Following a consultation by the Department for Business, Innovation and Skills (BIS), the Government has decided to revoke the Land Agreements Exclusion Order (the exclusion order) from 6 April 2011. From that date, companies will have to self-assess land agreements to ensure they comply with UK competition law requirements as is necessary for other types of agreement. In order to assist businesses to achieve the necessary legal certainty, the OFT is expected to publish some high-level, principles-based guidance on the application of the competition rules to land agreements. The Government's decision will be of particular interest to supermarkets, property companies and businesses that are party to several land agreements.
The Government is aware that revoking the order is likely to affect the commercial balance in some existing agreements and could impact on investments based on exclusivity arrangements, but points out that such investments are in any case not absolutely protected. The exclusion order does not have any impact on the application of EU competition law on anti-competitive agreements (Article 101 TFEU, formerly Article 81 EC Treaty) and this has already to be considered where a land agreement might have an effect on trade between Member States. Also, the OFT has always had the power to withdraw the benefit of the exclusion from any agreement found to restrict competition.
The Exclusion Order
The exclusion order was originally adopted at the time the Competition Act 1998 came into force, on the basis that land agreements had previously not been subject to the UK competition rules, and the Government was concerned that uncertainty as to the application of the Chapter I prohibition would lead to unnecessary notifications to the OFT of agreements and uncertainty in the property sector. It was also considered that whilst land agreements may impose restrictions, the vast majority were not likely to appreciably restrict, distort or prevent competition in the UK.
The Land Agreements Exclusion Order excludes land agreements from the application of the Chapter I prohibition of the Competition Act 1998. A land agreement is defined in the exclusion order as an agreement between undertakings which creates, alters, transfers or terminates an interest in land, together with certain obligations and restrictions which are to be treated as part of the agreement.
The OFT has always had the power to withdraw the benefit of this exclusion for any land agreements that were found to be significantly anti-competitive.
Reasons for the repeal
Circumstances have changed since the need for an exclusion order was originally identified at the time the Competition Act 1998 was introduced. Since the modernisation of competition law in 2004, companies have not been able to notify their agreements and seek clearance from the OFT, which addresses the original concern that the OFT would be flooded by precautionary applications. In addition, the Government is keen to ensure that competition law applies uniformly to all aspects of the economy, as such an approach will ultimately benefit consumers. It is concerned that the exclusion may promote the misconception that no agreement relating to land can ever give rise to competition law concerns.
In its report on the supply of groceries in the UK (April 2008), the Competition Commission had recommended that the Government should at least amend the exclusion order so that it no longer applies to land agreements which feature exclusivity arrangements and which restrict grocery retailing. The CC had concluded that, in highly concentrated local markets, exclusivity arrangements which restrict grocery retailing are capable of having an adverse effect on competition by serving as a barrier to new parties entering the market and to existing parties expanding their businesses. The CC also stated that the exclusion order appeared to be something of an anomaly in the current competition regime and suggested there may be merit in revoking the order in its entirety.
On the basis of the CC concerns and the response to its consultation, the Government has decided that there is no justification for retaining the exclusion order. In order to give businesses sufficient time to undertake the necessary assessment of their agreements to ensure their compatibility with the Chapter I prohibition, revocation of the exclusion order will only come into force in April 2011.