On 26 November 2015, the Court of Justice of the European Union ("CJEU"), ruled that a clause in a commercial lease agreement between a shopping centre lessor and an anchor tenant granting that anchor tenant the right to oppose the letting of commercial premises in that centre to other tenants, will not automatically infringe EU competition law.

In response to an Article 267 TFEU referral from the Latvian Supreme Court, the CJEU decided that Article 101(1) TFEU does not mean that such a clause has the object of restricting competition. Instead, it will be necessary, on the basis of detailed consideration of the "legal and economic context", to assess whether the clause will have the effect of restricting competition by foreclosing the market to competitors.

The CJEU also considered the conditions under which commercial lease agreements in combination may have the effect of restricting competition. This will be the case if those agreements make an appreciable contribution to foreclosing the market. The extent of the contribution of each agreement to that "closing-off effect" depends, in particular, on the position of the contracting parties on that market and the duration of that agreement. 

1. Background

The Latvian competition authority fined Maxima Latvija (Maxima), an operator of large shops and hypermarkets, after finding that 12 of its commercial lease agreements with shopping centres in Latvia (out of 119 agreements analysed) contained a clause granting Maxima the right to oppose the letting of commercial premises in that centre to other tenants. The Latvian competition authority concluded that the commercial lease agreements in question restricted competition "by object", without it being necessary to demonstrate that the agreements in practice rendered the entry of a particular operator onto the market difficult.

The Latvian Regional Administrative Court dismissed Maxima's appeal against the competition authority's decision. Maxima appealed that decision to the Latvian Supreme Court, which in turn referred a series of questions to the CJEU. Despite the agreements not being of a kind that could affect trade between EU Member States, the referring court was of the view that the relevant Latvian law was in essence similar to Article 101(1) TFEU and should be applied in accordance with EU law. 

2. Key points in the judgment

The CJEU referred to the essential legal criterion for ascertaining whether an agreement involves a restriction of competition by object: the finding that such an agreement reveals in itself a sufficient degree of harm to competition for it not to be necessary to assess its effects. The Court held that even if the clause at issue could potentially have the effect of restricting the access of Maxima's competitors to some shopping centres, that fact alone would not imply clearly that the clause will prevent, restrict or distort competition on the relevant market. In practice, this means that such restrictive clauses will not be presumed to infringe competition law, but a competition authority or private litigant will need to demonstrate that the particular restriction in the particular legal and market context may have the effect of restricting competition. 

3. Business impact in the UK

Until 2011, the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 exempted land agreements in the UK from the application of Article 101 TFEU. Since the repeal of that exemption order in 2011 there have not been many cases applying Article 101 TFEU to land agreements. This ruling therefore provides a useful insight into how national courts and competition authorities will approach this type of restriction in commercial leases in a way that will provide a degree of comfort to commercial landlords and tenants.

Of course leasehold agreements containing such clauses may be still be unenforceable if they are found to restrict competition by effect. The CJEU held that in the case of Maxima, the assessment of the impact of the agreements on competition must take account, in the first place, of all the factors which determine whether, in the catchment areas where the shopping centres concerned are located, there are real concrete possibilities for a new competitor to establish itself, including through the occupation of commercial premises in other shopping centres located in those areas or by occupying other commercial premises located outside the shopping centres. The CJEU held that it was appropriate in particular to take into consideration the availability and accessibility of commercial land in the catchment areas concerned and the existence of economic, administrative or regulatory barriers to entry of new competitors in those areas. The Court further held that the conditions under which competitive forces operate on the relevant market must be assessed. It is necessary to know not only the number and size of operators on the market, but also the degree of market concentration, customer fidelity to existing brands and consumer habits in order to assess anti-competitive effect.

The CJEU held that it is only if, after a thorough analysis of the context of the agreements and the specificities of the relevant market, it is found that access to that market is made difficult by all the similar agreements on the market, that it will then be necessary to analyse to what extent the agreements contribute to any closing-off of that market (on the basis that only agreements which make an appreciable contribution to that closing-off are prohibited). The extent of the contribution of each agreement to the cumulative closing-off effect depends, in particular, on the position of the contracting parties on that market and the duration of that agreement.