On 16 November 2015, the European Court of Justice (ECJ) handed down its judgment in the SIA Maxima Latvija case (C-345/14), on the application of competition law to a non-compete clause in a commercial property lease.

The ECJ concluded that a commercial lease agreement for a large shop or hypermarket located in a shopping centre containing a clause granting the "anchor tenant" a right to oppose the lease of commercial premises to competing tenants, does not mean that the agreement is restrictive "by object" and therefore automatically void. The validity of a non-compete clause will be assessed according to its anticompetitive effects in the market.

The SIA Maxima Latvija case came before the ECJ by way of a preliminary ruling request from a Latvian court following an appeal by one of the largest chains of supermarkets in Latvia against the decision of the Latvian competition authorities. In 2013, the competition authority imposed a fine on Maxima Latvia for including restrictive covenants in several commercial lease agreements with shopping centres.

Comment

The ECJ confirmed in SIA Maxima Latvija that the concept of restriction "by object" must be interpreted restrictively. An agreement between commercial entities is considered restrictive "by object" where by its nature harms it competition, for instance by having a negative impact on the price, quality or quantity of goods and services. In those instances, a restriction is considered automatically void and unenforceable and could give rise to penalties, or an action for damages by competitors or customers, without the need to prove that the provision has anticompetitive effects.

It follows from the ECJ Judgment that a non-compete clause in a lease will infringe if it has actual or potential anticompetitive effects. This requires an assessment of the relevant market and the context in which the lease is operating. It cannot be assumed simply from the existence of the non-compete clause.

According to the ECJ, the impact of a restrictive agreement should be thoroughly and fully assessed in terms of legal and economic factors which determine access to the relevant retail market for a potential new competitor.

Relevant considerations include:

  • the nature and size of the catchment area of the shopping centres covered by the agreement(s);
  • the extent to which there is a real and concrete possibility for a new competitor to establish itself elsewhere in the catchment area e.g. in other shopping centres and/or in the vicinity outside the shopping centre;
  • the number and size of operators in the relevant market;
  • the level of concentration in the market;
  • the duration of the agreement; and
  • other factors which might affect the competitive assessment such as customer loyalty to existing brands or particular consumer habits.

In 2014, a UK court struck down as void a proposed restriction on a tenant's use of its property under competition law (Martin Retail Group Ltd v Crawley Borough Council) and the UK competition authorities have in the past challenged restrictive covenants imposed by major supermarket chains on the development of land.

The SIA Maxima Latvija case provides a reminder of the necessity of keeping restrictive covenants in commercial lease arrangements under review and provides helpful guidance on the circumstances in which competition concerns could arise.

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