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he UK’s commercial property sector is now subject to the full rigours of UK competition law for the first time say commercial property agent prop-search.
An ‘exclusion order’ which has protected most types of commercial property agreements from competition law, will cease to have effect as from 6th April 2011.
Simon Toseland, a Director of prop-search, says: “In the past landlords and tenants were free to enter into anti-competitive arrangements. But as from today, property owners and tenants will need to take advice on whether their existing contracts are compliant or otherwise face the consequences.”
“The UK competition rules prohibit, inter alia, agreements - whether or not they are legally binding - which restrict or distort competition in the UK. The consequences for parties who enter into such agreements can be significant.”
Firstly, if an agreement is caught by the competition rules, you will not be able to rely on the restrictions in that agreement which infringe competition law. If a landlord agrees with its tenant not to grant a lease to a competitor of the tenant in the same shopping centre, the question is whether such a restriction is enforceable. If the landlord ignores what he has previously agreed and proceeds to grant a lease to a competitor, the tenant may now find it difficult to rely on this restriction because the landlord may argue - in defence - that such a restriction infringes competition law and is therefore unenforceable.
Another consequence is that any persons who are adversely affected by a restriction - such as a disgruntled competitor who is being excluded from a shopping centre - may sue the parties for damages for any loss they can establish they have suffered as a result of an illegal agreement. Those who are adversely affected also have the ability to complain to the Office of Fair Trading (OFT). The OFT has the power to carry out investigations into illegal agreements and in serious cases can impose fines on the parties of up to 10% of their total turnover.
Restrictions in property agreements will now need to be assessed to ensure that they comply with UK competition rules. The sorts of restrictions that raise potential competition law issues include covenants in a shop or office lease limiting the type of commercial activity that a tenant may undertake. Others include restrictions in a lease which limit the landlord’s freedom to let other premises or units to competitors of the tenant. Similarly restrictions accepted by an owner of land not to sell adjacent property to a competitor of the buyer may cause problems.
However, not every restriction on competition will be caught by the rules. To be caught, the restriction must have an appreciable effect on competition. Unlike property law, competition law is not concerned with the legal wording of a provision but more about its economic effect in the relevant market. Therefore if a shopping centre restriction provides that only one department store will be allowed in the shopping centre, the assessment as to whether the restriction will have an appreciable effect on competition will depend on whether the department store faces at least potential competition from other department stores. For example, there may be supermarkets outside the shopping centre which are nevertheless regarded by shoppers as a realistic alternative.
Simon Toseland concludes: “From 6 April 2011, all restrictions in land agreements will require consideration under the Competition Act. It is important to note that the revocation has retrospective effect - i.e. it will affect agreements that are entered into both before and after 6 April 2011.”
“This does not mean that all restrictions in land agreements will be automatically illegal / unenforceable. In fact, in very many cases they are likely to be perfectly legitimate. However, it does mean that going forward companies need to make sure that they consider whether land agreement restrictions could affect competition.”
Further advice/information can be obtained from Simon Toseland at prop-search - Tel: 01933 223300 or Email: st@prop-search.com