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Anti-competitive land agreements

20 Jan 2012

A recent change in legislation which those in the property sector may not yet be fully aware of is the application of the statutory prohibition on anti-competitive measures to land agreements.  The Competition Act 1998 already prohibited agreements, which prevent; restrict or distort competition but until April this year, the Act did not apply to agreements relating to property.  It now does and affects contracts and agreements entered into before April 2011.

All types of agreements are affected, whether formal or informal provided that they alter, create, transfer or terminate an interest in land.  The one saving is agreements between individuals who enter them other than in the course of their business.

For a land agreement to be caught by the Act, its provisions must appreciably restrict competition.  The test is not just applied when the agreement is signed, but through out its term.  The restrictions may initially be within the law, but may with changes in circumstances become unlawful.

Assessing the anti-competitive impact of a land agreement is a question of fact in each case and the parties will need to make a self-assessment to ensure that it does not infringe the Act.

The OFT, which regulated anti-competitive practices, has stated in its guidance that generally, it does not consider that agreements will appreciably restrict competition if the aggregate market share of the parties does not exceed 10% of the relevant market affected by the agreement where it is between actual or potential competitors.  Where the agreement is not between competitors, the threshold is either party to the agreement having a relevant market share that exceeds 15%.

Ascertaining the relevant market and the parties’ share of it is the most complex area of the legislation and the OFT guidance contains information on how market share and market power should be assessed.  In short, the parties need to determine both the relevant product market, which will involve an assessment of the range of substitutable products, and the relevant geographic market, which may be global; national; regional or local.  A shopping centre can be a relevant market in a particular town.

One example given by the OFT is a covenant in a lease preventing a tenant from opening a coffee shop.  This is within the Act and it will be necessary to consider the availability of other premises selling similar products, and the area over which the coffee shop competes with those premises.

The OFT’s view is that very few land agreements will infringe the Act, but the overall result is those who have entered into land agreements should consider the extent to which they restrict competition and consider the application of the Act, when agreeing restrictions in the future.  Professionals and businesses operating in the property sector will need to take a realistic and practical approach to the Act and assess the risks involved, where restrictions are proposed that are likely to maintain a market share; fix prices; allocate customers or otherwise restrict competition.

For further information, please contact Richard Freeman-Wallace on 0191 232 8345 or email richard.freeman-wallace@hay-kilner.co.uk.