After a lengthy investigation into long-term exclusive lease agreements between retail grocery anchors (such as Shoprite, Spar and Pick n Pay) and their landlords, the Competition Commission (Commission) decided not to refer the investigation to the Competition Tribunal. The Commission indicated that its investigation did not yield conclusive evidence to meet the legal hurdles in proving the anti-competitive effects of all exclusivity clauses in long-term lease agreements. Notwithstanding this, it appears that the Commission remains concerned about their potential anti-competitive effects and is intent on policing this on a case by case basis.

The Commission recently conditionally approved the acquisition by Arctozone Investments Proprietary Limited of the Lynnridge Mall. Although the transaction did not give rise to competition concerns, the Commission found that an exclusivity clause in the lease agreement between the landlord and one of the retail anchors gave rise to a potential public interest concern. As a result, the Commission approved the merger on condition that Arctozone, as the new landlord, undertake to negotiate with the anchor retailer in the utmost good faith to have the exclusivity clause removed within a stipulated time period following the Commission's decision. During its investigation, it was a common practice of the Commission to impose similar conditions in merger transactions. However, this is the first merger to be approved with such a condition since the Commission's non-referral in January 2014.

The Commission's general concerns relating to exclusivity clauses in favour of anchor retailers are that these clauses may prohibit the landlord from introducing competing grocery stores, bakeries, cafés, delicatessens, butcheries and other part-line stores into shopping centres, thus possibly increasing the barriers to entry faced by smaller independents in competing with anchor retailers. Ultimately, according to the Commission, this leads to consumers being denied the benefits of increased choice of product and price competition between retailers.

In its March 2014 newsletter, the Commission indicates that it aims to address these issues through advocacy engagements with key industry stakeholders. Its current position is as follows:

  • In the case of new property developments, parties should refrain from entering into long- term exclusive agreements by default and the use of these clauses should be justified by the anchor retailer's investment in the particular shopping centre.
  • The duration of the exclusivity granted should be related to the length of the financing agreements or the period required to recoup the initial investment that the anchor retailer makes in a particular shopping centre.

In conclusion, whilst the Commission was unable to refer for prosecution a blanket investigation against all retail exclusivity due to a lack of evidence, it remains intent on policing individual arrangements where it is of the view that any potential anti- competitive effects cannot be justified on the basis of the investment made or otherwise.