In the September 2010 edition of Hot Property, we reported that from 6 April 2011 all existing and future land agreements will be subject to the full force of competition law following revocation of the previous statutory exclusion. It is conceivable that this could render unenforceable a range of agreements including certain types of user and alienation covenants in leases, tenant mix restrictions and freehold restrictive covenants, to name but a few. On 15 October 2010, the OFT published draft guidance on the new changes for public consultation. We comment here on the draft guidance.

The draft guidance states that there is no presumption that a restriction in a land agreement is anti-competitive. The prohibition in Chapter I of the Competition Act 1998 is only against agreements that prevent, restrict or distort competition to an appreciable extent. If this is not the case, the agreement is not prohibited. Any provision which is anti-competitive will be void and unenforceable unless it benefits from an exemption. Enforcement action may be taken by the Office of Fair Trading (OFT), the European Commission or a sectorial regulator. The parties to the agreement could also face a private action by a third party.

The prohibition in Chapter I of the Competition Act 1998 applies only to agreements between undertakings or businesses and does not apply to individuals. Accordingly agreements with an individual and those concerning residential property are not affected.

Chapter 4 of the draft guidance provides technical guidance on the definition of a market.

Chapter 5 of the draft guidance deals with assessing the impact of land agreements on competition. The OFT expects that only a minimum of restrictions on the use of land will be anti-competitive. If one sets aside certain “hardcore” restrictions (for instance, fixing prices or allocating customers) the draft guidance sets out various thresholds relating to the parties’ share of the applicable market, below which any restriction will not be deemed to appreciably restrict competition.

Agreements which exceed the applicable threshold are not automatically anti-competitive but should be assessed on an individual basis. The key factors for such assessment relate to the nature of the restriction, the relationship between the parties, market power, barriers to entry and availability of suitable land and the cumulative impact of multiple agreements.

Chapter 6 gives guidance on the application of the exemption criteria. For an agreement to be exempt, four cumulative criteria must be satisfied including that the agreement must contribute to improving production or distribution or to promoting technical or economic progress, and that the agreement must not impose restrictions beyond those necessary to achieve those objectives.

The draft guidance underlines the fact that land agreements will have to be “self assessed” for compliance by including some analysed examples and annexing a self-assessment flow chart.  

Whilst the draft guidance is helpful (particularly the analysed examples and flow chart), it remains the case that the full impact of the revocation will not be clarified until the courts have the opportunity to interpret the application of competition law to land agreements.