The UK Office of Fair Trading (OFT) has published for public comment its anticipated guidelines for the assessment of the competitive effect of restrictions in land agreements under the UK Competition Act (the Act).
The Act prohibits agreements that prevent, restrict or distort competition in the UK. Currently, land agreements – such as freehold, leasehold and rental agreements – are exempt from the prohibition. But that is about to change. With effect from 6 April 2011, land agreements will be fully subject to competition law in the UK. In our prior alert, we outlined the change that is going to happen, the effect of the change, the types of agreement that are likely to be infringing, and how the risk of infringement may be mitigated.
The OFT now has published guidelines that are intended to help companies respond to this change in the law. The guidelines have been published in draft, before they are finalized, and the OFT is inviting interested companies to comment on them before 14 January 2011.
What the draft guidelines say
The draft guidelines begin by saying that there is no presumption that a restriction in a land agreement constitutes an infringement of competition law. The draft notes that the types of restriction most likely to impact competition are those imposed by parties with market power, which keep other companies out of the market or which aim to make it more difficult for other businesses to compete. In assessing whether a party has market power, the government may consider the "market for land" and also any "related retail market." Furthermore, regardless of any agreement, certain unilateral conduct by a dominant landlord can amount to an abuse of his dominant position on "the market for land" or "any related retail market." Abusive conduct would include "charging of excessive prices for land, unjustified discrimination between tenants, fixing the resale prices of the occupants of the land, or limiting access to a so-called essential facility." In addition, the draft guidelines contain some working examples of the type of agreements the OFT would likely find anticompetitive:
- a leasehold covenant that the landlord will not allow any of the tenant’s competitors (such as other department stores) in a new shopping centre for the period of the lease or any additional period that it may be extended
- a leasehold covenant that the tenant (a coffee shop) will pay a higher rent to the landlord (shopping centre owner) for the guarantee that the landlord will not allow any other coffee shops in the shopping centre
- restrictive covenants in the sale of the land preventing any future owner of the land from using it for the sale of competing goods or services.
OFT consultation on the draft guidelines
The OFT has announced it would particularly welcome feedback on the following:
- Are the guidelines sufficiently clear to assist companies in understanding how competition law applies to land agreements in the UK? Is the format easy to follow? If not, what improvements could be made?
- Do the working examples help companies understand the application of competition law? If not, how might they be improved?
- Are there any specific areas in the scope of the draft guidelines where further guidance or examples would be useful?
In the ordinary course, the OFT is very receptive to feedback when it goes out for consultation. Companies therefore are to be encouraged to respond to the consultation by sharing any views they may have with the OFT. The OFT aims to publish final guidelines in Spring 2011.