Land Agreements and the Competition Act 1998
Land Agreements Introduction
From 6 April 2011, the Competition Act 1998 will for the first time apply to land agreements. This means that any agreements which prevent, restrict or distort competition will now be void or unenforceable. This includes contracts, leases and other commercial arrangements although it is important to note that the agreement does not have to be in writing and can be an informal arrangement.
The new rules will affect landlords, tenants, sellers, buyers, developers, investors and financiers.
The Act will apply retrospectively and so not only new agreements but also agreements entered into before April 2011 will be subject to the anti-competitive provisions.
There is a transitional period however from April 2010 where applications can be made to the Office of Fair Trading (OFT) for a ruling on the legality of any restrictions, but after April 2011 parties will have to assess the impact of any restrictions themselves.
Are all restrictions in land agreements caught by the Act?
There is no presumption that a restriction contained in a land agreement is an infringement of competition law and in order for it to be considered as such, it must have an 'appreciable' impact on competition. In assessing whether a restriction is 'appreciable' the OFT will look at the aggregate market share of the parties involved.
The obvious areas of concern are restrictions against use, for example, a restriction in a lease that prevents the tenant selling the same products as are being sold by adjacent premises may distort competition in that market place.
As a tenant or landlord, you would need to look at whether or not the parties entering into the agreement are competitors in the market place and whether the agreement restricts the ability of those competitors to behave independently in that market place. If each has a small market share within the relevant market, it is unlikely to have sufficient impact on market conditions to infringe the prohibition.
There is no definition of 'appreciability' and it will therefore be a question of fact in each case.
Certain types of agreement are however excluded from the Act, such as planning obligations, mergers and joint ventures.
Office of Fair Trading
In October 2010 the OFT produced draft guidance on understanding how the law on anti-competitive agreements applies to land agreements.
The draft guidance makes it clear that the new law will only apply to agreements entered into between businesses, and not individuals who are not acting as a business, with the aim of assessing agreements that restrict the use of land and keep other companies out of the market or make it more difficult for businesses to compete.
Businesses who have entered into anti-competitive land agreements may face enforcement action by the OFT, the European Commission or the sector regulator who could impose fines up to 10 per cent of their annual worldwide turnover and direct you to take steps to bring the infringement to an end.
One of the steps may be to sever the anti-competitive restriction from the agreement. If it cannot be severed, the entire agreement may become unenforceable.
What should you do?
A new approach must be adopted when entering into land agreements that contain anti-competitive provisions.
Just because a clause may be restrictive in nature it does not necessarily mean it is anti-competitive unless its effects do restrict competition.
Landlords and tenants should ask us to audit existing contracts and leases to assess if any of the restrictions are anti-competitive.
To find out more information, please contact our legal team on 08000 111 303 or alternatively fill in the Call Back Request form to the right of this screen.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
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