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Competition Act

05 April 2011

From April, all existing and future land agreements will be subject to the full force of competition law. Willans reports on the new regime that will affect landlords, tenants, sellers, buyers, developers, investors and financiers.

Up to now, land agreements have not been subject to competition law but this is about to change. Following their investigation into supermarkets, the government has repealed the exclusion and, from 6 April this year, the Competition Act will apply to commercial property transactions.

The OFT has issued guidance along with a self-assessment flow chart, both of which are available from their website. They believe that only a small number of restrictions in land agreements will prove to be anti-competitive.

Summarising briefly, to comply with the Act, agreements must not prevent, restrict or distort competition “appreciably”.

The sort of terms that may be caught include:

• restrictions against doing business in a particular area

• restrictions on pricing (eg fixing minimum prices)

• restrictions on use

• restrictions on a seller opening a rival business in a certain area

• an obligation on a tenant to buy particular goods / services from its landlord.

There is guidance on how to define the ‘market’ that any land agreement may relate to. There are also thresholds below which the parties’ share of that market is such that a restriction in that agreement will not be deemed to be anti-competitive.

What risks arise if the rules are breached? The anti-competitive restrictions in question will be void and unenforceable. Also, the OFT has the power to impose fines. There is the possibility of exposure to third-party damages and, for the most serious breaches such as price-fixing, company directors could face prison sentences or disqualification.

This legislation will affect a wide range of property agreements with particular impact on shopping centres, large-scale developments and sales of commercial property. Because it applies retrospectively, there is no exemption for existing agreements.

Property owners would be wise to conduct an audit of existing land agreements and seek advice on whether they are compliant. Potential purchasers should also seek advice on whether there are any existing agreements affecting the land that may be caught by the Act.

This is a complex topic and one that is very much in the making. It is unlikely we will see how things will shake down until the courts become involved, which will be some way off.

If you need clear and pragmatic legal advice, we’re here to help so please get in touch.

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Chris Wills LLB (Hons)
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