Some four years ago, the Competition Act 1988 (Land Agreements Exclusion Revocation Order) 2010 (the Order) came into effect, repealing the special exclusion relating to the application of the Chapter 1 prohibition of the Competition Act 1988 (the ‘Competition Act’) to land agreements.
Agreed, it’s a bit of a mouthful but the consequences of the Order for land agreements are significant. Since April 2011 any land agreement which may affect trade within the UK and has as its object or effect the prevention, restriction or distortion of competition within the UK will be void and unenforceable.
In the past, supermarket operators commonly used land agreements to restrict how land could be used or how a right over land could be exercised. Typically, such operators employed restrictive covenants on the transfer of freehold land as a means of limiting the availability of prime land for competitors to develop completing stores. It’s a nice trick but getting away with it is clearly not going to be quite so easy now.
Recent media reports confirm that certain operators have not been complying with the Order. Development sites sold in 2005 are still affected by restrictive covenants preventing them from being used as competing supermarket sites. The Competition Act clearly states that non-compliance with the Order can result in the transgressor facing civil proceedings and a fine of up to 10% of their worldwide turnover for the previous year. There’s definitely an argument for compliance in there somewhere.
Generally speaking, restrictive covenants or leasehold use restrictions are unlikely to restrict competition. However, the latest news stories do serve as a timely reminder that if a landowner intends to use these sorts of means to limit the availability of its land to downstream competitors then they must consider if this is going to put them on the wrong side of applicable competition laws.
If you have any concerns over the effect of a restrictive covenant or the permitted user provisions in a lease from a competition law perspective please email email@example.com for more information.
This post was edited by Chris Adams.