Businesses should review land agreements to avoid infringing competition law.
By John D. Colahan and Anuj Ghai
Many UK businesses operate from, or handle property governed by, some form of land agreement. These land agreements can include agreements for the sale or lease of land and agreements dealing with the use of or access to land. Notably, as with other transaction agreements, land agreements must be compliant with competition law. Prior to 2011, restrictions contained in land agreements were exempt from the application of UK competition law due to the operation of the Land Agreements Exclusion Order; however, the Order was revoked in 2011 following the Competition Commission’s recommendations at the conclusion of the market investigation into the grocery retail sector. Consequently, UK competition law now applies to land agreements.
The UK Competition and Markets Authority (CMA) has not previously taken enforcement action or issued fines in relation to land agreements. However, the decision to impose a £1.6 million fine on Heathrow airport in 2018 indicates the CMA’s increased scrutiny of land agreement restrictions. The Heathrow case represents the first time that the CMA has used its competition enforcement powers to sanction a land agreement restriction. Moreover, on the same day that the CMA announced the Heathrow fine, it also published guidance entitled “Land agreements and competition: do’s and don’ts”. In addition, the CMA has recently sent letters to other airports and hotel operators warning against similar agreements.
When will a land agreement infringe competition law?
The CMA acknowledges that most land agreements will not infringe competition law and that a business may seek to impose a limitation on land uses for many legitimate reasons. These limitations do not necessarily infringe competition law and the CMA expects that only a minority will do so. That said, businesses entering into land agreements should ensure that their agreements are compliant with competition law and consider whether they should obtain specialist competition law advice.
The CMA considers that two main categories of limitations in land agreements are more likely to restrict competition. First, if parties to a land agreement are competitors and the limitations regarding the use of land are intended to enable the parties to share or carve-up markets, then such agreements are likely to infringe competition law. Second, less obviously anti-competitive restrictions may also infringe competition law. For example, restrictions in land agreements that have the effect of restricting competition by raising barriers to entry in a particular market may also fall foul of the competition rules. However, such restrictions are only likely to be problematic if one of the parties to the land agreement holds market power, i.e., the ability to maintain prices above competitive levels for a period of time.
What happens to a land agreement that infringes competition law?
Limitations in land agreements that infringe competition law are considered to be void and unenforceable. In some cases, an infringing limitation may be severed from the broader agreement so that the other terms of the agreement remain valid and enforceable. However, if the limitation is considered to form an integral part of the overall agreement, then the entire agreement may be rendered void and unenforceable.
Land agreements that fall foul of competition law may also expose businesses to the risk of:
- Significant fines of up to 10% of worldwide annual turnover
- Disqualification of a director for up to 15 years
- Claims for follow-on damages
- Significant reputational damage
- Land agreements or the restrictions contained in the land agreements becoming unenforceable
Good and poor practice for businesses reviewing land agreements
The following guidelines are useful for businesses when reviewing land agreements.
- Familiarise themselves with the competition rules and consider how such rules affect their operations
- Identify and amend agreements, including land agreements, that infringe competition law
- Note that competition law applies fully to land agreements, including agreements that pre-date the repeal of the exemption for land agreements in 2011
- Review land agreements regularly to ensure that they remain compliant with competition law
- Establish a competition law compliance programme to manage and mitigate competition law risks
Businesses should avoid:
- Entering into land agreements that restrict the prices at which goods or services can be supplied from the land in question
- Entering into land agreements that limit how land can be used with (i) the aim of sharing or dividing up markets and/or customers or (ii) that are designed to make it harder for other businesses to compete
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