Since 6 April 2011, land agreements including leases and transfers have been subject to the anticompetition prohibition contained within Chapter 1 of the Competition Act 1998. In essence, this means that agreements will infringe the Competition Act if their object or effect is the prevention, distortion or restriction of competition.
The impact on competition and trade within the UK is likely to be appreciable. The prohibition includes agreements concluded before 6 April 2011 but only applies if all parties are commercial operations.
In practice, there are several ways a land agreement can be caught by this prohibition. Some common examples are:
- exclusivity agreements - offering one party the sole right to supply a certain type of good or service;
- service agreements – for example pub and petrol ties; and
- restrictions on use - limiting the ability of a party in the same field from carrying on trade in the relevant market.
The test to show whether or not the agreement is anti-competitive, and therefore prohibited, is complex and involves an economic analysis of the relevant market. A useful tool is to see whether or not there could be a significant non-transitory increase in the price of a product/service as a result of the land agreement. How much of an increase in price could the relevant company effect before it started to lose trade to competitors? If the price increase is significant, it will distort the market and breach the provisions.
You can escape the penalties if the restriction provides economic benefits to the world at large or to competitors. An example is where a developer offers an anchor tenant an incentive to commit to taking space in the development to ensure his investment is financially sustainable. Without this assurance, the development would not go ahead.
It is important to note that clauses relating to objectionable uses or tenant mix do not fall foul of the provisions. The landlord has a legitimate right to maintain the character of the investment, and this is likely to be of benefit to everyone.
Why does it matter?
The Office of Fair Trading has the ability to take enforcement action in relation to breaches of the prohibition and can impose fines of up to 10% of the company's global turnover.
The land agreement will be void and unenforceable if caught by the prohibition unless the restriction can be severed.
Where landlords and sellers are concerned, the advice should always be to say no if a tenant or buyer asks for a restriction to be included. If the restriction is a deal breaker, it should be limited as far as possible, for example, by including a time limit.
Always ensure any restriction which might be considered anti-competitive can be severed from the rest of the agreement. This means if it is declared void, the rest of the agreement is still enforceable.