New clarification from the Supreme Court: It is sufficient to state the estimated time for the grant of a tenant-owner’s right as a time interval to meet the formal requirements for preliminary agreements on the grant of a tenant-owner’s right.

14 Apr 2021

Through a preliminary agreement, a tenant-owner’s association can enter into an agreement to grant a tenant-owner’s right to an apartment in the future. The preliminary agreement means that the association is obliged to grant the tenant-owner’s right to the apartment to the person who has signed up for the apartment, while the preliminary subscriber, on the other hand, is obliged to acquire the tenant-owner’s right to the apartment.

Preliminary agreements are regulated in the Tenant-Owner’s Rights Act, which sets out certain formal requirements for preliminary agreements. A preliminary agreement that violates these formal requirements is invalid. One of these formal requirements is that the preliminary agreement must state an estimated time for the grant. This formal requirement has previously been subject to review with varying outcomes in the courts. The Supreme Court has now issued a clarifying judgment on what applies.

Background

In September 2017, two individuals signed a preliminary agreement with a tenant-owner’s association for the grant of a tenant-owner’s right to an apartment. The preliminary subscribers paid an advance of SEK 80,000 to the association. The preliminary agreement stated the preliminary time for the grant of the tenant-owner’s right as “from Q2, 2019 to Q3, 2019”, while preliminary occupancy was to take place “from Q4, 2019 to Q1, 2020”.

In the spring of 2018, the preliminary subscribers filed a lawsuit against the tenant-owner’s association, demanding that the court order the association to repay the advance to the preliminary subscribers. The preliminary subscribers argued that the preliminary agreement was not valid because the estimated time for the grant did not meet the applicable formal requirements. The tenant-owner’s association disputed the claim.

The issue before the Supreme Court

The issue before the Supreme Court was whether the preliminary agreement was invalid on the grounds that it did not meet the formal requirements of the Tenant-Owner’s Rights Act regarding how the estimated time for the grant should be stated, according to Chapter 5, Sections 3 and 4 of the Tenant-Owner’s Rights Act (1991:614).

The Supreme Court’s reasoning

The Supreme Court noted that the preparatory works for the Tenant-Owner’s Rights Act do not discuss what is more precisely meant by the expression that the preliminary agreement shall state an estimated time for the grant, but that the choice of words primarily indicates that the legislator intended something instantaneous, rather than a period extended in time. Furthermore, it was noted that formal requirements in various contractual areas have been examined in legal practice, and the courts have exercised some caution in declaring agreements invalid.

According to the Supreme Court, both the context in which the terms of the preliminary agreement appear and the purpose of the formal requirement must be considered when assessing whether the term meets the legal formal requirements. The purpose of the formal requirement that the preliminary agreement shall state an estimated time for the grant is related to the fact that the stated time is significant for the preliminary subscriber’s ability to terminate the agreement. In the event of the tenant-owner’s association’s delay in the grant, the preliminary subscriber may, after termination, immediately withdraw from the agreement if the grant does not occur within a reasonable time after the estimated time for the grant due to the association’s negligence (see Chapter 5, Section 8 of the Tenant-Owner’s Rights Act).

The Supreme Court emphasized that practical inconveniences may arise if the estimated time for the grant is stated as a longer interval, for example, if the preliminary subscriber needs to sell their existing home before the grant. Depending on the circumstances, the term could thus be considered unreasonable and adjusted according to Section 36 of the Contracts Act (1915:218).

However, the court found that a term stating that the estimated time for the grant will occur within an interval should not result in the agreement becoming invalid according to Chapter 5, Section 4 of the Tenant-Owner’s Rights Act.

Conclusion

When assessing whether the preliminary subscriber has the right to withdraw from the preliminary agreement due to delay, the starting point should be the time that concludes the stated interval, and thereby the purpose of the formal requirement specified by the legislator can be maintained.

In the current case, the preliminary time for the grant was stated as a time interval comprising two quarters, with the end point at the end of Q3 2019.

According to the Supreme Court, the specified time period provided sufficiently clear information about the time of the grant. The preliminary agreement thus met the formal requirements of the Tenant-Owner’s Rights Act. The preliminary subscribers were therefore bound by the agreement and were not entitled to a refund of the advance from the tenant-owner’s association.

The Supreme Court’s judgment clarifies that a time interval comprising two quarters is sufficient to meet the formal requirements of the Tenant-Owner’s Rights Act and creates greater predictability for both the preliminary subscriber and the tenant-owner’s association. At Carler, we have specialist expertise in property law and experience assisting both preliminary subscribers and tenant-owner’s associations. Please contact us if you would like to know more about this or how to proceed in your specific situation.