Competition law and lease renewals!


Author: Alison Mould


In 2011 real estate agreements, including leases, became subject to the full scrutiny of the Competition Act 1998. Its impact was going to be uncertain and many commentators and lecturers ended pieces with “only time will tell”.

Well, earlier this year “time told” in a decision in the Central London County Court. It is thought to be the first real decision on the topic and, whilst a county court is a lower court and doesn’t have the precedent-making capabilities of the High Court, Court of Appeal etc., it is still currently binding law.

The facts of the case were these. Martin Retail Group Limited (Martins) were the tenants of premises at 6 Furnace Parade, Crawley. Their landlords were the local authority, Crawley Borough Council (Crawley). Crawley owned the parade of shops of which Martins was one. The parade contained 11 shops which served the post-war housing estate, at Furnace Green. The lease was protected by the terms of the Landlord and Tenant Act 1954. When the contractual termination date of the lease was reached in March 2011 the parties went through the usual renewal procedure. However, an issue developed in relation to the user clause in the lease. The user clause in Martins’ existing lease stated:

“Not to use the shop forming part of the premises for any purpose whatsoever other than a retail shop nor to carry on upon such premises such trade business or manufacture other than the retail trade of newsagents tobacconist confectionery stationery and the sale of books toys records fancy goods and greeting cards”.

On renewal of their lease Martins wanted to extend this clause to allow the shop to sell groceries, household groceries and wines and spirits. Crawley were prepared to allow Martins to extend the user clause slightly to allow for the sale of CDs and lottery tickets but no further. A dispute arose which was referred to the court as part of the lease renewal proceedings.

Martins argued that the restriction on their use breached Chapter 1 of the Competition Act 1998 i.e. the user clause restricted competition in the sale of convenience goods on the parade of shops of which Martins’ unit formed part.

Crawley accepted this, which is disappointing to many commentators as the court’s view on the arguments as to whether or not there was a restriction, and what was required to create a restriction, would have been helpful guidance in this area of law.

Crawley argued, however, that the lease should be the subject of an exemption from the Competition Act due to its specific circumstances. The judge disagreed, holding that no exemption applied.

The judge concluded that the user clause proposed by Crawley in the lease in relation to these specific premises did limit competition and hence breached the Act.

The judge’s decision was based on the definition of the “market” in question. He placed great reliance on the fact that the nearest alternative convenience store was a Tesco Express some 1,000 metres away. The other nearest stores were 1,200 and 1,500 metres away. The parade of shops in question was the only parade within that particular estate. People were reluctant to walk more than a short distance, the judge felt, to a convenience store, so the definition of the market place was narrow, given the facts in question. Based on the market in question competition would be limited were this restrictive user clause to be allowed into Martins’ lease.

As every law professor will tell you, “every case turns on its own facts”. However, tenants of similar premises will of course now use this case to argue against restrictive user clauses in leases and anchor tenants will worry that their dominant position may no longer be quite so secure. Again, only time will tell what the higher courts make of this decision, but it looks as if the floodgates may have opened.

Alison Mould, Partner, Fladgate LLP (amould@fladgate.com)

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