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Exclusivity Clauses and Competition Law

Posted on 3 September 2019

Exclusivity clauses are clauses which are entered into by tenants within land agreements which prevent landlords leasing another portion of their land to the tenant's competitors.

Exclusivity clauses risk being anti-competitive as they are considered to raise or increase barriers to entry for competitors. This is because Chapter I of the Competition Act 1998 prohibits agreements (including land agreements) and concerted practices which have as their object or effect the prevention, restriction or distortion of competition. Breaches of competition law can result in fines of up to 10% of worldwide turnover, and in the anticompetitive clauses being unenforceable (depending on severability of clauses, the entire agreement may also be void). There is also a risk of director disqualifications and in damages actions from third parties who have suffered loss as a result of an anticompetitive agreement.

When the Competition and Markets Authority ('CMA') decides to investigate clauses such as these it will look at them on a case-by-case basis, and analyse whether they have an anti-competitive effect on the market. For example, where a land-owner leases land to a party and agrees not to allow a competitor of that party to operate on the land or other land that is owned by the land-owner, this may protect the Tenant from competition and has the potential to foreclose competitors of the lessee in a related market.

For example, a landlord of a shopping centre might guarantee one tenant the exclusive right to operate a certain type of shop in that centre. Such an agreement would protect that tenant from competition from other relevant competitors within that shopping centre and this has the potential to restrict competition on the related market.

The analysis of such clauses will vary slightly where the landlord also operates on the same market as the tenant. In such circumstances, the landlord and tenant will be competitors and the agreement will therefore be considered to be an anti-competitive agreement 'by object'. In such cases, no anticompetitive effect needs to be shown on the market for the clause to breach competition law, as such agreements are considered to be anticompetitive by their very nature.

Until recently, the CMA had not taken enforcement action in relation to anticompetitive land agreements. However, the Heathrow decision in December 2018 involving price fixing for airport carparks resulted in fines of £1.6m, and indicates an increased interest from the CMA in land agreements.

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