Speak to our friendly staff directly  +44 (0)20 7242 2523

A leading set specialising in commercial, construction, insurance and property law

This document is from our archive and no action should be taken in reliance on it without specific legal advice.

Coming to a tribunal near you: Anti-competitive practices and land agreements?

The First Tier Tribunal (Property Chamber) has just been asked to decide whether it has jurisdiction to make a determination as to whether a restrictive covenant is void and unenforceable pursuant to the “Chapter I Prohibition” under the Competition Act 1998 (“the Act”).

In essence, the covenant restricted the use of certain land as a supermarket or food-retailer. It was registered as a Class D(ii) land charge, but inexplicably missed off the title upon first registration. The beneficiary of the covenant applied to rectify the register, pursuant to s65 and Schedule 4 of the Land Registration Act 2002.

The Respondents asserted that the covenant was void as, pursuant to s2 of the Act, it was an agreement between businesses (“undertakings” in the wording of the Act) which had its object or effect as the prevention, restriction or distortion of competition within the UK market.

The Act

Since the Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 came into force on 6 April 2011 with retrospective effect, land agreements can potentially infringe competition law if they have an appreciable effect on competition within a relevant market.

By way of background, the exclusion was originally enacted prior to the modernisation of competition law in 2004, when it was necessary to notify the OFT of potentially anti-competitive agreements to obtain competition clearance. The exclusion was intended to prevent the OFT from being over-burdened with notifications which had little chance of being anti-competitive. As part of the consultation process for the revocation, the OFT considered that most land agreements would not raise competition law issues because of the fragmented ownership of land in the UK, but nonetheless the exemption was removed.

Land agreements may be anti-competitive if they either place a restriction on the use of land (and distort the "upstream market" for land) or create barriers to entry for new competitors (and restrict competition in the "downstream" market for a particular economic activity).

Whether an agreement (or just the covenant if severable) is anti-competitive, it requires consideration of the circumstances existing at the date of the trial rather than when the agreement was executed. So, a covenant may have been potentially unenforceable when it was entered into, but subsequently valid given the later relevant market position: Passmore v Morland [1999] EuLR 501, [1999] 1 CMLR 1129. Here the transfer of the reversion to a pub company with a smaller market share meant the beer-tie in the lease was valid, even though it would have been unenforceable in the hands of the original landlord.

To date there has been very limited property litigation involving competition law. In the commercial lease renewal case, Humber Oil Trustee Terminals Ltd v Associated British Ports [2012] EWCA Civ 36, the competition law points were ineffectually pleaded and struck out (the Defendant tenant alleged the rents demanded and landlord’s reliance upon ground (g) were an abuse of a dominant position under s18 of the Act (the Chapter II prohibition, for which the exemption never applied in any event).

The Tribunal’s Jurisdiction

The Applicant argued that the FTT’s relevant jurisdiction was confined to “a reference by the Chief Land Registrar and any other application, matter or appeal under the Land Registration Act 2002”, pursuant to paragraph 5A (a) of the First-Tier Tribunal and Upper Tribunal (Chambers) Order 2010 (SI 2010/2655).  

The Applicant accepted that a reference under section 73(7) of the 2002 Act in relation to the entry of a restriction has been held to include the power to determine whether the applicant had a beneficial interest in registered estate: Jayasinghe v Liyanage [2010] EWHC 265 (Ch). However, it submitted that this decision was a consequence of the specific provisions of s42(1)(c) of the 2002 Act, which require the registrar to decide whether it “necessary or desirable” to enter a restriction for the purpose of protecting a right or claim in relation to a registered estate or charge. There is no equivalent provision in respect of s65 and Schedule 4.

Outcome

In the event, Judge Cousins did not need to decide the jurisdiction point: as, by the time of the hearing, the Respondents had agreed that the appropriate course of action was for them to issue proceedings for a determination in the Chancery Division of the High Court. Accordingly, a reference under s110 of the LRA 2002 was made. So the issue remains live.

But, perhaps, the more interesting point is that, while relatively few land agreements are likely to raise competition law points, property lawyers need to be alive to the implications of the Act. Restrictive covenants are only one, more obvious, example of possibly anti-competitive land agreements. The next time you advise on a commercial lease consider whether the exclusivity clauses or user prohibitions are potentially unenforceable.