Commercial property and the Competition Act 1998

It used to be the case that land agreements, such as transfers and leases, were excluded from the Competition Act 1998. This meant that agreements which limited competition, for example by way of a restricted user clause in a lease, were legally enforceable.

Thanks to the Competition Act (Land Agreements Exclusion Revocation) Order 2010, things have now changed and land agreements are no longer excluded from the Competition Act. As such, any anti-competitive agreements are likely to be unenforceable and those restrictions, which are found to be anti-competitive can result in damages or an injunction being claimed by an adversely affected third party.

Example 1:

In a retail centre, the management company often aims to provide as many services as possible in order to attract the widest range of consumers. However, what happens when the management company inserts a user clause into the lease with the effect of restricting what individual shops can supply, so as to prevent competition within the centre?

Previously, the landlord was able to withhold consent for an assignment, change of use or alterations. However, now the landlord has to satisfy an exclusion test in order to retain the restrictive provision. Essentially, this test ensures that the economic and commercial benefits of the restrictive covenant outweigh the detrimental anti-competitive effects.

Example 2:

In a sale of land, what happens when the seller inserts a restrictive covenant into the transfer document limiting what the purchaser can supply on his land, so as to prevent competition with his own nearby business?

This, if it does not satisfy the exclusion test referred to in example 1,
will also be void; the seller cannot restrict competition so as to benefit his own endeavours.

Ben Gallafant can be contacted at b.gallafant@gullands.com