Are your land agreements anti-competitive?

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14 July 2010

Land Agreements will be subject to Competition Law

As anticipated, it has now been confirmed that the exemption of land agreements from certain provisions of the Competition Act 1998 will be revoked with effect from 6th April 2011. 

Action Now

The delay in withdrawing the exemption is to allow organisations time to assess existing land agreements to which they are party for compliance with competition law.

The sort of provisions which might infringe the Competition Act include:

  • tenant's covenants in a lease restricting their commercial activities - what exactly they may sell at the premises and for what price; 
  • landlord's covenants in a lease or agreement for lease not to let neighbouring premises to a competitor of the tenant; and
  • restrictive covenants in a transfer of freehold land not to sell or let neighbouring land to a competitor of a buyer, 

if the effect might be to restrict competition in goods and services in the locality.  

Agreements where the parties hold below 10 - 15% of market share are unlikely to be a problem, but the extent of the market in question may be difficult to assess, is it a particular shopping centre or the wider region?

Consequences of Breach

An agreement which infringes the Competition Act 1998 is void and unenforceable.  It may also attract a fine of up to 10% of the annual turnover and potentially expose an organisation to claims for damages by customers, suppliers or aggrieved competitors.  At the most serious end of the scale, any restriction involving price fixing or market sharing (for example, between landlords) is a "cartel offence" which carries a potential penalty of up to five years imprisonment and disqualification from acting as a company director. 

More information

If you would to discuss any particular document or agreement in the light of this change in the law, please get in touch with your normal real estate contact at Burges Salmon.  For general competition law advice please contact Marc Shrimpling in our competition law unit by emailing: marc.shrimpling@burges-salmon.com

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