Competition law to impact land agreements

Land Agreements to be Subject to Competition Law from 6 April 2011

On 6 April 2011, the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 will be revoked, meaning companies will have to self-assess all land agreements to ensure compliance with competition law.

The revocation of the Exclusion Order has come about following an Office of Fair Trading investigation into unfair practices in the grocery retail business.

Large supermarkets were accused of restricting competition by buying retail sites and preventing development by competitors through the use of restrictive covenants and exclusivity agreements.

The effect of the revocation is retrospective, so all existing land agreements must be reviewed. Given that competition law is notoriously complex and sanctions are severe for breaches, this will be a significant burden.

Those who are most likely to be affected are developers, land owners and retail businesses.

From 6 April 2011 any company which is a party to an existing or new agreement which:

* Contains covenants that restrict the use of property;
* Grants exclusive rights to a tenant to open a particular type of business within a development; or
* Require a tenant to purchase certain products exclusively from one supplier will have to consider the effect that the agreement will have upon competition and if necessary alter the agreements to ensure compatibility with competition law.

Failure to do so will render the agreements void and unenforceable and the companies involved will be liable to a fine of up to 10 per cent of their worldwide turnover.

Purchasers of portfolios of commercial property will also need to include within their due diligence a check on potentially unlawful restrictions in existing land agreements.

This is an extremely onerous additional burden upon businesses and will lead to much uncertainty over the enforceability of existing and proposed covenants and leases until professional advice is taken.

Some companies however, such as smaller supermarkets will welcome the opportunity to compete more effectively with more established market leaders.

Stephen Greenwood
Commercial Property Solicitor
Farleys Solicitors