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16 June 2014

Restrictions on User – Competition Law

It is fair to say that competition law has been under the radar for many property lawyers, probably due to the fact that when the Competition Act 1998 (“Act”) was enacted, Land Agreements were excluded.  All that changed on 6 4pril 2011, and Land Agreements are now treated in the same way as any other Agreement for the purposes of competition law in the UK.

Case

The case of Martin Retail Group Limited -v- Crawley Borough Council [2013] highlights what the change may mean in practice for commercial leases which include a restrictive covenant, limiting the use of premises to a particular trade.

In the Crawley case, the user covenant in the lease restricted the use to a retail shop for use as: a newsagent; a tobacconist; or for the sale of confectionery; stationery and books; toys; records; fancy goods and greeting cards.

On lease renewal, the tenant wanted to extend the use of the premises to allow it to sell groceries, spirits and other household goods.

In Court, the landlord conceded that the inclusion of the existing user clause would restrict competition, but argued that the arrangement fell within the exemption in section 9(1) of the Act.  To succeed on this point, the Council had to satisfy the following cumulative conditions:

  • the Agreement must improve the production or distribution of goods or promote technical or economic progress;
  • consumers must receive a fair share of the result in benefits;
  • the restriction must be indispensible to achieving the Agreement’s benefits; and
  • the parties to the Agreement must not eliminate competition in relation to the relevant goods or services.

Judgment

The Judge found that the Council failed to clear the first hurdle, as he was not convinced that there was an improvement in distribution or economic progress as a result of the restriction.

For good measure, the Judge went on to find the Council also failed to convince the Court of the other three conditions set out above.

The Judge limited his consideration in terms of the geographic area to the actual parade of shops and not to the wider surrounding area.

Commentary

Such restrictions are fairly common in leases of shopping centres or parades of shops.  Firstly, to ensure that there is a good mix of use and secondly, because such restrictions may be insisted upon by anchor tenants.

There are a couple of points to bear in mind from this decision, namely:

  • it is a decision from a County Court; and
  • it appears the landlord produced very little detailed evidence to support its case.

However, there is a dearth of case law on this point and the decision cannot be ignored.  It will be very interesting to see if it leads to a spate of challenges by tenants and what, if any, implications the case may have for future rent review negotiations.