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What happens under rental law in the event of a forced closure of a tenant’s premises or business?

We have recently witnessed several Swedish governmental decisions and recommendations that restrict citizens and businesses, in order to reduce social contact due to the outbreak of Covid-19. However, so far the authorities have not made any decrees that force tenants to close their businesses, such as restaurants and shops, or that prevent landlords from fulfilling their duty to provide the premises. From a Swedish rental perspective, what legal consequences would follow from such decisions?

According to the Swedish Tenancy Act (Chapter 12 of the Swedish Land Code), a tenant has the right to rent reduction in the event of an obstacle or harm in the right of use of the premises (Sw. “hinder och men i nyttjanderätten”), as long as the tenant has not been negligent. However, there is no guidance in either this provision (or in the Tenancy Act in general) that outlines the circumstances under which a landlord would be exempt from liability. Thus, based on the wording in the Tenancy Act, a compulsory shutdown could cause such an obstacle or harm in the right of use of the premises for the tenant. However, please note that the provision only states the tenant’s right to rent reduction – consequently, no other compensation is included, such as loss of revenue.

Furthermore, leases often contain a force majeure clause, which in most leases has been introduced solely for the landlord’s benefit. For example, The Swedish Property Owners’ standardized commercial lease forms (Sw. “Fastighetsägarnas formulär”) are frequently used, and these forms contain a force majeure clause which exempts the landlord’s obligation to perform in the event of “interference from a public authority which the landlord does not have control over and could not foresee” (Sw. ”ingrepp från offentlig myndighet som hyresvärden inte råder över och inte heller kunnat förutse”).

Should the authorities decide to forcibly close premises and/or business, we can assume that this force majeure provision will be invoked by a landlord in response to a tenant invoking obstacles or harm in its right of use of the premises. How these regulations interact – the landlord’s invocation of force majeure versus the tenant’s right to rent reduction – has not been clarified in the Tenancy Act. Since the pandemic now affecting society is of an unprecedented kind, it is also difficult to foresee how a court would assess in the event of a dispute between the landlord and the tenant.

Nevertheless, even if a lease does not include a force majeure clause, the courts could consider the invocation of force majeure based on general principles of law (Sw. “allmänna rättsprinciper”) in the event of a decision by the authorities on compulsory shutdown. However, it should be emphasized that we cannot, generally draw any conclusions about this at this point.

Hopefully the Swedish Government will realize the precarious situation that may arise in the landlord-tenant relationship if the authorities were to restrict – directly or indirectly – tenants’ use of their premises, and will decide on some form of support that does not requires the landlord’s cooperation, which is the case with what has been presented so far. If not, we will probably see many more bankruptcies to come.

Nina Tour

Partner / Advokat

Stockholm

Nina Tour

Madeleine Jönsson

Senior Associate / Advokat

Stockholm

Madeleine Jönsson