In 2010, the Competition Commission investigated the grocery market and found that there were features of that market that distort competition and have a detrimental effect on customers.
The Competition Commission concluded that the existence of restrictive covenants and exclusivity agreements which benefited the large supermarkets, in some instances, protected those supermarkets from local competition.
In response to this finding, the OFT have produced the Groceries Market Investigation (Controlled Land) Order 2010 (the Order) which came into force on 1 July 2012.
This Order currently applies in relation to agreements affecting competition with the seven largest grocery retailers; Asda Stores Limited, Co-operative Group Limited, Marks and Spencer plc, Wm Morrison Supermarkets plc, J Sainsbury plc, Tesco plc and Waitrose.
The Order prohibits these supermarkets from entering into any restrictive covenant or other agreement that may restrict grocery retailing or have an equivalent effect. It requires the supermarkets to release any such restrictive covenants that are currently in place.
As part of the investigation, the Competition Commission was notified of a number of restrictive covenants already in place and the Order lists in a schedule those restrictive covenants that must now be released.
In addition to those listed, the Order also requires the release of any other restrictive covenants on land which may restrict grocery retailing or have equivalent effect, provided the covenant is enforceable by one of the seven named supermarkets and the OFT has determined that it fails the test set out in the Order.
The test starts by looking at a ten mile radius around the affected land and determines whether a particular restrictive covenant distorts competition based on factors such as the number of other grocery retailers in the area and the size of the those retailers.
An owner of burdened land can apply to the OFT in writing to require it to apply the test against a specified restrictive covenant.
In addition to restrictive covenants, the Order also prohibits the enforcement of relevant exclusivity agreements by the seven supermarkets.
As indicated, the Order already lists in a schedule, 28 restrictive covenants affecting land that must be released by the supermarkets. It remains to be seen how many other restrictive covenants are already in place that will be found to fall foul of this wide reaching Order and what consequences will befall any of the seven supermarkets which fail to comply with the Order.