The UK Office of Fair Trading (OFT) has published for public
comment its anticipated guidelines for the assessment of the
competitive effect of restrictions in land agreements under the UK
Competition Act (the Act).
The Act prohibits agreements that prevent, restrict or distort
competition in the UK. Currently, land agreements – such
as freehold, leasehold and rental agreements – are exempt
from the prohibition. But that is about to change. With effect from
6 April 2011, land agreements will be fully subject to competition
law in the UK. In our prior
alert, we outlined the change that is going to happen,
the effect of the change, the types of agreement that are likely to
be infringing, and how the risk of infringement may be
mitigated.
The OFT now has published guidelines that are intended to help
companies respond to this change in the law. The guidelines have
been published in draft, before they are finalized, and
the OFT is inviting interested companies to comment on them before
14 January 2011.
What the draft guidelines say
The draft guidelines begin by saying that there is no presumption that a restriction in a land agreement constitutes an infringement of competition law. The draft notes that the types of restriction most likely to impact competition are those imposed by parties with market power, which keep other companies out of the market or which aim to make it more difficult for other businesses to compete. In assessing whether a party has market power, the government may consider the "market for land" and also any "related retail market." Furthermore, regardless of any agreement, certain unilateral conduct by a dominant landlord can amount to an abuse of his dominant position on "the market for land" or "any related retail market." Abusive conduct would include "charging of excessive prices for land, unjustified discrimination between tenants, fixing the resale prices of the occupants of the land, or limiting access to a so-called essential facility." In addition, the draft guidelines contain some working examples of the type of agreements the OFT would likely find anticompetitive:
(a) a leasehold covenant that the landlord will not allow any of
the tenant's competitors (such as other department stores) in a
new shopping centre for the period of the lease or any additional
period that it may be extended
(b) a leasehold covenant that the tenant (a coffee shop) will pay a
higher rent to the landlord (shopping centre owner) for the
guarantee that the landlord will not allow any other coffee shops
in the shopping centre
(c) restrictive covenants in the sale of the land preventing any
future owner of the land from using it for the sale of competing
goods or services.
OFT consultation on the draft guidelines
The OFT has announced it would particularly welcome feedback on the following:
- Are the guidelines sufficiently clear to assist companies in understanding how competition law applies to land agreements in the UK? Is the format easy to follow? If not, what improvements could be made?
- Do the working examples help companies understand the application of competition law? If not, how might they be improved?
- Are there any specific areas in the scope of the draft guidelines where further guidance or examples would be useful?
In the ordinary course, the OFT is very receptive to feedback when
it goes out for consultation. Companies therefore are to be
encouraged to respond to the consultation by sharing any views they
may have with the OFT. The OFT aims to publish final guidelines in
Spring 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.