On 30 April 2008 the Competition Commission (CC) published its final report into the groceries market, nearly two years after its investigation began. The CC found that certain grocery retailers were using restrictions in land contracts to reduce competition in the sector. Currently, such restrictions are not regarded asanti-competitive as they benefit from an exemption from the application of the Competition Act (CA) 1998 contained in the Land Agreements Exclusion and Revocation Order 2004 (SI 2004/1260) (the order). To prevent anti-competitive land contracts, the CC recommended that the UK government should amend the order. In July 2009 the Department for Business Innovation & Skills (BIS) issued a consultation document giving its initial view that the order should be revoked. Such a decision would be significant for any business that is party to several land agreements.
Background
Prior to CA 1998, the property industry had not been subject to competition law, as the earlier Fair Trade Act 1973 had only applied to goods and services, not to land. Following the enactment of CA 1998, competition law became applicable to land agreements. Many property companies, wary of the new restrictions, took a precautionary approach and registered their land agreements with the Office of Fair Trading (OFT) to ensure that the agreements were compatible with the new law. The order was enacted on the grounds that the majority of land agreements were unlikely to have a negative impact on competition. The order excludes specifically defined land agreements from the restrictions on anti-competitive agreements contained in Chapter 1 of CA 1998 (and Article 81 of the EC Treaty). A land agreement is defined as an agreement between undertakings, such as a lease, restrictive covenant or licence, that creates, alters, transfers or terminates an interest in land. It is not uncommon for land agreements to contain restrictions on the parties relating to the use of land. Examples of such restrictions include limiting the times at which one party can trade or restrictions on the particular use of the land, for example limiting the use to offices rather than retail. Since 1 May 2004, parties are no longer required to register potentially anti-competitive agreements with the OFT. Instead, it is now the responsibility of businesses to assess their agreements and evaluate whether they are compatible with competition law.
BIS consultation
The CC’s report included findings from new research indicating that restrictions contained in land agreements have an adverse effect on competition in highly concentrated markets. The CC feels that automatic exclusion of these land agreements under CA 1998 is no longer justified. The original reasons for the order are no longer regarded as being relevant, as businesses are now unable to register their agreements with the OFT. On 29 July 2009 BIS issued a consultation seeking views on the future of the order. The consultation sets out three options as to how BIS might deal with the order:
- no alteration to the order;
- amending the order; or
- revoking the order.
As detailed in its consultation paper, BIS’s initial standpoint is that the order should be revoked. While there have been suggestions that the exemption in the order could be limited in scope, there appears to be little consensus as to how this could be done. In its consultation document, BIS noted that simply amending the order to remove its application to agreements relating to the groceries sector could create uncertainty and debate as to whether or not a particular agreement falls within the scope of the order. Any decision, particularly one revoking the order, would have a significant impact on businesses that are party to several land agreements. If businesses can no longer enjoy the safe haven of the exclusion, they will have to review all the land agreements to which they are party. Such an exercise would involve considerable time and cost. BIS’s consultation is open until 4 November 2009 and a copy of the consultation can be found at:http://www.berr.gov.uk/files/file52383.pdf.
BIS plans to publish a response to the consultation in January 2010, with any possible amending statutory instrument coming into force in April 2011. It is clear that these issues are being closely scrutinised by the regulators. In addition to BIS’s consideration of the issue, on 24 July 2009 the OFT received a super-complaint from the Campaign for Real Ale, which concerns land agreements in relation to beer ties. The OFT must respond to this super-complaint within 90 days and it seems likely that its findings will affect the outcome of BIS’s consultation.
By Julia Joseph, associate, andChris Marsden, trainee solicitor,Berwin Leighton Paisner LLP.
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