Summary and implications
A proposed restriction on a tenant's use of its property has been struck down as void under competition law (Martin Retail Group Ltd v Crawley Borough Council). This is the first reported case on how competition law applies to a user covenant in a lease.
In this case, the tenant was Martin Retail Group, which operated a newsagent in a parade of shops in Crawley, East Sussex. The parade was in the centre of a housing estate and both the parade and the majority of the houses on the estate were owned by Crawley Borough Council.
The dispute between Martin's and the Council arose when Martin's wanted to renew its lease under the Landlord and Tenant Act 1954. Martin's wanted to expand the user clause in its lease, to enable it to sell alcohol and convenience goods. The Council objected to this and proposed a clause which expressly excluded the sale of alcohol, grocery and convenience goods.
The judge had to decide whether the clause proposed by the Council was valid under competition law.
The impact of competition law on property contracts
As from 6 April 2011, the competition law regime under the Competition Act 1988 (the Act) applies to property contracts. There are no transitional provisions for the Act, so the competition regime will apply to property contracts whenever they were entered into.
Under the Act, an agreement will infringe competition law if it affects "trade within the UK and has as its object or effect the prevention, restriction or distortion of competition within the UK". This is known as the Chapter I prohibition.
Exemptions to the competition law regime
However, under section 9(1) of the Act an agreement may be exempt from the Chapter I prohibition if the agreement satisfies the following conditions:
- the agreement contributes to improving production or distribution, or technical or economic progress;
- it allows consumers a fair share of the resulting benefits and
- it only imposes restrictions which are necessary to achieve those objectives and
- it does not allow the parties to eliminate competition in respect of a substantial part of the products in question.
The Council's arguments
The Council conceded that the restricted user clause would be anti-competitive, as it would restrict competition for the sale of convenience goods in the parade. The Council therefore had to prove that the clause should fall within the exemption in clause 9(1) of the Act and it put forward these arguments:
- If the restricted user clause was not accepted, Martin's would no longer be a newsagent (in the strict sense of the word) which would deprive local consumers of the benefit of having a newsagent in the parade.
- If it was allowed to sell alcohol and convenience goods, Martin's would be able to undercut the small supermarket already in the parade, making the supermarket vulnerable to closure.
- Other traders would be less likely to take leases in the parade if they were in competition with Martin's, a large national retailer.
The judge decided in favour of Martin's
The Council had not proved that the exemption in clause 9(1) should apply. The judge did not agree that either the distribution of goods or economic progress would be improved if the parade contained a number of different retailers, rather than a supermarket. Neither would the community around the parade benefit from the restricted user clause proposed by the Council.
The judge had to decide what constituted the market for convenience goods in this case. He emphasised the fact that the market for convenience goods was within a relatively short distance from the parade, as customers would be unlikely to walk further for a pint of milk or a box of eggs.
It was particularly relevant that the nearest rival convenience stores were 1,000, 1,200 and 1,500 metres away. Because of this, the judge took a narrow approach to the definition of the market and concluded that the clause proposed by the Council would eliminate competition for convenience goods.
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