No More Land Use Limits to Competition Against Supermarkets for Businesses

June 20, 2012 /

The Office of Fair Trading has opened the doors for businesses to apply for the removal of land use restrictions which limit competition against any of the UK’s seven largest grocery retailers beginning July 1.

This measure is designed to help shoppers benefit from increased local competition, and has been put in place following the Groceries Market Investigation (Controlled Land) Order made by the Competition Commission in 2010.

Land agreements are agreements between businesses which create, alter, transfer or terminate an interest in land. This includes, amongst others, situations where two businesses enter into a lease agreement, or where one business sells property to another business.

Parties to land agreements may impose a restriction on the way in which land may be used, or how a right over land may be exercised. The guideline focuses on these restrictions.

There are many legitimate reasons why the parties to a land agreement may impose or agree to restrictions regarding the use of land. The OFT expects that only a minority of such restrictions will infringe competition law. The guideline and the quick guide set out the types of land agreements are more likely to restrict competition.

Agreements that restrict competition are prohibited by UK and EU competition law. They are generally unenforceable and the parties to a prohibited agreement may be susceptible to damages claims before the UK courts.

The parties to a prohibited agreement may also face enforcement action by the OFT or (in certain cases) a sectoral regulator, who have the power to impose financial penalties and direct parties to bring an infringement to an end. Anti-competitive agreements are generally unenforceable and the parties to a prohibited agreement may be susceptible to damages claims before the UK courts.

Apart from restrictions regarding the use of land that are agreed to between competitors and that lead to market-sharing and in certain other exceptional circumstances, the OFT is unlikely to take further action in respect of a land agreement where none of the parties to the agreement has a market share exceeding 30 per cent on the relevant market where the land is used.

The Order resulted from the Competition Commission’s investigation into the grocery market which found that the existence of certain restrictive covenants and exclusivity arrangements could protect supermarkets from local competition from rival grocery outlets. This new procedure allows these restrictions to be challenged.

The procedure will involve the OFT testing the extent of grocery competition in a given local area when an application is made. This analysis will determine whether a restrictive covenant or exclusivity arrangement benefitting Asda Stores Limited, Co-operative Group Limited, Marks and Spencer plc, Wm Morrison Supermarkets plc, J Sainsbury plc, Tesco plc, or Waitrose Limited should be lifted.

In March 2011, the OFT published a guideline for businesses about the types of land agreements that may infringe competition law.

Up to 6 April 2011, the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 (the LAEO) excluded land agreements from Chapter I of the Competition Act 1998 (this is the UK law prohibiting anticompetitive agreements). The LAEO did not exclude land agreements from EU competition law or from the rules on abuse of dominance.

Following the Competition Commission’s April 2008 report into the supply of groceries and a public consultation, the UK Government decided (following a public consultation) that the LAEO would be repealed, with effect from 6 April 2011.

The OFT has made the guideline on the application of competition law to land agreements in order to assist business in assessing land agreements following the revocation of the LAEO.

 

Share your opinion