Competition Act 1998 - Land Agreements Exemption


From 6th April 2011, land agreements will be subject to the Competition Act 1998, a piece of European Legislation. When it first came into force the United Kingdom elected to exclude land agreements from the so called 'Chapter 1 Prohibition', which prohibited agreements which were restrictive of competition. In 2008, however, a Competition Commission report...

Key Facts:

  • From 6th April 2011, land agreements will be subject to Competition Act 1998

  • Will apply to all provisions which are restrictive of competition in production or sale of goods or services

  • Provisions which breach will be void and unenforceable, and may serve to render the entire contract void

From 6th April 2011, land agreements will be subject to the Competition Act 1998, a piece of European Legislation. When it first came into force the United Kingdom elected to exclude land agreements from the so called 'Chapter 1 Prohibition', which prohibited agreements which were restrictive of competition. In 2008, however, a Competition Commission report into the major grocery retailers was produced. This led directly to the Groceries Market Investigation (Controlled Land) Exclusion Order 2010, which resulted in many exclusivity agreements, and restrictions on competition found in both leasehold and freehold transactions, involving the major supermarkets being rendered void. At the same time, however, it was also decided to bring land agreements generally within the scope of the Competition European Law and, in June 2010, theCompetition Act 1998 Land Agreements Exclusion Revocation) Order 2010 was passed. The Order comes into force on 6th April 2011 and will act retrospectively, applying to restrictions in competition which may affect provision of goods and services whenever they were entered into.

This long transition period was meant to allow business to assess their existing contracts in the interim.

Types of Provision Affected

The Act will not catch all restrictive covenants, but only those which are restrictive of competition in the production or sale of goods or services. Examples of such provisions include restrictions limiting commercial activity of either landlord or tenant in a lease, restrictions agreed by a seller of property not to sell adjacent land to a competitor, exclusivity, and lock out agreements. Any provision which is in breach of the Chapter 1 Prohibition is automatically void and unenforceable in the court. An injunction or declaration, and compensation for any loss may also be obtained by any party adversely affected by the provision.

Assessing the Restrictive Provisions

Most restrictive provisions will be permissible under the legislation and guidance was finally produced by the Office of Fair Trading on 24 March 2011. The following factors must be taken into account.

Firstly, is competition really affected? There must be an appreciable effect on competition in the relevant market. This will require an assessment of what constitutes the geographical market.

Secondly, agreements where the parties are below a certain market share threshold (10 to 15%) will generally be regarded as outside the ambit of the prohibition.

Thirdly, a restriction will be exempt if it brings economic and consumer benefits, if the restrictive effects are no wider than is indispensable to achieving those benefits, and that it does not substantially eliminate competition. An example of this may constitute an agreement with an anchor tenant which will encourage other tenants into a shopping arcade.

Conclusion

The provisions are retrospective and businesses need to properly assess their obligations under competition law to ensure the validity of their agreements. Each case will depend on its own economic and actual circumstances and the OFT Guidance of March 2011 is very useful in this respect.

The Guidance makes clear that small retailers, such as public houses, betting shops, and petrol stations will be affected in the same way as larger companies. It does suggest, however, that they are unlikely to take enforcement action unless there is a market share of more than 30% in the locality. Most restrictions will be perfectly valid but some, in particular many lock out agreements, will not. The Guidance is extremely useful in separating the one from the other.

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