Alex Haffner, Partner, Competition Law, Fladgate LLP (email@example.com)
As previously reported (‘Restrictions in lease agreements: Competition law matters’) Heathrow Airport (HAL) recently found itself in the cross-hairs of the Competition and Markets Authority (CMA) for having breached the competition law rules. HAL was held to have included provisions in its head lease agreements with the hotel operator Arora which restricted Arora’s freedom to set car parking prices for non-hotel guests at its Sofitel hotel near Terminal 5. This was the first time the CMA had brought competition law enforcement action in a case involving land agreements.
The CMA has just published its full infringement decision in which it explains its findings and the calculations which underpin the fine issued to Heathrow of £1.6 million (Arora escaped any penalty as it successfully applied for leniency having brought the infringement to the CMA’s attention in the first place). The final decision is interesting in a number of respects:
- The lease restriction in practice: the CMA’s investigation found that, whilst HAL had not actively enforced the lease restriction (which stated that Arora must charge non-hotel residents for parking “at or above Heathrow airport rates”), Arora generally complied with its obligations under the lease. In particular, Arora did not try to actively undercut HAL’s car parking rates. Absent the lease restriction, Arora could have offered (more) competitively priced parking.
- Relevant market: CMA found that the relevant market affected by the lease restriction was that provision of car parking services at Heathrow Terminal 5 (ie parking options outside the terminal were not part of the same market).
- ‘Object’ restriction: the lease restriction was found to be an object restriction since it had the clear aim of protecting HAL’s car parking operations from price competition at the T5 hotel. This meant that CMA did not have to demonstrate the provision had any appreciable anti-competitive effect (although in the alternative, it found that such an effect did occur).
- Liability for fines: the CMA can impose a penalty on any undertaking which had infringed the competition law rules if the infringement is intentional or negligent. Following CMA’s decision to investigate the Arora lease, HAL decided to admit it infringed the competition law rules. This was likely enough to prove intention. In any event, CMA found that the infringement was negligent since the parties ought to have known that the lease restriction was capable of harming competition.
- Fine calculation: the decision sets out the CMA’s calculation of HAL’s fine which was £2million, reduced to £1.6 million on the basis that HAL agreed to “settle” and admit the infringement. HAL also received a 10% reduction in the fine it would otherwise have received for introducing an enhanced competition compliance programme.
Publication of this decision is another reminder that parties should regularly check that their lease agreements are compliant with the competition law rules. This applies as much to existing leases as new ones: the HAL/Arora lease was originally entered into in 2005 and took effect from 2008. It was only in January 2018 after the CMA began its investigation that HAL formally confirmed it wouldn’t enforce the restrictions. HAL’s fine was therefore increased significantly on the basis the infringement had lasted nearly 10 years.