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UK competition law to apply to land agreements
2 August 2010
After some delay, the Exclusion Order that excludes land
agreements from the scope of UK competition law on restrictive
agreements has been repealed. From 6 April 2011, agreements that
relate to land will be subject to UK competition law in the same
way as any other agreement.
Why does this matter and what can companies
do?
The change in the law may affect the enforceability of
restrictions in land agreements such as transfers of freehold,
leases, assignments and licences. It may also prompt tenants and
purchasers to resist typical restrictions such as restrictive
covenants. In serious cases, companies could be investigated by the
UK competition law authority (Office of Fair Trading) which has the
power to impose fines of up to 10% of worldwide group turnover.
All companies should begin to prepare for the change in the law,
particularly companies that are party to a number of land
agreements (such as retailers, supermarkets and property
companies). Immediate actions should include reviewing existing
agreements and standard form documentation for compliance with the
law.
What is the current position?
Since the Competition Act 1998 came into force over 10 years
ago, land agreements have been excluded from the law in relation to
restrictive agreements. In general, this has meant that typical
restrictions on the use of land in agreements such as leases and
transfers of freehold have not required analysis under competition
law.
By way of example, a positive restriction that only allows a
shop to be used as a card shop or a negative restriction that
prevents a shop from being used as a sports shop have come within
the scope of the Exclusion Order. Generally, it has also covered
reciprocal restrictions such as a shopping centre tenant agreeing
only to sell shoes on the basis that no other tenant will be
permitted to sell shoes.
What happens on 6 April 2011?
From 6 April 2011, all restrictions in land agreements will
require consideration under the Competition Act. It is important to
note that the revocation has retrospective effect (i.e. it will
affect agreements that are entered into both before and after 6
April 2011).
This does not mean that all restrictions in land agreements will
be automatically illegal / unenforceable. In fact, in very many
cases they are likely to be perfectly legitimate. However, it does
mean that going forward companies need to make sure that they
consider whether land agreement restrictions could affect
competition.
The Office of Fair Trading will be publishing specific guidance
on the change in the law and this should provide a steer on how to
assess restrictions. This will not be available until autumn of
this year.
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