From 6 April 2011, land agreements will become subject to the UK competition rules prohibiting anti-competitive agreements ("the Chapter 1 Prohibition"). What's more, the prohibition will apply to agreements whether they were entered into before or after this date.
A land agreement is essentially any agreement between undertakings which creates, alters, transfers or terminates an interest in land, or an agreement to enter into such an agreement. Until now, such agreements have been specifically exempt from the Chapter 1 Prohibition, but the decision has been taken to revoke this exemption with effect from April of next year.
In effect, parties to a land agreement will now need to consider whether the agreement (or any part of it) prevents, restricts or distorts competition in the UK.
This means that clauses in land agreements which restrict the use of commercial property, restrict landlords from leasing premises to particular third party tenants, restrict landowners from selling land to particular third parties, or require parties to obtain services (for example cleaning or insurance) from a particular supplier, now risk falling foul of the Chapter 1 Prohibition. Indeed in some cases, clauses which have previously been considered to be standard provisions will now have to be considered in a whole new light.
If a clause does breach Chapter 1, this could potentially render the agreement null and void. However, it could also give rise to substantial fines of up to 10% of group turnover, actions for damages and disqualification of the directors of the undertakings that are party to the agreement.
It should be noted that, in the absence of price fixing or market sharing, such clauses will only be caught by the Chapter 1 Prohibition where they have an appreciable effect on competition. This will largely depend on the size of the market concerned, the relative market shares of each of the parties, and the actual effect on the market (for example higher prices, lower quality, or reduced innovation).
Furthermore, if the parties can show that the economic and consumer benefits arising from such a clause in an agreement outweigh the negative impact on competition within the market, the clause will not be deemed to fall foul of the Chapter 1 Prohibition.
So, for instance, it may be that a restriction in a shopping centre lease is required to ensure a broad mix of tenants for the benefit of consumers. The key point here however is that if you wish to include such a restriction in your lease, the onus is on you to show that such benefits do arise and do outweigh any negative impact on competition.
Further guidance on how the removal of the existing exemption will impact upon land agreements is due to be published 12 weeks before the changes take affect. In the meantime, those party to land agreements would be well advised to use the interim "comfort" period to establish whether their agreements contain any such restrictive provisions, and if so, whether such provisions are likely to have an appreciable effect on competition.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.