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Case law: Lease allowing one tenant to veto grants of leases to other tenants could breach competition law

A lease to an ‘anchor tenant’ in a shopping centre which allowed it to veto the grant of leases to other tenants (who might be competitors) could breach competition law depending on its effect, the European Court of Justice has ruled.

Legal Alert

This update was published in Legal Alert - January 2016

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A landlord gave an anchor tenant in a Latvian shopping centre a power to veto the grant of leases to other tenants, allowing it to stop competitors from taking units in the centre. An anchor tenant is one whose reputation will attract customers to a centre, to the benefit of other tenants. The European Court of Justice (ECJ) was asked to consider whether this breached competition law.

The ECJ drew a distinction between agreements between commercial organisations, such as leases, that:

  • automatically breached competition law ‘by object’ – ie their purpose (or object) was to restrict competition through, for example, controlling prices, or the quality and quantity, of goods or services, and
  • agreements whose purpose or object was not to restrict competition, but which were capable of having an anti-competitive effect

It said the former were automatically void and unenforceable. However, in relation to the latter, the anti-competitive effects had to be proved before such agreements would be held to be unenforceable.

It ruled that non-competition provisions in leases are not restrictive by object, but could have an anti-competitive effect in certain circumstances. The background to the granting of the relevant lease (in this case) should therefore be investigated, including the nature and state of the market, to assess whether it had an anti-competitive effect. The ECJ said that relevant factors in this case were:

  • whether there was a real and concrete possibility that competitors could set up in other parts of the same catchment area (eg near to the shopping centre)
  • how many organisations were in the market overall, and their size
  • how concentrated the market was
  • how long the agreement was for, and
  • any other circumstances which might restrict competition, such as customer behaviour (eg brand loyalty)

This supplements a ruling in a case in England and Wales in 2014 in which a retail tenant’s lease of a unit in a parade of shops on a housing estate came up for renewal, but the landlord refused to agree an extension of the lease that would have allowed the tenant to sell groceries and alcohol in competition with a neighbouring tenant.

The neighbour was the only shop on the estate that sold groceries and alcohol – particularly staples such as bread, milk and washing powder, for which there are no substitute products. The nearest alternative was a 15-minute walk away. This meant the neighbour had an effective monopoly on staple goods on the housing estate - a market in which customers would not travel far to buy such staples. There was no retail property available from other landlords. The tenant therefore claimed the landlord was breaching competition law.

The landlord argued that people on the estate needed a variety and range of shops on the parade, so allowing more than one shop to sell the same products was not in their interests. It also said that small retailers would not open up on the estate if they thought competing businesses would also be let in.

The County Court ruled that the provision breached competition law, and was not within any of the exemptions that can apply. Competition law prohibits agreements and concerted practices that have the object or effect of the prevention, restriction or distortion of competition.

This was the first time competition law had been held to apply in such circumstances in England and Wales.

Operative date

  • Now

Recommendations

  • Landlords letting neighbouring property to different tenants should carefully consider the circumstances before imposing restrictions on any of them in order to protect the businesses of the others, or risk breaching competition law

Case refs: SIA Maxima Latvija (C-345/14),
Martin Retail Group v Crawley Borough Council 3CL10014

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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