28/07/2010

Retail landlords and tenants must ensure leases comply with competition law now, warns law firm Gordons

Competition law will now be fully applied to the retail property sector following an order this month to revoke the legislation that previously excluded property transactions from its remit. The revocation comes into force on April 6, 2011 and will not only apply to new transactions but could also see clauses in existing contracts becoming unenforceable after that date.

The change has come about following the Competition Commissions investigation into the supermarket sector and its biggest impact will be on restrictive covenants currently relied upon by retail landlord and tenants.

In many shopping centres, tenants can often insist on restrictive covenants to stop any competitors opening in the immediate vicinity. Similarly, landlords can attempt to attract tenants by saying that restrictive covenants apply to their retail parks.

This new legislation means that these types of covenant can be investigated and the penalties include damages, injunctions and fines of up to ten per cent of global turnover so it is essential that both landlords and tenants take action to prepare themselves now ahead of it coming into force next year.

The agreements most likely to be caught by this legislation are varied and include covenants in leases which limit the type of activity that can be undertaken by a tenant. Covenants in leases which prevent a landlord letting premises for a particular use may also contravene the law along with restrictive covenants in sale and purchase agreements.

To make sure that they are within the law, retail landlords and tenants need to examine any restrictive provisions in existing lease agreements and ensure any future ones are not in breach. However, it is important to note that just because an agreement is restrictive does not necessarily mean it is anti-competitive which further complicates the situation.

This legislation requires self assessment so it is essential that landlords and tenants seek expert advice to ensure that any provisions they undertake will be robust enough to withstand the full effect of the law when it comes into force next year.

Gordons has particular strengths in retail with current clients including Wm Morrison Supermarkets plc, greetings card retailer Card Factory, online and catalogue company Grattan, motor group JCT600, health & fitness business LA Fitness, fashion retailer Next and auto, leisure and cycling products retailer Halfords.

Aimed at high street and out-of-town retailers of all sizes, retail@gordons pools industry intelligence and know-how across all legal disciplines. This offers retailers a bespoke range of services which include property, employment, commercial contracts, regulatory and corporate.