The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 subjects land agreements to the rules in Chapter I of the Competition Act 1998. The rules apply to agreements between businesses that create, alter, transfer or terminate an interest in land and outlaw restrictions that prevent or distort competition, unless they create benefits that outweigh their anti-competitive effects.
Concerns expressed by the property industry led to the publication of guidance, which explained how the Office of Fair Trading (OFT) expected the law to apply. The guidance was all that was available to the industry, until the county court decision in Martin Retail Group Ltd v Crawley Borough Council [2014] PLSCS 105, which appears to be the first reported case on the application of the rules.
The dispute arose in the context of an application to renew a business tenancy of a shop in Crawley. Each of the housing estates in the town had a parade of shops, which were let by the council on terms that restricted their use to a particular trade or business. The premises at the centre of the dispute were used as a newsagents and tobacconist, and had a post office counter as well, but the tenant wanted to expand the range of goods that it was selling to compete with a supermarket in the same parade. Consequently, it asked the court to consider the lawfulness of restrictions on the sale of groceries, fresh food, beer, wine, spirits and other household products, which the council wanted to impose.
Each land agreement must be assessed on a case-by-case basis by reference to the market concerned. The tenant suggested that the relevant market was within a ½ mile radius, because this was as far as customers would be prepared to walk to shop at a similar store. It relied on the fact that the nearest convenience stores were approximately 15 minutes away on foot and claimed that the restrictions would ensure that the supermarket with which it was trying to compete would enjoy a monopoly.
The council conceded that the prohibitions would restrict competition, but argued that the local community benefitted from the range of traders and retail outlets in the shopping parade. It claimed that smaller businesses would be less likely to take a lease of premises in a parade where their trade was not protected and suggested that the relevant market was big enough to include a Tesco Express 1,000 metres away.
After careful consideration of the OFT guidance, which he endorsed for its practical and sensible approach, the judge decided that the council had failed to show that its scheme promoted the distribution of goods by different retailers or that the local community would benefit from the restrictions that it was seeking to impose. The position might have been different if the scheme was being set up from scratch and the restrictions were being imposed to support an anchor tenant until its business stabilised, or if the market were geographically bigger. However, the shopping parade was an unlikely destination for a weekly shop. Consequently, the relevant market lay within a short walking distance and was relatively small.
The judge agreed that the proposed user clause would eliminate competition in convenience goods in the parade and suggested that the council could achieve a suitable tenant mix through covenants that fell short of creating a monopoly.
Allyson Colby is a property law consultant
