The Supreme Court clarifies

When a contract stipulates that claims must be made within a certain time frame—but does not specify what happens if the deadline is missed—the question arises as to whether the provision has a right-extinguishing effect. The Supreme Court addressed this issue on April 24, 2025, in a case between a housing cooperative and a property manager.

Background

In 2014, a housing cooperative ("the Cooperative") entered into an agreement for financial and administrative management with a property manager ("the Manager"), which referred to the standard contract ABFF 04. Between 2015 and 2017, the Cooperative was subjected to extensive financial crime, including payments made from the Cooperative to non-existent companies. The Cooperative filed a lawsuit against the Manager, claiming damages of 55 million SEK. The Cooperative alleged that the Manager had breached its duty of care and loyalty and acted grossly negligently by executing incorrect payments. The Manager contested the claim, arguing, among other things, that the Cooperative had lost the right to compensation by failing to present its claim in time according to the management agreement.

Clause 31 of the management agreement—based on the standard contract ABFF 04—stipulates that claims for contractual remedies must be made within three months from the discovery of the damage. However, no explicit legal consequence is stated if the claim is not made within the deadline.

The Supreme Court granted leave to appeal on the question of whether the said clause in the management agreement implied that the Cooperative, in order not to lose the right to compensation, had to submit its claim in writing within the three-month period specified in the clause. The question of leave to appeal in the rest of the case was put on hold.

Supreme Court's Assessment

The Supreme Court noted that there is reason to be cautious about interpreting a right-extinguishing legal consequence in standard contracts that require claims to be made within a certain time but do not specify any consequence if the deadline is not met. According to the Supreme Court, the starting point should instead be that the right to make claims is not lost due to the claim not being made within the deadline unless there are clear indications for another interpretation. The Supreme Court further emphasized that the purpose of a contractual provision where no legal consequence is apparent may be that a party must not remain passive but must react within the time frame agreed upon by the parties, and that failure to act instead has consequences in the choice of applicable remedy or in determining the amount of damages.

The Supreme Court found that there were not sufficiently clear indications that the parties had agreed on a right-extinguishing consequence linked to the time limit, and thus clause 31 could not be considered to lead to a loss of the right to compensation for the Cooperative, despite the fact that no claim was made within the prescribed three months.

One justice dissented, emphasizing that if the contractual relationship is such that a party, in the absence of contractual regulation, is obliged to notify within a reasonable time to retain the right to claim damages for deficiencies in the counterparty's performance, it is reasonable to consider that the agreed time is also the time within which notification should reasonably be made. Against this background, the specified three-month period in clause 31 should be understood as a specification of what is a reasonable time, and that the Cooperative thus had to present its claim within the deadline to not forfeit the right to compensation.

Conclusions

The decision underscores the importance of specifying explicit and clear legal consequences in contracts if a time limit is to be right-extinguishing. In the absence of such regulation, the provision should, according to the Supreme Court, be understood as an obligation to act rather than as a prescription rule.

For parties using standard contracts, such as ABFF 04, it is particularly important to clearly regulate the legal effect that should occur if a notification deadline is not observed. This also applies to contracts not based on standard agreements but where the parties introduce deadlines for making claims. If the parties' intention is for a certain right to be extinguished if notification is not made in due time, it is recommended that this be explicitly stated in the contract.