10 October 2014 #Commercial Real Estate
The recent case of Martin Retail Group Limited v Crawley Borough Council has indicated how the requirements of competition law may be applied by courts to retail leases which include provisions that restrict the use of a property.
Since 6 April 2011, land agreements such as retail leases have ceased to be excluded from the scope of the 1998 competition law rules that render provisions with a substantial effect on competition invalid. A land agreement containing a restriction on the use of the premises may now be held to be unenforceable under the Competition Act 1998.
In Martin Retail Group Limited, the county court considered whether the leases of a parade of shops demised by Crawley Borough Council which restricted the business of each respective premises to a single use were unlawful under the provisions of the Act. The provision relating to the use of the premises was challenged by a tenant on the renewal of their lease, who wanted to extend the use of their premises from newsagent to the sale of groceries and other items already sold by a neighbouring unit.
As the Council conceded in court that the restrictive use clause did breach the Competition Act provisions, the case centered on whether the land agreement fell under one of the following exemptions, set out in section 9(1) of the Competition Act:
On considering the facts, the court did not find sufficient evidence that the lease restriction met the criteria of any of the above four conditions. The court held:
It can be seen that when including restrictions on use in land agreements, it will be important to consider each land agreement on a case by case basis, taking into account the overall effect of the restriction on competition and considering each condition for exemption in turn. Landlords seeking to rely on a potentially restrictive land agreement should note that the court has held that the burden lies on the party seeking to impose the restriction to prove that the restriction does not negatively affect competition or that an exemption applies. The Council in this case failed to provide considered, reliable evidence to show that the restrictions had not been breached, showing the importance of being prepared to provide independent third party witnesses to the court (as opposed to hearsay) if a land agreement restriction is challenged. The Council also accepted that the restriction breached competition rules early in the proceedings - a surprising concession given that the Office of Fair Trading’s own guidance notes provide that few use clauses are likely to be caught by the prohibition on restrictions of use in land agreements. Conversely, tenants will note their greater scope to challenge land agreement use restrictions that potentially infringe the provisions of Competition Act on negotiating both new and renewal leases.