Competition conundrum

How do these changes work in practice, and do they just represent problems for supermarket and property clients, or might they produce unexpected opportunities for some?

Groceries Market Investigation (Controlled Land) Order 2010

On 30 April 2010 the Groceries Market Investigation (Controlled Land) Order 2010 (the Controlled Land Order) came into force to govern the effect on competition of retail delivery by the 'big 7': Asda, Co-op, M&S, Morrisons, Sainsbury's, Tesco and Waitrose (known as large grocery retailers (LGRs)).

The Controlled Land Order outlaws restrictive covenants and exclusivity arrangements which burden land to the benefit of LGRs and to the detriment of competition. Examples include a covenant or contractual arrangement with an adjoining landowner, or with the landlord in a shopping centre, not to allow another grocery store to operate or otherwise to restrict or limit the sale of groceries.

The Controlled Land Order requires LGRs to release existing restrictive covenants that restrict or may restrict grocery retailing competition and not to enter into new such covenants. It requires LGRs not to enforce certain exclusivity arrangements that restrict or may restrict grocery retailing competition after a period of five years, and not to enter into new such arrangements. The Controlled Land Order also requires LGRs to notify the OFT within four weeks of entering into an agreement to acquire any grocery store with a net sales area of more than 1,000 sq metres, or of entering into an agreement to acquire an interest in a site that has been used for a grocery store with a net sales area of more than 1,000 sq metres during the 12 months prior. The notification must provide specific sales area and planning data. The OFT has the power to require records, information and documents from any person to whom the Controlled Land Order applies.

To determine whether a covenant or arrangement may restrict competition, the OFT applies a test which is set out in Schedule 4 of the Controlled Land Order, and which came into effect in July 2012. The test will be failed (and therefore covenants/arrangements deemed anti-competitive) if the total number of relevant grocery store fascia in a relevant 10-minute drive time isochrone is three or fewer and the LGR has a share of greater than 60 per cent of the groceries sales in the area. (A 10-minute drive time isochrone is a radius around the site which is burdened by the restrictive covenant or exclusivity arrangement, which is measured by reference to a 10-minute drive, taking into account factors such as one-way systems, traffic flows and restrictions, speed limits and the like.)

There are some very narrow exceptions where anti-competitive restrictive covenants or arrangements may be permitted, but these are specific and rare. In short, if you are, or if you act for, an LGR, alarm bells must now ring in relation to any land transaction which seeks to thwart competitors.

Breach of the Controlled Land Order constitutes a breach of statutory duty, and any person may bring a claim against an LGR for compensation as a result. The Competition Commission may give directions requiring compliance and both the OFT and the Competition Commission may seek to enforce compliance by civil proceedings for an injunction or for any other appropriate remedy. Falling foul of competition law could therefore be costly to an LGR, in terms of cold hard cash, consumer confidence and reputation.

What does all this mean for LGRs and property clients generally?

LGRs should assess whether arrangements within their existing and pending property portfolio burden land to the detriment of competition. If there is any potential for this, advice should be taken as to whether an exception might apply (so as to permit the arrangement in any event), or whether action must or should be taken.

LGRs should implement systems to enable compliance with their new OFT notification obligations.

LGRs should also review and consider the position with any land which might be owned and surplus to requirements (for example, land may have been tactically acquired with a view to negotiating arrangements to protect market share). In light of the Controlled Land Order, does it now make sense for any such land to remain within the LGR's ownership indefinitely? Can arrangements be made to bring the land within an exception? Is there value in selling the land to, say, residential developers, to indirectly protect the LGR's position without using prohibited arrangements?

Other property owners and occupiers should consider whether there is any scope within their real estate portfolio or on any potential site acquisitions to remove the burden of anti-competitive restrictions imposed by LGRs.

For smaller grocery retailers, does this legislation enable their expansion into sites previously thought 'off-limits'?

For speculative developers, are there now likely to be sites close/adjacent to LGRs which may be ripe for acquisition and development in a mutually beneficial deal with the LGR?

Finally, LGRs and other property clients alike should monitor, on an ongoing basis, traffic and development arrangements, as well as grocery retailing percentages in the vicinity of existing properties or target acquisitions, as isochrones (and therefore the Schedule 4 test findings) will be ever-changing.

Next time... The Land Agreements Exclusion Revocation Order 2010 and the application of competition law to all property contracts.

Marie-Louise Gobbi is an Associate at Walker Morris. She can be contacted by This email address is being protected from spambots. You need JavaScript enabled to view it..