In June 2010, the Government amended competition law by introducing a statutory instrument, The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010.
This came into force on 6 April 2011 and as a result, all commercial property agreements will now have to comply with competition law and will no longer enjoy the benefit of any exclusion which was previously afforded to some agreements. Crucially, the new legislation applies to all property agreements, whether they were entered into before 6 April 2011 or not and therefore applies retrospectively to pre-existing contracts.
The Government's decision will be of particular interest to food and non-food retailers, property companies and businesses that are party to several land agreements as the law could impact on restrictions on trading activity contained in property agreements. If a restriction on competition within an existing agreement is deemed unenforceable in light of the new legislation this may render the entire agreement void and thus have a dramatic impact on the value of the property concerned. It is therefore important to ensure that severance provisions are included in any new contract allowing the contract to continue, notwithstanding the existence of the void provision.
Does the new legislation affect all restrictions in property agreements?
Some examples of the types of restrictions contained in property agreements which are most likely to be affected are as follows:
terms within a lease which limit the type of commercial activity which the tenant may undertake, particularly if this is intended to protect the landlord or other tenants from competition, e.g. restrictions on assignment to protect a tenant mix policy in a shopping centre
provisions within a lease limiting the landlord’s freedom to let other premises within a specific area to the tenant’s competitors
lease covenants requiring the tenant to obtain certain goods or services exclusively from one supplier
restrictions on the seller in an agreement preventing the sale of adjacent property to a competitor of the buyer
freehold covenants restricting use after a sale, e.g. sale of a pub by a pub chain accompanied by a covenant preventing the future use as such
The Office of Fair Trading has issued guidance (available here) to help assess whether land agreements are compatible with competition law. Here you can find worked examples of the types of provision which may be affected.
Not all restrictions on competition will fall foul of the new legislation. In order for a restriction to be deemed an infringement of competition law it must have an ‘appreciable’ impact on competition. In assessing whether a restriction is ’appreciable’ the Office of Fair Trading will look at the aggregate market share of the parties involved. It is therefore important to consider whether or not parties to an agreement are competitors in the market place and whether the agreement restricts the ability of those competitors to behave independently in that market place. The guidance indicates that the OFT is unlikely to take action in cases where none of the parties has a more than 30% share of the market in which the land is being used.
It is important that businesses do not overlook the potential impact of this new legislation as the consequences of entering into an anti-competitive land agreement are potentially costly. Your business may face enforcement action by the OFT, the European Commission or the sector regulator who could impose fines of up to 10 per cent of your annual worldwide turnover and direct you to take steps to bring the infringement to an end.
How we can help
A new approach must be adopted when entering into land agreements that contain anti-competitive provisions. It is also wise to take the opportunity to review existing property agreements which may be affected by the new legislation in order to ensure that they do not fall foul of competition law requirements. If you would like to review an existing land agreement or for more information or advice on The Competition Act 1998, please contact David Slade on 01926 880757.
