With effect from 6 April 2011, property transactions are subject to the prohibition on anti-competitive agreements in Chapter I of the Competition Act 1998. The Office of Fair Trading has issued revised guidance explaining how the prohibition will apply.
Until now, “land agreements” have been excluded from the Chapter I prohibition. The revocation of that exclusion brings all commercial property transactions within the ambit of Chapter I with effect from 6 April 2011, including those entered into before that date. Our DechertOnPoint titled “The Competition Act and Property Transactions”, which was published last October, explains the effect of this change.
The OFT has now published revised guidance titled “Land Agreements: The application of competition law following the revocation of the Land Agreements Exclusion Order”. The following points from the revised guidance are particularly worth noting:
- The OFT is unlikely to take action if none of the parties has more than 30 per cent of the relevant market. Market share is usually calculated by value of sales, but in retail markets the OFT may instead look for at least four independent fascias in the relevant market. The threshold will not apply where competitors are sharing markets, which the guidance says is very likely to be a serious infringement of the prohibition. It may also not apply in other exceptional cases, such as a long term exclusivity arrangement which has significant negative effects on competition.
- Restricting tenant use to achieve a certain retail mix and ensure the attractiveness of a shopping centre to consumers, or grouping certain types of retailer within a particular “zone” to ensure a logical layout, are “generally unlikely to raise competition concerns”. However, a reciprocal restriction, for example preventing the sale of certain products by any other tenant in the centre, may appreciably restrict competition.
- A covenant restricting activities on adjacent property which could interfere with the enjoyment of the land is generally unlikely appreciably to restrict competition.
- The prohibition does not apply to planning obligations in s.106 agreements.
- Where the other party to an infringing restriction is not willing to release it, the guidance confirms that using best endeavours to amend or remove it (and, where relevant, remove it from the land register) and not seeking to enforce it, may be considered a mitigating factor.
The revised guidance also gives some useful additional worked examples, including the following:
- A covenant imposed on the sale of part of a development site, restricting what can be built, to ensure that the remainder of the site can be developed without breaching a planning condition. This is unlikely to infringe the prohibition as, without it, the owners would not know how the planning permission would apply to each part of the site and they would not have entered into the agreement.
- A development agreement in which the developer agrees to provide affordable student accommodation and the university agrees not to allow other accommodation to be built on its land unless a demand test is satisfied. This could restrict competition but the effect may not be appreciable if there is plenty of other accommodation available in the town. Even if there is not, exemption may apply because the agreement facilitates the development, the benefit of new affordable accommodation is passed to consumers and the demand test should ensure that the restriction is no greater than necessary.