Franchise Bulletin: June 2015 – Nothing like a bit of healthy competition

Perhaps you were “enjoying” the World Cup in South Africa (we’re still trying to forget England’s dismal performances…), maybe you were watching Despicable Me, which was released that month or maybe, just maybe, you were ahead of the game and were contemplating how a statutory instrument introduced by the Government would amend UK competition law, so that for the first time the Competition Act 1998 would apply to land agreements including leases and property sales, would affect your business.

The Act

The Competition Act 1998 prohibits provisions which prevent, restrict or distort competition. There are certain exemptions, but in theory, provisions in transfers or leases which looked to restrict competition could be void with effect from the date on which the Government’s statutory instrument came into force on 6 April 2011. Many commentators thought that these amendments would have a pretty radical effect in the property world, but has anything much changed on the ground?

The Case

There has only been one widely reported decision since the changes in June 2010 and it came in case of Martin Retail Group Limited v Crawley Borough Council decided in the Central London County Court on Christmas Eve 2013. In this case, the tenant, Martin Retail Group (“MRG”), wanted to widen the user clause in its lease so that it could sell groceries including alcohol from its premises, which was one of a parade of shops on a housing estate. Its landlord, Crawley Borough Council (“the Council”), opposed this change as it said that each of the shops on the parade should have a different use and there was already a grocery store at the location. MRG argued that the landlord’s proposed restrictions on items it could sell from the property were void under competition law. In response, the Council acknowledged that the user clause was potentially contrary to competition principles, but argued that an exemption applied as the parade of shops as a whole was a “letting scheme”, which gave rise to a greater diversity of small traders and acted as a social hub. The Council said this meant that the scheme brought economic and social benefits and the provisions should therefore be treated as “exempt”. The court disagreed and found that the no exemption applied and as the Council’s proposed restrictions restricted competition, they were void under the Competition Act.

Comment

Following the decision in this case, We must say that we fully expected all sorts of occupiers of land to be running arguments that covenants preventing them from using their land or properties in a particular manner or selling certain items fell foul of the Competition Act 1998. Whilst we have acted for a number of occupiers who have successfully run this argument, we have not seen the flood of further cases that we anticipated. In fact, we have not seen any other reported cases. Why is this? We suspect it is because each and every case is decided on its own facts and needs to consider its own economic and commercial evidence, which means they can be difficult to predict.

However, our view is that these changes do present occupiers and users of land with a real opportunity to broaden the range of products they can sell or use their land in a manner which they previously thought impossible and these options should be explored fully.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.