CMA finds land agreement breached UK Competition law

Article

27 November, 2018

The Competition Markets Authority (CMA) has for the first time used its enforcement powers in respect of land agreement and has found that restrictions in it were anticompetitive and in breach of UK Competition law.

Background

UK Competition law prohibits:

  • agreements which may affect trade within the UK and which have as their object or effect the prevention, restriction or distortion of competition within the UK (known as the Chapter 1 prohibition); and
  • the abuse of a dominant market position which has, or is capable of having, an effect on trade within the UK (known as the Chapter 2 prohibition)

Land agreements were exempt from the application of competition law through a Land Agreements Exclusion Order on the basis that most agreements affected land and did not generally cause competition concerns. However, that exemption was repealed in 2011 and companies are under a requirement to assess the compatibility of restrictions in land agreements with competition law in the same way as any other agreement.


CMA finds land agreement to have breached UK Competition law

The CMA considered an agreement between Heathrow Airport with the Arora Group in relation to a lease of the Sofitel Hotel. This included a clause restricting how parking prices should be set for non-hotel guests. The effect of the clause was that it prevented the Arora Group from charging non-hotel guests cheaper prices than those offered at other car parks at the airport.

The CMA found that Heathrow Airport Limited and its parent company - Heathrow Airport Holdings Limited, as well as Heathrow T5 Limited and its parent company Arora Holdings Limited breached the Chapter I prohibition of the Act due to the price restriction contained in the agreement.

Heathrow Airport Limited agreed to pay a fine of £1.6m, which included a 20% settlement reduction. Whilst Heathrow T5 Limited and Arora Holdings Limited will not be fined as the Arora Group applied for and was granted immunity under the CMA's leniency programme.

This was the first instance that CMA has used its competition enforcement powers in relation to restrictions contained in a land agreement. Not all restrictions will breach competition law as there are many valid reasons why a business may put restrictions in place or agree to restrictions, which affect or limit the way in which land may be used, or how a right over land may be exercised. However, each business must assess the restrictions it seeks to include or consent to in order that it does not breach competition law.


Land agreements and compliance with UK Competition law

The CMA have recently issued guidance, setting out dos and don'ts regarding land agreements and completion:

It recommends the following:

  • Familiarise yourself with competition rules;
  • Amend any non-compliant agreements;
  • Regularly review land agreements to ensure they remain compliant with the law;
  • Set up a competition law compliance programme to manage and mitigate competition law risks.


It warns against the following, without seeking legal advice first:

  • Enter into a land agreement which restricts the prices at which goods or services can be supplied at from the land;
  • Enter into a land agreement which restricts how the land can be used with the aim of sharing or dividing up territories or customers;
  • Enter into land agreements which restrict how the land can be used to make it harder for other businesses to compete;
  • Assume existing land agreements are legal because they have been checked by lawyers in the past. The law changed in 2011 so that land agreements (particularly use restrictions) were no longer exempt from competition law.


Consequences of non-compliance with UK Competition law

Many UK businesses operate from property under some form of land agreement. If the agreement contravenes competition law, all involved (for example, both the landlord and tenant) are potentially at risk of fines of up to 10% of their annual turnover, disqualification of a director for up to 15 years, claims for damages and the agreement or the restrictions being unenforceable.

A lot of cases tend to reach settlement for a number of reasons, an example if this was seen when an action for damages relating to a land agreement reached the Competition Appeal Tribunal in 2016. The claim was brought by Shahid Latif and Mohammed Abdul Waheed v Tesco Stores Limited (Tesco). The claimants under a transfer agreement had sold land to Tesco in 1997. For land retained the claimants were subject to a covenant "not to use or permit any of the Retained Land to be used for the sale of food convenience goods or pharmacy products".

The claimants alleged that the transfer agreement and/or covenant constitute a breach of the Chapter 1 and/or Chapter 2 prohibition by Tesco, as well as the common law doctrine of restraint of trade. However, the claim was withdrawn following the parties reaching a settlement and Tesco releasing the claimants from the contested covenant.

If you have concerns regarding land agreements and compliance with UK and/or EU Competition law, please speak to a member of our Housing & Regeneration team or a member of our Commercial team.

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