30 November 2018

Written by Becky Ellis

The Decision

On 25 October 2018 the Competition and Markets Authority (the 'CMA') announced that it had issued a decision finding that Heathrow Airport Limited (and its parent Heathrow Airport Holdings Limited) ('Heathrow') and Heathrow T5 Limited (and its parent Arora Holdings Limited) ('the Company') had infringed competition law due to clauses contained in the lease of Sofitel hotel at Terminal 5. Heathrow was fined £1.6 million after it agreed to settle the case, while the Company was granted immunity from any fine as a leniency applicant.

In 2006, the Company acquired the head lease for Sofitel hotel at Terminal 5. This contained a tenant's covenant not to charge non-resident guests of the hotel cheaper prices than those offered at other car parks at the airport. While the Company initially set its prices in line with Heathrow's short stay car parking rates following the opening of the hotel in 2008, neither company monitored the other’s car parking rates and Heathrow did not seek to enforce the pricing restriction.

Competition Law and Land Agreements

Prior to 6 April 2011 land agreements which included certain obligations and restrictions were excluded from the scope of Chapter I of the Competition Act 1998. Following the change in the law, revised guidance was published on the application of competition law to land agreements. This makes clear that while it is only expected that a minority of restrictions relating to land agreements will breach competition law, agreements are more likely to restrict competition when:

  • the parties to the agreement are competitors and the restriction regarding the use of the land is aimed at sharing or carving-up markets between those parties
  • restrictions have the effect of restricting competition by raising barriers to entry in a market where one or more of the parties possess market power

Heathrow did seek to argue that the infringement should have been considered to begin on 6 April 2011 as the restriction in question would have been excluded from the Competition Act 1998 before that date. However, the CMA made clear that the exclusion did not apply to pricing restrictions and therefore could not be used by Heathrow to reduce the length of the infringement.

Despite the clause not being enforced (and indeed being unenforceable due to the infringement of competition law), Heathrow was fined £1.6 million for the inclusion of the pricing restriction in the lease. However, this fine could have been significantly higher. The CMA has the power to fine companies up to 10% of their global group turnover and fines for breaches of competition law at EU level have sometimes been in the billions. Directors of companies in the UK that are found to have infringed competition law also risk director disqualification (see here for our article on individual liability for competition law infringements).

Action by competition authorities

While this is not the first time that land agreements have been considered under competition law, [1] this case is notable as the first time that the CMA has taken competition law enforcement action in a case involving a land agreement.

However, it is also not the first time that airport car parking has been under the review of UK competition authorities. [2] In December 2016 the Civil Aviation Authority found that East Midlands International Airport and Prestige Parking had agreed that Prestige would not sell its car parking services at the airport below a minimum price. While this restriction was contained in a concession agreement as opposed to the lease between the parties, both cases demonstrate an anti-competitive clause that was imposed on a tenant by the landlord. Although in this case compliance with the clause was actively monitored and pricing information was exchanged to enable this.

The CMA has subsequently published guidance on land agreements on its website that recommends that businesses should regularly review land agreements to make sure that they are compliant with the law. As 'by object' infringements are strict liability, it was irrelevant that the restriction on the Company was clearly historic, long standing and unenforced and this should remind businesses to ensure any land restrictions comply with current laws and don’t contain any unwelcome surprises.

How can Burges Salmon help?

Burges Salmon advised the Company on its leniency application to the CMA and throughout the ongoing investigation.

If you are concerned that you may be party to an anti-competitive land (or any other) agreement, please contact Chris Worrall or your normal Burges Salmon contact.

The full non-confidential decision for the CMA’s investigation into 'Conduct in the transport sector (facilities at airports)’ can be found online as well as further CMA guidance on land agreements for businesses.

[1] The European Court of Justice considered that anchor tenant clauses could potentially restrict competition by effect in Case-345/14 SIA ‘Maxima Latvija’ and the Central London County Court considered whether the s.9 Competition Act 1998 exemption would apply to a user clause in Martin v Crawley BC.

[2] There are also a number of cases against airport providers by private parties relating to access to car parking facilities under Chapter II of the Competition Act 1998 that have been considered by the courts, such as Purple Parking Ltd and Another v Heathrow Airport Ltd.

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