Changes to competition law mean leases – and how they are handled – will face greater scrutiny, says Catriona Munro

The reverberations of the Competition Commission's 2008 report into the groceries retailing sector continue, as the competition law treatment of land agreements, including leases, is to be removed in April.

Competition law prohibits agreements that restrict competition. Property ownership does just that, by granting an exclusive right to occupy or use a particular piece of land, to the exclusion of others. Sheltered from the full force of UK competition law until now, an agreement that alters an interest in land, such as a lease, will now face greater scrutiny.

The new regime will affect large and small landlords and tenants alike. Land agreements will be illegal and unenforceable if they restrict or distort competition to an appreciable extent. It is not only the strength of the parties that determines whether a restriction will have an appreciable impact on competition, but its effect on the particular markets in which they operate.

Major supermarkets are subject to an onerous legal regime under which their ability to enforce restrictive covenants and exclusivity arrangements is restricted.

The concern identified in the course of the Competition Commission's investigation was that supermarkets controlled large areas of land on which they could stop competing outlets from opening. In relation to certain arrangements, retailers must endeavour to remedy offending arrangements, or agree not to enforce them.

A restriction will not be enforceable if there are fewer than three competing outlets within a 10-minute drive and the market share of the retailer benefiting from the restriction is 60% or more in the local market.

The consequences of infringing competition law are not confined to the enforceability of the land agreement. Where there is price fixing, for example, fines of up to 10% of worldwide turnover can be imposed.

In the future, landlords and tenants will be forced to consider whether an agreement could be anti-competitive. It is a process that will need to become second nature.

Catriona Munro is a partner in the EU, competition and regulatory practice at Maclay Murray & Spens.