Traditionally, with commercial (business) leases, a contractual provision within the lease specifies the use, or uses to which a property may be put and the uses which are prohibited.
The formal classification of “Uses” are set out in the Town and Country Planning (Use Classes) Order 1987 as amended, which is a statutory instrument defining various use classes.
The wording of a User Clause in a lease is can determine whether the Use specified is restrictive or non-restrictive and can affect the open market rental value of a property. This has been important when conducting rent reviews.
However, in April 2011, changes to UK competition law meant that leases and other land agreements became subject to the rules in Chapter I of the Competition Act 1998, which prohibit the prevention, restriction or distortion of competition.
Up until April 2011 these clauses in property leases (land agreements under the Land Agreements Exclusion Order) were exempt from the Competition Act 1998 rules. However, due to concerns about potentially anti-competitive restrictions on land use, the Office of Fair Trading, which is now part of the Competition and Markets Authority, issued guidance on how the law should apply to land agreements.
This guidance indicates that, in most cases, User Clauses in lease contracts, whether permitted user or restricted user clauses, are unlikely to restrict competition, unless a landowner (landlord) is “active in a related market and seeks to restrict the use of his land in order to thwart his competitors.”
However, in the case of Martin Retail Group Ltd v Crawley Borough Council (2013) the first opportunity to consider whether a lease User Clause falls foul of the Competition Act rules arose.
It was found that the User Clause did in fact fall foul of the Competition Act rules and was held to be unenforceable because it was breaching competition law.
The case involved newsagents, the Martin Retail Group, which rented a newsagents shop in a parade of 11 shops owned by Crawley Borough Council.
All of the shops in the parade and other shops and parades owned by the Council had restrictions on uses in their leases to a particular trade or business.
When Martin’s lease came up for renewal they applied to widen their permitted use to include the sale of groceries and alcohol and other related products. The Council rejected the request and it went to Court.
The Court decided that the user clause was anti-competitive. The Court found the user clause did not meet the criteria for individual exemption under the Competition Act 1998.
Here, the Council’s case fell down on lack of substantive evidence and is not conclusive given this was at County Court level and not the High Court.
It is not known why the case did not get transferred to the High Court, as this is usual in cases involving competition issues.
In future, each case will be assessed on its own merits: location, alternative sites, duration and impact of the relevant provision.
The issue is important as these rules apply to existing leases as well as new agreements going forward.
A claim for exemption will in future need to be backed by substantive local research and independently produced evidence which will stand up to cross-examination.
Any attempt to create a local monopoly by restricting uses is unlikely to be unenforceable unless the parties can prove it meets strict competition law criteria.
By Tom Entwistle, LandlordZONE®
30 September 2014
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