In the February 2011 edition of Hot Property, we reported on the draft guidance published by the OFT on the application of UK competition law to property agreements following the recent revocation of the Land Agreements Exclusion Order. On 24 March 2011, the OFT published its final guidance.
In summary, from 6 April 2011, the chapter 1 prohibition of the Competition Act 1998 against agreements which restrict competition now applies to agreements “relating to land”, for instance transfers, leases, licences, agreements for lease and development agreements, although not section 106 agreements.
The consequences of breaching the prohibition include not only the anti-competitive restriction being rendered void and unenforceable but also the possibility of a fine or actions for damages.
The guidance published on 24 March 2011 expands on the draft guidance published for consultation in October 2010. Helpfully, the guidance makes clear that the OFT is working on the basis that only a small proportion of property agreements are likely to fall foul of the prohibition. The OFT goes further and says that, as a matter of policy, it does not expect to take any action in cases where none of the parties to a potentially offending agreement has more than a 30% share in the relevant market. That statement is, however, subject to the proviso that it will not apply in cases where the agreement is designed to share markets between competitors.
The guidance is of course just that - a non-binding guide to the OFT’s current thinking. That said, the guidance does provide a summary of the relevant principles and attempts to explain the kind of restrictions that are likely to be considered anti-competitive, for instance restrictions designed to protect a business from competition or prevent or restrict the activities of competitors.
Most helpful of all, the guidance gives examples of agreements which are not likely to restrict competition, as well as giving specific examples of permitted agreements. For instance, restrictions on neighbouring properties linked to the enjoyment of a property are likely to be acceptable as is the example of a developer granting a lease to an anchor tenant of a shopping centre with exclusivity if that actually facilitates the building of the shopping centre.
The guidance also goes on to give examples of what the OFT considers would be anti-competitive agreements, for instance the developer of a shopping centre who grants exclusivity to the lessee of a coffee shop, even though the centre would clearly support more than one coffee shop.
It should always be borne in mind that the prohibition applies to agreements between “undertakings” to carry out commercial activities, namely companies, partnerships and sole traders. Accordingly, agreements entered into by individuals are not caught so long as the individual is not acting as a “business”. This in turn means that dealings in residential property are unlikely to be caught.
The guidance is an important aid to understanding how the OFT intends to deal with the application of competition law to land agreements. It should be noted, however, that the onus is on the individual parties to an agreement to determine on a “self-assessment” basis whether the terms of an agreement between them might be regarded as anti-competitive. Since this assessment will depend on an analysis of the extent of relevant markets and the potential effect on competition in those markets, as well as an understanding of the various exemptions, it is of course important to take advice at an early stage.