At the beginning of October the UK’s Competition Commission (CC) recommended to Government that introduces as “competition test” in planning decisions for large grocery stores. This follows on from the CC’s 2008 supermarkets’ investigation where it found that the planning regime helped larger supermarkets restrict competition in local markets. Whether or not the Government takes up the recommendation remains to be seen, however the CC’s investigation has also brought all land agreements under the competition law spotlight.

The Government is currently consulting on whether land agreements generally should continue to be exempt from competition law. At the time the exemption was introduced it was thought that the majority of land agreements would not have a negative impact on competition in markets. However the CC’s supermarkets’ investigation highlighted that provisions in land agreements could impact on competition. If the exemption is removed, landlords and tenants would have to review carefully provisions that we currently think of as quite usual to ensure they do not breach competition law.

This posting considers what effect a removal of the exemption would have on landlords and tenants?

It is quite usual for tenants who are taking on big commitments in terms of fitting out costs and lease rents and term, to require a covenant from their landlord not to let to a competitor. With the existence of the Land Agreements Exclusion and Revocation Order 2004 it has been assumed that such provisions are exempted by competition rules. What the supermarkets’ investigation showed was that these types of provision could be anti-competitive, depending on the relevant market. If the exemption is formally removed, land agreements will have to be assessed to ensure compliance with the Competition Act 1998. Consequently parties to quite usual pre-let agreements would have to assess whether or not their agreement was going to restrict competition, check their market share and know whether their market is affected by similar agreements.

The Government’s preferred option is to repeal the exemption and expose land agreements to the full effect of competition law. While many pre-let agreements would not have a significant impact on competition, in some markets they could have anti-competitive effects. If the exemption is removed, potential anti competitive effects will need to be taken into account when drafting such agreements. Similarly if the exemption goes, existing agreements will become vulnerable to challenge if they contain anti-competitive provisions that could have an effect in their particular markets. Some clients might want to review any vulnerable agreements now to try to maximise the chances of re-negotiating agreements before the law changes.

If the exemption is repealed the Office of Fair Trade will be required to produce guidance on how land agreements should be assessed under competition law. This Guidance would aim to help businesses assess whether or not their agreements were anti-competitive.

The consultation deadline is 4 November and it remains to be seen whether there is support for the Government’s preferred option. However given that it comes on the back of the CC’s in-depth investigation of the supermarkets and the planning process, it seems likely that the proposal will go ahead.

Anyone wanting to read the consultation in full can link to it here and anyone wanting to reply to the consultation should note that the deadline is 4 November 2009.