A new ruling from the Stockholm Administrative Court has once again issued a restrictive assessment of the area of applicability of the rental exemption. The ruling raises questions relating to whether procuring authorities are required to carry out a landlord procurement if the authority wishes to rent premises that must be constructed or adapted to the authority's needs.
Background
On 30 January 2023, the Stockholm Administrative Court handed down a judgment in case no. 35322-21 regarding the Swedish Competition Authority’s supervisory decision against the Swedish Courts Administration, reg. no. 502/2020. The Swedish Courts Administration has appealed the judgment before the Administrative Court of Appeal. The judgment has therefore not gained legal force and it remains to be seen whether leave to appeal is granted.
The Administrative Court considers that, by entering into an agreement with a property owner and future landlord for the construction of a new court building, the Swedish Courts Administration has carried out an unauthorised direct procurement. This is despite the fact that the construction contract itself and consulting services associated with it would be “broken up” and procured separately in accordance with the Public Procurement Act. The Administrative Court considers that the main purpose of the collaboration between the Swedish Courts Administration and the property owner was to construct the building according to the Swedish Courts Administration’s specifications. According to the Administrative Court, all agreements in the collaboration between the parties were interconnected and interdependent, so that it was not possible to exclude certain parts of the procurement from announcements. Instead, all parts should have been procured in accordance with the Public Procurement Act. The rental exemption in Chapter 3, section 19 of the Public Procurement Act is therefore not applicable.
The Administrative Court’s judgment is in line with the judgments of the Stockholm Administrative Court of Appeal in cases no. 9369-21 and 9370-21, which were handed down on 2 November 2021 and which concerned the Police Authority’s agreement on the construction of new police stations in Motala and Järfälla. A similar approach was also rejected in those judgments. It is worth noting that the decisions of the Administrative Court of Appeal have been appealed and have therefore not yet gained legal force.
Reflections
These rulings raise questions about the conditions under which procuring authorities can apply the rental exemption to premises that have not yet been constructed and/or adapted to activities. The scope appears to be extremely limited, at least when it comes to lease agreements relating to new construction in the event that the authority wishes to have any influence over the design of the premises. The courts’ position tends to be that the authority must then carry out what is referred to as a “landlord procurement” in order to meet its procurement obligation. This assessment is also shared by Sveriges Kommuner och Regioner (SKR) [the Swedish Association of Local Authorities and Regions], which states that the organisation is now updating and revising its guidance “Gäller LOU vid hyra av lokal?” [Does the Public Procurement Act apply when renting premises?] due to the judgments in question.
However, carrying out a landlord procurement is associated with certain challenges since current legislation is not adapted to it. Nor is it always suitable because it limits the ability of procuring authorities to choose a particular geographical location for their premises or remain in a particular location, which is one of the reasons why pure lease agreements are basically exempt from procurement obligations.
Adapting or renovating existing premises leased by an authority is also associated with risks, even if the procurement of the construction work itself takes into consideration the restrictive interpretation of the area of applicability of the rental exemption applied by the courts in the rulings now being considered. Does this mean that an authority must terminate its lease contracts and risk moving out of its existing premises as soon as they need to be renovated and the authority wants to have a say in it? Such a legal development would generate a great deal of uncertainty and frustration for both public bodies and the many external property owners that currently rent to public bodies.
There is still a great need for further clarification of the legal situation in this area in the near future. Current case law makes it more difficult for procuring authorities to comply with procurement legislation and at the same time meet their need for suitable premises. Perhaps it is time for the legislator to review the rules so that in future we know which options are permitted rather than merely which options are not permitted.
