Bad apples? Anti-competitive clauses in supermarket leases.

What is competition law?

The object of competition law is to ensure that businesses compete with each other fairly, by maintaining market competition and discouraging anti-competitive behaviour by companies.

It is not too often that a competition law matter crosses the desk of a property lawyer. However, it is always a consideration to be alive to – particularly in the leased retail sector.

Anti-competitive supermarket leases – The 2010 Order

One such instance of the two areas of law intertwining is the Groceries Market Investigation (Controlled land) Order 2010 (the “Order”).

This is an order which was issued in 2010 by the Competition Commission (now the CMA), following an investigation by the CMA into anti-competitive property arrangements by 7 well-known grocery retailers across the UK.

The investigation specifically focused on land agreements (for example, leases of property) which contained clauses aimed at restricting or preventing other grocery retailers from trading in the same locality, i.e., in the same shopping centre or retail park.

Such clauses are often referred to as “exclusivity clauses” or “restrictive covenants”.

The Order applies only to the 7 retailers listed (Tesco, Sainsbury’s, Morrisons, Asda, Co-op, Waitrose and Marks and Spencer). The Order also lists each land agreement that was found to contravene UK competition law.

Closer to home, it identified 8 supermarkets in Northern Ireland which were found to be in breach of competition rules. These comprised three Sainsburys stores, in Newry’s The Quays Shopping Centre, Ballymena Braidwater Retail Park and Armagh’s The Mall Shopping Centre. Four Tesco stores were also named: Portadown Meadow Centre, Abbey Retail Park in Newtownabbey, Limavady and in Cookstown. The Asda supermarket in Downpatrick was also named in the Order as having an anti-competitive clause in place.

Consequences of the Order

At the time the Order was made, the grocery retailers in question were compelled to take positive action to remove the contravening clauses from the named and shamed land agreements.

The Order also provided that if, after 5 years the clauses remained in the agreements, they would be regarded as unenforceable if the grocery retailers sought to rely on them in future.

It is important to note that the effect of the Order was not simply to clamp down on anti-competitive clauses which existed at the time of the Order. Its object is also to prevent anti-competitive clauses being introduced into land agreements, by the 7 retailers affected, after the Order was issued.

The CMA can investigate such clauses if reported to them and if contraventions of the Order are found, the CMA will contact the grocery retailer in question directly – and publicly!

Examples of this can be seen most recently in an Open Letter written by the CMA to the upmarket grocery retailer Waitrose in September 2022.

In the letter, the CMA requested Waitrose to remove restrictive trading clauses from seven of its land agreements in different locations. Waitrose’s response was positive and swift, promising to rectify the seven non-compliant land agreements.  

Prior to this, the CMA wrote to Tesco in February 2020, identifying 23 instances of non-compliance with the Order and requesting that these be removed from the relevant land agreements. Like Waitrose, Tesco responded positively by cooperating with the CMA to take remedial action in respect of its contravening land agreements.

What if you’re not one of the “Big 7”?

The terms of the Order only apply to the 7 grocery retailers listed, so what are the rules for everyone else?

There is no simple answer. Indeed, a recent ruling by the Supreme Court[1] concluded that a restrictive covenant in a lease to Dunnes Stores which prevented the owner of a shopping centre from leasing other parts of the centre to competitors of Dunnes Stores, was an acceptable and enforceable clause. 

A clause of this nature, if included in one of the “Big 7”’s land agreements, would more than likely be found to contravene the 2010 Order and be deemed unenforceable.

Above all, this ruling shows that competition law should be on the radar of commercial property owners and tenants and the enforceability of restrictive covenants or exclusivity clauses will turn on their own facts and circumstances.

This is evidently a complex area of the law and if such clauses are included in a land agreement, the issue should be carefully navigated with expert legal advice.

Questions?

Mills Selig’s Commercial Property team are experienced in reviewing and advising on exclusivity clauses and restrictive covenants in commercial property agreements. Please contact a member of the team if you have any questions.

---

[1] Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd [2020] UKSC 36

---

Editorial prepared by Jayne Paterson, Consultant, Commercial Property @ Mills Selig

If you have any further questions on this topic or require specialist advice, please get in touch with:

Anna-Marie McAlinden, Partner, Commercial Property and Head of Climate & Energy

---