lease involving purpose-built or specially adapted premises may include a public works element when the contracting authority exercises decisive influence over the design.
- The main subject matter of a mixed contract is determined through an objective assessment of the transaction as a whole, focusing on its predominant and characteristic performance rather than ancillary elements.
- Here, continued use of the existing school premises predominated, while the 26-percent expansion was economically and functionally complementary, bringing the entire contract within the real-estate rental exemption.
Why It Matters
The judgment clarifies that identifying a public works component does not by itself make procurement advertising mandatory. For mixed lease-and-construction arrangements, Swedish authorities and property owners must separately determine which performance gives the transaction its essential character.
The decision also shows that the relative size of an extension, the authority’s pre-existing use of the property, and the project’s economic and functional role can be decisive when determining whether construction is principal or merely ancillary.