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Anti-competitive ruling

Napthens - December 1st 2010

The Competition Act 1998 (“the Act”) came into force in March 2000 and introduced two prohibitions to promote the protection of trade and competition in the UK:

  • Chapter I Prohibition - prohibits agreements which result in the prevention or restriction of competition.
  • Chapter II Prohibition - prohibits market abuse by a dominant party which has or is capable of having an effect on trade.

Agreements relating to interests in land and buildings (including leases, grants of rights and transfers of freehold and leasehold interests in land) are currently excluded from the Chapter I prohibition. However, from 6 April 2011 this exclusion will be revoked. Any provision in land agreements which prevents, restricts or distorts competition within a market in the UK, could potentially fall foul of Chapter I of the Act.

Self assessment and sanctions

Businesses will be responsible for assessing their own land agreements and reaching their own conclusions as to whether they are compliant with competition law. Failure to comply could result in third party actions for damages and mean that certain agreements are deemed void and unenforceable. In addition, the sanctions available to The Office of Fair Trading (“the OFT”) could be brought against parties to land agreements for breaching competition law. Sanctions are severe and include:

  • on-premises investigations;
  • orders modifying anti-competitive provisions; and
  • fines equivalent to 10% of annual turnover for each year of infringement (up to a maximum of three years).

Retrospective application

The change in law will apply retrospectively. This means it will not only apply to agreements entered into on or after 6 April 2011 but also to land agreements entered into before and remaining in force on or after that date. As a result, some commentators have taken the view that the change in law would mean a massive burden on land owners to review all land agreements to check whether they are anti-competitive. Some observers have reported that the revocation of the exclusion could open the floodgates for investigations and sanctions by the OFT for anti-competitive practices.

Update and practical steps 

The OFT has published draft guidance on the application of competition law following the revocation of the exclusion to land agreements. The OFT expects that only a minority of restrictions will be anti-competitive. The guidance seeks to help businesses determine where there is unlikely to be a problem. However, even with the available guidance it is difficult for businesses to assess, as there is not an exhaustive list of types or forms of restrictive provisions likely to breach competition law. Each potential anti-competitive provision will have to be assessed on its own merits, with regard to the market that it affects.

Given the historic nature of certain forms of agreement, a wholesale review may be unavoidable in some instances but there are more simple means of protecting your position in respect of particular land agreements.

If you are concerned you are party to potential anti-competitive provisions, we can help in assessing the potential risk of your current arrangements and provide practical advice for proportionate rectification and protection measures. Alternatively you may be frustrated by restrictions imposed on you by land agreements you consider may be in breach of competition law and wish to pursue a release. 

Although outside the scope of this update, certain conduct (such as excessive pricing on land and rents and restrictions on trading pricing) in relation to land by dominant parties in a relevant market can also breach competition law.