Biggart Baillie Solicitors

Land Agreements Order

Friday, April 09, 2010

by Colin Miller

Chapter I of the Competition Act 1998 prohibits companies from entering into anti competitive agreements. The Competition Act 1998 (Land Agreements Exclusion and Revocation Order) 2004 (the "Order") excludes land agreements from these provisions, but this will be repealed on 6th April 2010 with effect from 6 April 2011. The exclusion for land agreements was based on the premise that most agreements relating to land do not raise competition issues. However, the government has decided that following the modernisation of competition law which requires parties to self-assess agreements for their compatibility with competition law, there is no reason why land agreements should be excluded from the regime.

The reason for excluding land agreements was also a practical one to provide certainty about how the Competition Act would apply to the very large number of agreements that concern land, the vast majority of which are not likely to result in negative impacts on competition in markets and are, therefore, of no concern to the Office of Fair Trading (OFT).  The Order provided certainty that a land agreement would be legally enforceable unless and until such time as they were specifically examined and found to be anti-competitive. This meant it was not necessary for parties to land agreements to notify them to the OFT for clearance.

However, concern was expressed at the time by the property industry as to how the new prohibition would apply to agreements relating to property: in particular to agreements that place restrictions on the use of outlets in shopping centres and retail parks. This concern was underpinned by the novelty, in the property industry’s view, of property being made subject to competition law.  Previously, the Fair Trading Act 1973 had applied only to goods and services and therefore had not applied to property since land is neither a good nor a service. And following the 1978 decision of the Restrictive Trade Practices Court in the Ravenseft case, it was believed that the great majority of commercial leases were excluded from competition law. There was also a general perception that, with limited and well known exceptions (such as the beer tie and petrol distribution agreements), European law would not apply to land agreements since any restrictive provisions they may contain were not liable to affect trade between Member states.  However, under the new Competition Act 1998, the Chapter I prohibition applied to any agreement that affected trade within the United Kingdom.

‘Land agreements’ as defined in the Order are agreements between undertakings that create, alter, transfer or terminate an interest in land. The term ‘interest in land’ includes “any estate, interest, easement, servitude or right in or over land” and includes licences and, in Scotland, any interest under a lease and other heritable rights in or over land, including heritable securities.

Obligations and restrictions are to be treated as part of a land agreement if they are accepted by a party to the agreement in his capacity as holder of an interest in relevant land for the benefit of another party to the agreement in his capacity as holder of an interest in that land. Obligations or restrictions imposed for the benefit of a party in some other separate capacity, for example as a trader or competitor, are not covered by the Order.

In relation to restrictions, only restrictions which relate to the activity that may be carried out on the relevant land, or which restrict the freedom of a party to create or transfer an interest in the relevant land are covered. This means that typical restrictive covenants limiting the type of business that may be carried out on a property will be exempt from the Chapter I prohibition, but restrictions obliging a tenant to purchase goods or services from a specified supplier or restrictions on a landlord for leasing premises to an identified competitor of the tenant, are not.

Clearly, removing or amending the Order will require a large number of parties to undertake a certain amount of work to assess the various land agreements to which they may be party to ensure that the agreements do not have a substantial effect on competition in a market such as would involve a breach of the Chapter I prohibition. 

The government has clarified that following the repeal of the Order no sanctions will be imposed on undertakings that have entered into anti-competitive land agreements before the repeal. Any anti-competitive provisions in existing agreements will however have to be removed.

The government proposes to revoke the Order on 6 April 2010 with a one year transition period - meaning that parties will have until 6 April 2011 to complete their self-assessments and make any necessary changes to their land agreements. In this regard, the OFT is expected to publish revised high level guidance on land agreements, which should assist with the assessment.

If you would like assistance with reviewing land agreements for compliance with the Competition Act you should contact Colin Miller on cmiller@biggartbaillie.co.uk or 0141 228 8000.