New legislation will close land agreement loophole but cause headaches over specific agreements, says Janine Ealesfield
A quirk in the Competition Act has meant that for many years retailers have been able to use land agreements to get a competitive advantage.
That quirk will be removed on 6 April when the Exclusion Order, which allowed Land Agreements to pass under the Competition Act, is revoked. The biggest impact of this will be on provisions such as restrictive covenants and exclusivity arrangements, which have been exempt from competition law until now. An example would be shopping centre leases, where retailers often insist on restrictive covenants to stop competitors opening there.
In practice, the new law will be utilised in several ways. If you are being kept out of a property or shopping centre because of exclusivity arrangements, it may be possible to argue they are anti-competitive. Alternatively, if you act in a way that a third party says breaches a restrictive covenant, you may be able to say that the covenant is anti-competitive and therefore void.
The Office of Fair Trading may use the law if it believes exclusivity arrangements are restricting competition. If this is the case, it could open an investigation, which could lead to invalidation and fines. The OFT is only likely to do this where one party's share of the relevant market is 30% or more.
Under the new regime, we are likely to see more challenges to existing agreements that are used to keep a competitor out of the market, but only where it is worth it. For instance, if there are lots of alternative sites then they may avoid challenges. But if it is a prime site, or if the market is saturated, then you are more likely to see a challenge.
What is clear is that retailers and landlords will find it difficult to take steps to benefit from the new regime without first seeking specialist legal advice, because competition law is deliberately framed to adapt to each set of individual circumstances.
The new legislation will make an already complex area of law even more complicated and businesses alone will not be able to make the decision about whether their restrictive covenants will stand up.
Janine Eaglesfield is a commercial property partner at Yorkshire law firm Gordons.
A quirk in the Competition Act has meant that for many years retailers have been able to use land agreements to get a competitive advantage.
That quirk will be removed on 6 April when the Exclusion Order, which allowed Land Agreements to pass under the Competition Act, is revoked. The biggest impact of this will be on provisions such as restrictive covenants and exclusivity arrangements, which have been exempt from competition law until now. An example would be shopping centre leases, where retailers often insist on restrictive covenants to stop competitors opening there.
In practice, the new law will be utilised in several ways. If you are being kept out of a property or shopping centre because of exclusivity arrangements, it may be possible to argue they are anti-competitive. Alternatively, if you act in a way that a third party says breaches a restrictive covenant, you may be able to say that the covenant is anti-competitive and therefore void.
The Office of Fair Trading may use the law if it believes exclusivity arrangements are restricting competition. If this is the case, it could open an investigation, which could lead to invalidation and fines. The OFT is only likely to do this where one party's share of the relevant market is 30% or more.
Under the new regime, we are likely to see more challenges to existing agreements that are used to keep a competitor out of the market, but only where it is worth it. For instance, if there are lots of alternative sites then they may avoid challenges. But if it is a prime site, or if the market is saturated, then you are more likely to see a challenge.
What is clear is that retailers and landlords will find it difficult to take steps to benefit from the new regime without first seeking specialist legal advice, because competition law is deliberately framed to adapt to each set of individual circumstances.
The new legislation will make an already complex area of law even more complicated and businesses alone will not be able to make the decision about whether their restrictive covenants will stand up.
Janine Eaglesfield is a commercial property partner at Yorkshire law firm Gordons.
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