Well advised property investors and developers will be aware of the interplay between competition law and land agreements and will note with interest the recent case of Tesco v. High Peak. In this case competition law was invoked to challenge the enforceability of a restrictive covenant in an agreement preventing the developer from letting its retained land to Tesco's competitors. Whilst the case settled before trial, it still illustrated the potential for competition law to open up a new avenue of disputes which could work to the advantage of those in the know.
Since 6 April 2011, the provisions of UK competition law that prohibit agreements which prevent, restrict or distort competition have applied in full to property-related transactions. Prior to that date, land agreements had been excluded from UK competition law by Statutory Instrument (the Land Agreements Exclusion and Revocation Order 2004).
Shortly before this Order lapsed, the Office of Fair Trading (now superseded by the Competition and Markets Authority or CMA) issued guidance on the application of competition law to common restrictions in land agreements. However, as a practical tool for the property sector, that guidance is somewhat limited. It was hoped therefore that case law, through either enforcement activity by the CMA or litigation in the courts, would fill this void. Unfortunately, to date, there has been precious little to go on, other than the Martin Retail Group case (Martin Retail Group Ltd v, Crawley BC), in which a user restriction operating on a tenant in a parade of shops was declared unlawful in being contrary to competition law. When it came to court, Crawley Borough Council effectively admitted the clause adversely impacted competition, in effect leaving the council with only very narrow grounds on which to convince the judge that the user restriction was anything other than unlawful.
Hopes for some judicial guidance on this issue were again frustrated last week following the announcement that Tesco had settled a competition law claim brought against it by High Peak Developments. The claim concerned a restrictive covenant inserted into a 1997 agreement between the parties which forbade High Peak from using any retained land on its development at a site in Whaley Bridge, Derbyshire for the sale of food, convenience goods or pharmacy products (i.e. to ensure no other retailer on the site would compete directly with Tesco).
High Peak issued proceedings at the High Court seeking a declaration that the covenant was in breach of competition law, but also lodged a separate claim for damages at the Competition Appeal Tribunal (CAT), a specialist body set up to hear competition law-related matters. Of itself, this is significant, as it was only the second claim to be brought using the CAT’s new “fast track” process, introduced in October 2015 primarily to allow SMEs’ competition law-based actions to be heard on an expedited (and therefore less costly) basis.
At issue in cases such as this one, where a clause is being challenged on competition law grounds, is whether or not competition is affected to an “appreciable extent” and, if so, the extent to which the restriction contains countervailing benefits that outweigh any negative impact on competition. This in turn requires an assessment of the strength of competition in the relevant market(s) affected by the agreement.
Faced with the possibility of having to debate these issues before the High Court and the CAT, Tesco ultimately decided it would be better off settling with High Peak. Nevertheless, given that clauses that breach the competition law rules are void and unenforceable (potentially also calling into question the enforceability of the remainder of the agreement of which they are part), the case is a useful reminder of the need to take the competition law rules into account when negotiating land agreements. Moreover, it demonstrates how competition law can be used as a sword as much as a shield in dealings with one’s counterparties and that it is sensible to be alive to the impact of these rules on existing, as much as newly entered, agreements.