The Supreme Administrative Court settles the matter – an extension can fall within the lease exemption

The Swedish Competition Authority appealed the judgment to the Supreme Administrative Court, which on 11 September 2026 delivered judgment in Case No. 1017-25 and dismissed the appeal. Below we set out the Supreme Administrative Court's ruling and analyse its significance for the state of the law.

Background

On 20 February 2023, Nacka Municipality entered into an agreement, without prior advertisement, titled "Lease Agreement for Premises" with Sickla Industrifastigheter KB. The contract covered approximately 8,155 square metres in a building that the municipality already leased and used for school operations, as well as approximately 2,120 square metres in an extension that the landlord was to construct directly adjoining the existing premises. The contract ran from 1 August 2023 to 31 July 2033, and the extension was likewise to be used for school operations.

The Swedish Competition Authority applied for a procurement infringement penalty, arguing that the contract covered both the leasing of premises and a construction contract and therefore constituted a mixed contract. According to the Competition Authority, the construction contract was the main subject matter of the contract, meaning that the lease exemption did not apply and that the agreement had been entered into through an unlawful direct award. Both the Administrative Court and the Administrative Court of Appeal dismissed the Competition Authority's action, finding that the tenancy constituted the main subject matter of the contract.

The question before the Supreme Administrative Court

The question before the Supreme Administrative Court was how the main subject matter should be determined for a contract concerning the lease of premises both in an existing building and in an extension that, under the contract, the landlord was to have constructed.

The Supreme Administrative Court's assessment

The Supreme Administrative Court first dismissed the Competition Authority's request to obtain a preliminary ruling from the Court of Justice of the European Union. The Court found that the relevant EU law provisions had already been interpreted by the Court of Justice and that, in light of that case law, there was no reasonable doubt as to how the provisions should be interpreted under the circumstances of the case.

On the merits, the Supreme Administrative Court found that the contract, insofar as it concerned the lease of premises in the extension, constituted the procurement of a works contract. The municipality had exercised decisive influence over the design and had requested tenant adaptations going beyond what a tenant would normally require of a building of that kind. In this respect, the Court referred to the Court of Justice's ruling in Commission v Austria (C-537/19). The contract therefore concerned both the lease of existing premises and a works contract, and thus constituted a mixed contract. Under Chapter 2, Section 2, first paragraph of the LOU, it was therefore to be procured in accordance with the rules applicable to the type of procurement that constituted the main subject matter of the contract.

In assessing the main subject matter, the Supreme Administrative Court referred to the Court of Justice's case law in Commission v Italy (C-412/04). That judgment establishes that the main subject matter of a mixed contract must be determined through an objective assessment of the procurement as a whole. The assessment must have regard to which principal obligations predominate and are characteristic of the contract, as distinct from obligations that are merely ancillary or complementary in nature and necessary given the purpose of the contract.

The Supreme Administrative Court found that the municipality had previously conducted school operations on the property and that a need to accommodate more pupils had led to discussions with the landlord about opportunities to expand the floor area. These discussions resulted in the landlord making use of a building right directly adjoining the existing school building and offering the municipality the lease of additional premises in an extension. The extension increased the leased floor area by approximately 26 percent. On an objective assessment of the procurement as a whole, the Court found that the contract was principally aimed at enabling the municipality to continue leasing and conducting school operations in the existing premises. This was what was characteristic of the contract. The extension was considered to be ancillary and complementary in nature, both economically and functionally. The main subject matter of the contract was therefore the acquisition of a leasehold right, and the lease exemption was applicable. There was accordingly no basis for imposing a procurement infringement penalty on the municipality, and the Competition Authority's appeal was dismissed.

Analysis

The Supreme Administrative Court's ruling provides long-awaited guidance on a question previously considered only by lower courts. The Court confirms that the lease exemption may apply even where a lease agreement includes an extension to be constructed by the landlord which, in itself, constitutes a works contract subject to procurement rules. What is decisive is which element, on an objective assessment of the procurement as a whole, constitutes the main subject matter of the contract.

It is particularly worth noting that the Supreme Administrative Court assessed the extension as a works contract, since the municipality had exercised decisive influence over the design and had requested tenant adaptations going beyond what a tenant would normally require of a corresponding building. This was, however, not sufficient for the LOU to apply to the contract as a whole. The key issue in the ruling is instead how such a procurement-triggering works element should be weighed against a larger, pre-existing tenancy when assessing the main subject matter of the contract.

In making this assessment, the Supreme Administrative Court took into account that the extension increased the leased floor area by approximately 26 percent and that the contract was principally aimed at enabling the municipality to continue leasing and conducting school operations in the existing premises. At the same time, the Court framed its assessment in terms of what, on an objective assessment of the procurement as a whole, was characteristic of the contract, in line with the case law of the Court of Justice. The extension was assessed as merely ancillary and complementary, both economically and functionally. The ruling therefore suggests that the scope of the new floor area is a relevant factor, but it does not support any fixed quantitative threshold for when an extension should be regarded as the main subject matter of a contract.

In summary, the Supreme Administrative Court's ruling clarifies that the presence of a procurement-triggering works contract within a lease agreement does not, in itself, mean that the contract as a whole falls within the scope of the LOU. What is decisive instead is which performance predominates and is characteristic of the contract on an objective overall assessment, and whether the works element is merely ancillary and complementary in nature. The ruling therefore supports the view that the lease exemption may apply even where a lease agreement includes an extension, while at the same time leaving room for continued boundary-drawing questions. Contracting authorities intending to apply the lease exemption in such situations therefore still need to carry out a careful assessment of the circumstances of the individual case, taking into account both the economic and functional significance of the works element and the overall purpose and character of the contract.