The Competition Act and land agreements
THE COMPETITION ACT AND LAND AGREEMENTS
The crime
The Competition Act 1988 prohibits agreements which:
- may affect trade in the UK, and
- have as their object the prevention, restriction or distortion of competition within the UK.
Until recently land agreements had not been seen as capable of having an anti-competitive effect and received the benefit of a specific exemption to the prohibition. However, following a review of the groceries market in the UK, the Competition Commission found that the major supermarkets were “land banking” to prevent the development of competing stores around their premises. As a result the Commission recommended a change to the law and on 6 April 2011 the exception for land agreements will be withdrawn. Importantly, as at that date, Competition Act will apply not only to all new land agreements but also to all agreements already in existence.
Examples of the types of agreements most at a risk include:
- Exclusivity clauses in leases
- Use restrictions in leases
- Title conditions limiting use of the property.
The definition of “agreement” in the Competition Act is interpreted very widely and can cover written or oral agreements and even situations where there is merely a “gentleman’s agreement”. Consequently, agreements documented in leases, subleases, assignations, dispositions, missives and deeds of conditions will all be caught. However, planning obligations will continue to benefit from specific exclusion from the Competition Act and are not covered.
The penalties
Provisions which contravene the prohibition will be void. In some cases this will render individual clauses unenforceable and in others (where the clauses are not severable from the rest of the agreement) the entire agreement will be void. The Office of Fair Trading may also impose a fine of up to 10% of a firm’s worldwide turnover for infringements and even apply for disqualification orders against directors in certain circumstances.
The defences
Many land agreements which would otherwise be liable to enforcement action will be covered by one of the two main exceptions:
1 That the restriction does not have an appreciable effect on trade
Agreements will not be subject to competition law where they do not have an “appreciable” impact on competition. In deciding whether the effect of an agreement is appreciable the OFT will apply de minimus criteria originating in European Commission guidance- i.e. the agreements will not be deemed to have an appreciable effect on trade if:
- The aggregate market share of either of the parties to the agreement does not exceed 10% on any of the relevant markets affected by the agreement where the agreement is between competing undertakings.
- The market share of each of the parties to the agreement does not exceed 15% of any of the relevant markets affected by the agreement where the agreement is between non competing undertakings.
Neither of these criteria apply where the agreement contains a restriction deemed by the European Commission to be “hardcore” (for example agreements to fix prices or allocate customers). Agreements in which these thresholds are breached will not necessarily be unlawful but will be considered on a case by case basis.
