As if winter were not cold enough, the chill wind of competition law will soon be blowing through the commercial property sector. Jonathan Cornthwaite and Malcolm Macfarlane investigate.
What is changing and why?
For some years now, the commercial property sector has enjoyed an 'off-games note' from the effects of UK competition law, as most land agreements have been excluded from competition legislation.
However, this will soon come to an end. Critics have grumbled about the illogicality of commercial property being shielded from competition law, and with effect from 6 April 2011 the exclusion will be revoked and land agreements will be brought within the ambit of the legislation, including those agreements entered into before the revocation takes effect.
What will be the effect of the change?
In a nutshell, it will mean that agreements relating to commercial property will need to be assessed under competition law in the same way as other commercial agreements. Negotiate a trade mark licence, and you already need to take competition law into account; negotiate a restrictive covenant with effect from this April and you will have to do much the same. Self-assessment will be the name of the game: the old system of applying to regulators for comfort letters will be gone. It is worth noting that agreements relating to residential land will not be affected by the change.
What types of restrictions might be affected?
The OFT has said that terms restricting the process of competition - for instance, clauses stopping competitors from using land - can be problematic. For example, a property developer who has built a shopping centre may currently guarantee to a tenant who operates a chain of pizza restaurants that no other fast food outlet will be allowed into the centre during the period of the lease in return for the payment of a higher rent. However, from 6 April 2011, such a clause might well contravene competition law.
When is an agreement anti-competitive?
An agreement is anti-competitive if it has as its object or effect the "appreciable" prevention, restriction or distortion of competition, and it does not qualify for exemption on the basis that its precompetitive benefits outweigh its anti-competitive negatives.
What are the effects of contravening competition law?
They can be very serious. A clause that contravenes competition law - and, unless it can be severed from its fellow clauses, the entire agreement - could be void and unenforceable. Third parties adversely affected by the infringement might sue for damages and/or activate a regulatory investigation. And, in a worst-case scenario, fines of up to 10% of worldwide turnover might be levied.
Does any action need to be taken in advance of the deadline?
Absolutely. Restrictive clauses in land agreements that will continue to be in effect on and after 6 April should be assessed without delay, so that if necessary they can be amended or (as a last resort) terminated prior to the deadline. So, don't be caught napping by the Government's Spring Offensive. If you haven't already started to assess your agreements for competition law compliance, it's high time to do so. We'd be delighted to help.