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OFT provides guidance on land agreements following change in law

18 Oct 2010 11:49 AM

The OFT has recently produced draft guidance for businesses about the types of land agreements that might fall foul of competition law.

Until now, land agreements between businesses benefited from special treatment under UK competition law. However from 6 April 2011 land agreements that prevent, restrict or distort competition will be void and unenforceable. Companies involved in such agreements can also face fines of up to 10 per cent of their annual worldwide turnover.

The guidance aims to help businesses respond to this change in the law. It provides a practical framework and hypothetical examples of how typical agreements may be assessed.

The draft guidance makes clear that:

  • There is no presumption that a restriction in a land agreement constitutes an infringement of competition law, and the OFT expects that only a minority of restrictions will be anti-competitive.
  • The types of restriction most likely to impact competition are those which keep other companies out of a market, or which aim to make it more difficult for other businesses to compete.
  • The law will only apply to land agreements between businesses, and not transactions with individuals.

The OFT is inviting business to give feedback on the draft Guidance by 14 January 2011, and aims to publish final guidance later in 2011.

OFT Senior Director for Policy, Cavendish Elithorn, said:

'The application of competition law will remove barriers to new businesses and open up competition in local areas for the benefit of consumers. In the vast majority of cases we would not expect land agreements to raise competition problems. However terms which restrict the process of competition, for example clauses to stop competitors from using land, can be problematic. This guidance is designed to reassure companies when there is unlikely to be a problem and help them assess when they need to take professional advice.'

The draft guidance can be downloaded from the Land Agreements Guidance consultation page.

NOTES

  1. Land agreements that prevent, restrict or distort competition fall under Chapter I of the Competition Act 1998 and, in certain circumstances, Article 101 of the Treaty on the Functioning of the European Union (the TFEU). This applies only to agreements between businesses (including sole traders, partnerships, a company or a group of companies). Otherwise, it does not apply to agreements with or between private individuals.
  2. Until 6 April 2011, land agreements are excluded from Chapter I of the Competition Act 1998 by virtue of the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 (SI 2004/1260) and, prior to that, the Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2000 (SI 2000/310). The exclusion has been revoked with effect from 6 April 2011, by virtue of the Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 (SI 2010/1709).
  3. Certain land agreements in connection with grocery retailing activities are subject to additional control under the Groceries Market Investigation (Controlled Land) Order 2010. The Order is part of the package of remedies to address the adverse effects on competition resulting from the control of land by large grocery retailers in highly concentrated areas that were identified by the Competition Commission in its 2008 market investigation report on the supply of groceries in the UK.
  4. Land agreements that prevent, restrict or distort competition are prohibited agreements unless an exemption applies. In order to qualify for exemption four cumulative criteria must be satisfied. These are set out in section 9 of the Competition Act 1998 and the equivalent provisions in Article 101(3) TFEU. The agreement must contribute to improving production or distribution, or to promoting technical or economic progress, whilst allowing consumers a fair share of the resulting benefits. The agreement must not impose restrictions beyond those indispensable to achieving those objectives. Finally, it must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.