Legal Thought Leadership

Competition In Commercial Leases

November 26, 2018

Anti-Competitive Leases Don’t Fly

On 25 October 2018 Heathrow airport recieved an order to pay £1.6m fine. This was for restricting competition on parking prices in a lease with an operator of a Terminal 5 hotel.

After launching an investigation into the airport’s agreement with the Arora Group for the lease of Arora’s Sofitel hotel at Terminal 5, in like manner the Competition and Markets Authority (CMA) began imposing a fine. The lease included a clause restricting how parking prices should be set by Arora for non-hotel guests. Prior to 6 April 2011, contained within competition law rules, found that many agreements removed from the prohibition on anti-competitive agreements.

However, land agreements entered into after or continuing beyond this date cannot benefit from the exclusion. The Chapter I prohibition in the Competition Act 1998 (CA 1998) applies to tjis. The Heathrow Airport decision was the first time the CMA has taken enforcement action in a case involving a land agreement. This unlikely to be the last now that focus has been moved to consideration of Land Transactions.

Considering Anti-Competitiveness

The CA 1998 prohibits agreements or concerted practices between undertakings which have as their object or effect the prevention, restriction or distortion of competition within the UK. The effect of the agreement on UK competition and trade must be appreciable, and this is assessed in accordance with the European Commission’s ‘Notice on Agreements of Minor Importance’ with reference to market share thresholds.

Agreements which fall within the scope of the CA 1998 prohibition may be exempt if cumulative criteria can be satisfied to show that the practice is beneficial to consumers. It does not go further than necessary, and does not substantially eliminate competition.

Office of Fair Trading Guidance

In 2011 the Office of Fair Trading published guidance entitled ‘Land Agreements: The application of competition law following the revocation of the Land Agreements Exclusion Order’. The guidance goes into great detail, therefore technical definitions take up much of it. However, chapter 4 outlines the main factors relevant to assessing whether a land agreement would be prohibited under competition rules and chapter 9 gives some worked examples. The guidance should be considered when structuring land transactions and a copy can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/284406/land-agreements-guideline.pdf

CMA Checklist

Whilst we await publication of the non-confidential decision on the Heathrow Airport matter, which should provide some more detailed guidance, the CMA has published a short checklist to consider when entering into a land agreement.

They have included in their checklist a reminder that competition law can lead to:

  • fines of up to 10% of worldwide annual turnover;
  • disqualification of a director for up to 15 years;
  • claims for damages;
  • significant reputational damage; and
  • the land agreement or the restrictions being unenforceable.

The CMA advises against entering into land agreements which:

  • restrict the prices at which goods or services can be supplied at from the land;
  • restrict how the land can be used with the aim of sharing or dividing up territories or customers; or
  • making it harder for competing businesses by restricting the land

Next Steps

Agreements already in place that do not compliant with competition law need amending promptly to remove any anti-competitive clauses. Parties who are unsure whether land transactions they have entered since 2011 or one that’s currently under negotiation are anti-competitive should seek urgent legal advice. This is in order to avoid potential enforcement action.

 

For more advice these issues please contact Claire-Elaine Arthurs, Property Litigator at gunnercooke

DD: +44 (0) 7791 143 284

Email: claire-elaine.arthurs@gunnercooke.com

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