This has so far been allowed because of a legality introduced in 2004 that excludes land agreements from the Competition Act 1998 (an act which prohibits agreements which ‘may affect trade within the UK and have as their object or effect the prevention, restriction or distortion of competition within the UK’).
To combat this, the Commission recommended the law be changed and, as a result, The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 has been introduced. This means that on 6 April 2011, the exception for land agreements will be withdrawn.
This development will ensure that land agreements which prevent, restrict or distort competition will now be void and unenforceable. Companies involved in such agreements could also face fines of up to 10% of their annual worldwide turnover. Importantly, the Competition Act will apply not only to all new land agreements but also to all agreements already in existence.
The definition of ‘agreement’ in the Competition Act is interpreted widely and so leases, subleases, assignations, dispositions, missives and deeds of conditions will all come under the definition of ‘land agreement’. So too will side letters and other agreements.
For the purposes of Competition law, an ‘agreement’ doesn’t need to be a formal written agreement. The prohibition also extends to informal arrangements, concerted practices and decisions of associations of undertakings.
From 6 April 2011, a land agreement may be reviewed by the Office of Fair Trading if it is suspected that it may be anti-competitive. The types of restrictions in agreements which are more likely to be deemed anti-competitive are exclusivity clauses (for example, a landlord guaranteeing that a particular tenant shall have exclusive right to operate a particular type of business to the exclusion of its competitors) and ‘use restrictions’ in leases and title conditions that limit use of the property.
The Office of Fair Trading (OFT) has produced guidance for businesses about the types of land agreements that might fall foul of Competition law. The guidance aims to help businesses respond to the change in the law and provides a practical framework and hypothetical examples of how typical agreements may be assessed, although the OFT has stated it expects only a minority of restrictions will actually be anti-competitive. The law will apply only to land agreements between businesses, and not transactions with individuals.
Source: Harper Macleod LLP
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