Price fixing in leases doesn’t fly with the CMA

31.10.2018

The Competition and Markets Authority (the “CMA”) has used its enforcement powers in relation to a restriction in a commercial lease in a decision against Heathrow Airport and the Arora Group. Prior to 6 April 2011, many land agreements were excluded from the prohibition on anti-competitive agreements contained within competition law rules. Land agreements entered into after or continuing beyond this date cannot benefit from the exclusion, and the Chapter I prohibition in the Competition Act 1998 (the “CA 98”) applies. However, this decision was the first time the CMA has taken enforcement action in a case involving a land agreement.

Chapter I prohibits agreements or concerted practices between undertakings which have as their object or effect the prevention, restriction or distortion of competition within the UK. The effect of the agreement on UK competition and trade must be appreciable, and this is assessed in accordance with the European Commission’s ‘Notice on Agreements of Minor Importance’ with reference to market share thresholds. Agreements which fall within the scope of the Chapter I prohibition can still be exempt if cumulative criteria can be satisfied to show that the practice is beneficial to consumers, does not go further than necessary, and does not substantially eliminate competition.

CMA Decision

On 25 October 2018, the CMA issued a decision finding that Heathrow Airport Limited (and its parent Heathrow Airport Holdings Limited) and Heathrow T5 Limited (and its parent Arora Holdings Limited) (the “Arora Group”) had breached the Chapter I prohibition of the CA 98.

Heathrow Airport, the freeholder, had entered into an agreement with the Arora Group for the lease of Arora’s Sofitel hotel at Terminal 5. The agreement contained a covenant governing how parking prices should be set by Arora for non-hotel guests. The CMA judged that the effect of the clause was to prevent the Arora Group from charging non-guests cheaper prices than those offered at Heathrow Airport’s car parks. Such a restriction on price competition constitutes a serious infringement of competition law, and is void and unenforceable.

Both Heathrow Airport and the Arora Group have formally accepted breaching competition law. Heathrow Airport agreed to settle the case and pay the £1.6 million fine (the Arora Group was not fined as it was granted immunity for coming forward under the CMA’s leniency programme). The CMA has sent letters to other airports and hotel operators warning against the use of similar provisions, and the Civil Aviation Authority has issued an open letter reminding those in the airport sector of the need to comply with competition law.

CMA Guidance

The CMA has adopted the guidance on ‘Land Agreements: The application of competition law following the revocation of the Land Agreements Exclusion Order’ published by the Office of Fair Trading in 2011. Whilst the guidance is very detailed, it is largely focused on technical competition law definitions. Real Estate lawyers will likely find chapter 4 of the guidance, which outlines the main factors relevant to assessing whether a land agreement would be prohibited under competition rules, and the chapter 9 worked examples of most practical use.

Whilst we await publication of the non-confidential decision, which should provide further guidance, and potentially the wording of the clause itself, the CMA has published a short checklist of “dos and don’ts” to consider when entering into a land agreement. These include a reminder that breaches of competition law can lead to:

  • fines of up to 10% of worldwide annual turnover;
  • disqualification of a director for up to 15 years;
  • claims for damages;
  • significant reputational damage; and
  • the land agreement or the restrictions being unenforceable.

Any agreements that are not compliant with competition law should be amended, and all land agreements should be regularly reviewed to ensure compliance (the CMA particularly notes the change in 2011 to remove the competition law exemption.) The CMA advises against entering into land agreements which:

  • restrict the prices at which goods or services can be supplied at from the land;
  • restrict how the land can be used with the aim of sharing or dividing up territories or customers; or
  • restrict how the land can be used to make it harder for other businesses to compete.
Comment

Real estate lawyers will note this case with interest and should consider whether it could influence the treatment of other market standard provisions in leases. A 2015 CJEU judgment on a preliminary reference from the Latvian courts found that potentially anti-competitive wording in a series shopping centre leases was not sufficiently harmful to competition. The clauses in question granted anchor tenants control over leases to competing food retailers in the same shopping centre. This type of control of tenant mix was one of the main concerns, particularly to retail landlords, when land agreements were no longer excluded from the scope of the Competition Act. However, until now it was unclear which type of clauses the CMA would take issue with.

Suzanne Hooks is a Senior Associate and Sam Harvey is a Trainee Solicitor in the Real Estate team at Bristows. Aimee Brookes is an Associate in the Competition team.

Sam Harvey

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Suzanne Hooks

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Aimee Brookes

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