Since 1949

As you make your bed, so you must lie upon it

As you make your bed, so you must lie upon it
Judgment of the Court of Appeal for Western Sweden, 18 January 2017, Case no. T 1173-16

Claude D Zacharias (Attorney)

1. Background

Pursuing activities or embracing values that are unacceptable according to the prevailing norms of society may result in awkward if not impossible situations, rendering it impossible to fulfil contractual obligations. Everyone has probably heard of the Hells Angels motorcycle organisation (‘HA’) and few are likely to support their existence and activities, morally or in general. For my own part I can only regret that organisations the like of HA have been afforded an opportunity at all to operate and build up their network, etc., not only on the fringes of the law but even outside it.

This said, the local motorcycle club (‘BK’), which was linked to HA, managed to craftily acquire for itself a tenancy of premises in a mid-sized Swedish town. It is not impossible that their tenancy was acquired surreptitiously in such a way that the property owner did not realise that the association, which had become their tenant, was actually an HA club. Regardless of the reasons for doing so, the municipal authority acquired the property by compulsory purchase; BK claimed that the transfer was effected to evict BK from the property, but the underlying circumstances are left unanswered.

It is prescribed in the tenancy agreement, among other things, that the tenant (i.e. BK) was obliged to take out full insurance for the property for the term of the tenancy. It was undisputed in the case that no such insurance was taken out – BK claimed that no insurance company wanted to provide insurance to BK. It may also be mentioned parenthetically that the municipal authority were, with this tenant, unsuccessful in their attempt to insure the property on their own initiative.

The property owner gave notice requiring BK to vacate, referring to non-compliance with an essential condition for the tenancy relationship – there was no insurance cover and this was of ‘extraordinary importance’ to the property owner. BK for its part contested the notice of termination and was of the opinion, first, that BK was unable to take out insurance as all of the insurance companies that BK asked refused to provide them with insurance, and second, that the breach of contract as such was so minor that there was no entitlement to give notice.

BK also stated, as its final grounds for contesting, that the circumstances – each individually or together – were such that the terms of agreement concerning the obligation for BK to keep the property insured were unfair under Section 36 of the Contracts Act (This broadly framed provision of the Swedish Contracts Act, sometimes referred to as the ‘General Clause’, empowers the court to remove or adjust unfair contract conditions where it would be fair to do so considering all of the circumstances) and for this reason should not be applied.

Thus the key question is laid out clearly: is an incapacity to fulfil an insurance condition of the scope now in question, an incapacity that is ultimately due to the surrounding world’s (the insurance companies’) perception of the party concerned and its activities, sufficient to constitute grounds per se for notice of termination?

2. Legal rules

Chapter 12, Section 42, first paragraph, item 8 of the Land Code was in the formal sense the provision that the property owner chose to rely in support of the breach of contract having justified the notice of termination. The fifth paragraph of the aforementioned provision includes an exemption for minor defaults. The relevant parts of Chapter 12, Section 42 of the Land Code read as follows:

The tenancy is forfeited and the landlord entitled to give notice terminating,[…] if the tenant neglects a contractual obligation extending beyond his obligations under this chapter and it must be deemed of extraordinary importance to the landlord that the obligation be discharged, […]

The Municipal Authority was of the opinion that the provision was applicable as it is of extraordinary importance to the Municipal Authority that the Property was kept insured because of its economic value. It would therefore have put the municipal authority at a major disadvantage if the property were uninsured. The municipal authority had obtained valuations in support of the property having a value. It was also undisputed that BK had not executed certain improvement works that, according to the tenancy agreement, were to entitle BK to a rent-free period of 22 months and that the property was in need of improvement work, which suggested both that the municipal authority needed to look after the property and that there was a risk that the property could be destroyed, as the pleading of the municipal authority may be understood.

BK did not consider that the provision referred to by the municipal authority was applicable. The primary purpose of the provision contained in Chapter 12, Section 42, first paragraph, item eight of the Land Code was to ensure, in the opinion of BK, that a landlord could continue to be sure of maintaining an income, e.g. by continuing to rent out a property. BK was consequently of the opinion that there was no impediment to allowing BK to also continue to rent the property.

On reading the explanatory statement accompanying the bill including the proposed provision [Zeteo’s legislative comments on the provision, 21 January 2016], it is indicated, among other things, that the issue of detriment to the landlord owing to the failure to comply with a contractual obligation is an evidential matter where the burden of proof lies with the landlord.

The legislative comments refer, among other things, to Svea Court of Appeal’s judgment of 4 October 2012 in Case no. T 9796-11 where, according to the terms of the tenancy agreement, the tenant had undertaken to take out business insurance including, among other things, liability and business interruption insurance. The Court of Appeal found that this condition was of some significance to the landlord and that the existence of insurance may typically be deemed to be important to a landlord. However, the Court of Appeal considered that the landlord had not been able to demonstrate that the condition was of such ‘extraordinary importance’ that he was entitled to give notice terminating the tenancy agreement prematurely.

3. Reasons for judgment at the District Court

The District Court stated in its judgment that it had been established in the case that the parties had unsuccessfully attempted to take out property insurance for the property. As concluded by the District Court, however, no detailed investigation into why insurance companies had refused to provide such insurance had been presented “although both parties have stated that this is due to circumstances attributable to [BK]”. The District Court also states, for instance, the following:

It is indicated by this part of the investigation that the Property has a substantial economic value and that the Municipal Authority has an owner responsibility for the Property’s environment. In the aforementioned respects, the Municipal Authority without valid insurance cover is thus at risk of suffering a substantial loss in the event of a loss occurrence. It is therefore of extraordinary importance to the Municipal Authority that [BK] fulfils its contractual obligation to keep the Property insured.

Naturally BK was dissatisfied with this and appealed the judgment to the Court of Appeal for Western Sweden, Case no. T 1173-16. A judgment was issued on 18 January 2017.

4. Judgment of the Court of Appeal

The Court of Appeal shared the view of the District Court, albeit adopting a slightly more balanced position, including a methodical analysis of the history behind Chapter 12, Section 42, first paragraph, item 8 of the Land Code. The reasons for judgment are well-formulated and deserve to be reported in extenso.

The legal rule manifested through the above-mentioned provision has existed in Swedish law for some time, in any event since the introduction of the 1907 Act on rights of use to real property (Chapter 3, Section 23). That act contained a similar rule in respect of forfeiture of a land use lease (Chapter 2, Section 36). The present Land Code also includes a similar provision for land use leases (Chapter 8, Section 23, first paragraph, item 5). The original explanatory statement of reasons for the law is rather brief. As regards land use leases, concrete cases where such leases were forfeited were set out in Chapter 2, Section 36 of the 1907 Act, in nine separate items. A tenth item specified a kind of case as corresponds to that expressed in the present provisions for land use leases (arrende) and tenancies (hyresrätt) respectively. In the explanatory reasons (NJA. II 1908, no. 5:1, p. 102 f.), it was stated as regards this item: such a list cannot however be fully exhaustive. However extensive such a list may be, it will not cover such cases where special circumstances give cause for inclusion of provisions in the leasehold contract, the observance of which are of extraordinary importance to the landowner and whose neglect should therefore also result in the loss of the lease. In addition to the list set out in items 1 to 9, there is an additional item 10; a provision that for such exceptional cases permits a more liberal adjudication. The reasons for Chapter 3, Section 23, which related to the forfeiture of a tenancy, stated that the provision essentially mirrored a corresponding provision for land use leases. No further explanation was given beyond this concerning the grounds for forfeiture now in question as regards tenancies (a.a., p. 159 ff.). The substantive content of the original provision relating to tenancies has been transposed into subsequent legislation, the latest to the current Chapter 12, Section 42, first paragraph, item 8 of the Land Code, without any further explanatory statements concerning the substance appearing to have been added. However, mention has been made by legal scholars of, among other things, “the obligation to keep particularly quiet in apartments where there is a sick neighbour” as an example of a circumstance that may give cause for forfeiture under this provision (Lejman, Rättsförhållandet mellan hyresvärd och hyresgäst [Legal relationship between landlord and tenant], 1951, p. 212). A contractual obligation for the tenant to compensate the landlord, when applicable, for value added tax (accruing to the rent) is probably also of such extraordinary importance to the landlord (Thomsson et al., Hyreslagen [The Tenancy Act], commentary on Chapter 12, Section 42 of the Land Code, Zeteo, 7 December 2016). Svea Court of Appeal’s judgment dated 4 October 2012 (Case no. T 9796-11) may be mentioned from modern case-law. The Court of Appeal considered in this case that the landlord had not proved that it was of extraordinary importance to him for the tenant to take out business and liability insurance, as prescribed by the contract between them.

The Court of Appeal considers that insurance cover is typically an obligation of extraordinary importance for the following reasons:

[…] Typically it must be of considerable importance to a property owner that the property is insured, particularly if it has been developed. Generally, the importance of this would probably increase if the property has been let to another party, as the property owner would not themselves be able, at least not in detail, to control the activity being pursued at the property. If, for instance, buildings at a property are totally destroyed, it may certainly be envisaged that the property owner/landlord may be entitled to compensation from the tenant, but such a claim must in many cases be considered to be of lower value than the right to insurance indemnity. From a general perspective, the obvious course of action is that it is of extraordinary importance to the landlord that the tenant performs their duty to insure the property when this has been agreed […]. It is clear, therefore, that the buildings represent substantial value, even from the perspective of a rather large municipality. Furthermore the land is not insignificant as land can also be damaged in such a way as would require costly remedial measures. The possibility of the municipal authority being able in the event of major damage to the property to bring a claim for damages against the tenant, a non-profit association, which may lack the necessary capacity to pay, cannot be equated with the protection afforded by property insurance. These circumstances suggest convincingly for it being, in the sense of the Land Code, of extraordinary importance to the municipal authority that the property be kept insured by the association in compliance with the agreement.

One member dissented because they considered that the property owner’s activities preceding and through the acquisition did not indicate that insurance protection was of the importance claimed in the case – this member considered that the property owner had simply not fulfilled its burden of proof.

5. Concluding comments

I have been told that becoming a neighbour of HA has sometimes been perceived as providing unprecedented security. The gang quarrels described that frustrate police in cities such as Malmö and Gothenburg are proof enough of the HA phenomenon being anything other than providing security, but only a possible illusion of such, with violence and misery lurking around the corner. Nonetheless, they are protected by our laws like everyone in Sweden. This also means, as a consequence, that it is not possible to ‘dodge the issue’ or excuse oneself by reference to what one is or represents or the activities one pursues. The Court of Appeal also concluded:

It has been indicated that the municipal authority was anxious to be rid of the association as a tenant for completely different reasons, but this does not affect this assessment. Nor does the fact that it took quite a long time before the municipal authority started to investigate the possibility of insuring the property itself.

In addition, the majority of the Court of Appeal noted that the burden of proof for the unfairness of the terms of agreement rest with the tenant and state in this respect:

The fact that the association may have made an erroneous assessment of its prospects of taking out insurance does not constitute reason, in the opinion of the Court of Appeal, to consider the terms to be unfair. Nor does the fact that the municipal authority makes use of this lack of insurance as a basis for forfeiting the tenancy.

Consequently the failure to take out comprehensive insurance for the property, pending an overruling by the Supreme Court, normally constitutes a fundamental breach of contract that constitutes exceptional reasons for forfeiture of the tenancy. This is primarily due to financial reasons, such as the preservation of a property’s economic value and thereby the avoidance of the risk of substantial financial loss for the property owner.

It is always interesting, when a legal case is involved, to look at how the evidence has been dealt with. In the present case, not only verbal hearings were adduced but also valuations to prove that the property had a value worth protecting through insurance. The burden of proof for the terms being of extraordinary importance rested with the property owner and the burden of proof was considered to be satisfied. The burden of proof for the terms of agreement being unfair rested with the tenant who failed to prove this claim.


At Zacharias Advokatbyrå we are used to representing property owners in connection with notice terminating tenancies and have longstanding experience of tenancy law and litigation.

Comments are closed.