Law shake-up to boost retail park diversity

RETAIL developments in Yorkshire and Humber are set to benefit from a major change to anti-competitive legislation which aims to create more available space for businesses and stimulate lettings.

Legal changes which took affect in April have brought all commercial land agreements under the Competition Act 1988, which will increase the diversity of retail parks and value for shoppers, according to Yorkshire’s property experts.

The property sector was previously excluded from the legislation to avoid uncertainties about the legal position of land agreements leading to a large number of documents being sent to the Office of Fair Trading, which enforces the legislation, for approval.

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A central element of the legislative changes – The Competition Act 1988 (Land Agreements Exclusion Revocation) – is that agreements which include exclusivity clauses will be declared void with the potential for financial penalties and even director disqualifications being imposed for companies guilty of serious anti-competitive behaviour.

Steven Mason, an associate in the leisure team in the Leeds office of Jones Lang LaSalle, said: “Over the years, as retail parks have been developed, many tenants have sought and been granted exclusivity clauses which ensure that a competing retailer will not be introduced to the same scheme.

“While this change in the law, which requires retailers and landlords to self-assess potentially anti-competitive behaviour, is initially being approached with some uncertainty, it will ultimately be good for retail parks by freeing up more units and stimulating property market lettings activity, consumer choice and eventually the economy.

“After studying the legislative changes, which have yet to be seriously tested, and discussing the implications with retail park owners and property lawyers it is clear that less high-profile competitors are likely to benefit the most and will snap up the opportunity to do so as confidence slowly returns to economic recovery.”

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The main benefit to these competing retailers – as well as being able to find space on retail parks where exclusivity contracts may have previously barred them – will come from how the retail parks are marketed, according to Mr Mason.

He said: “Clearly it is not possible for a market-leading retailer with a large TV advertising budget to publicise its presence at a particular retail park without attracting footfall which may now also benefit competitors who, until this change in the legislation, would not even have been there.

“As shoppers seeking value regularly visit price-comparison websites, the hidden consumer benefits of this legislation are clear.”

The changes to the Competition Act 1988 stem from the Competition Commission’s 2008 report, which found that, in highly concentrated property markets, such as the groceries sector, land agreements that restrict grocery retailing had an adverse effect on competition.

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The Office of Fair Trading (OFT) has published draft guidance on how competition law will apply to land agreements, which include leases, assignment of leasehold interests and transfers of freeholds.

One example is where a landlord is developing a shopping centre and needs an anchor tenant to make it viable. If the anchor tenant required exclusivity for the entire lease term, the OFT believes this could be anti-competitive, but might be acceptable if the exclusivity is for a limited period.

However, Nick Dyson, a partner at Blacks Solicitors in Leeds, said the grey area surrounding self-assessment complicated the legal position, particularly as the guidance says restrictions on leases are sometimes necessary to make sure there is a good mix of tenants.

The law could have implications for retail developments such as Eastgate Quarters, which has already signed up John Lewis and Marks & Spencer as anchor tenants, he said.

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“There are loopholes and lots of areas where you can argue that what you are wanting to restrict is necessary,” he said.

He added: “For example, when Harvey Nichols opened as an anchor tenant at the Victoria Quarter they would have had a long rent-free period and they would have said they were the only department store in there, but they could argue it’s to ensure a good mix of tenants.

“The new laws came in to stop supermarkets from land banking and monopolising certain areas. The new legislation is a good thing because it will improve competition.

“However, developers and landlords will have to plan how they review their retail parks and could spend a lot of money on advice. It’s not going to have a massive impact on the industry – it’s just another layer of bureaucracy for the few people who will be affected by it.”

What anti-competitive behaviour could mean

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Examples of anti-competitive behaviour within the retail property sector could include:

Lease covenants that limit the types of activities a tenant may carry out on the property, especially if it is intended to protect the landlord or other tenants from competition.

Clauses that restrict landlords from letting other premises to competitors of the tenant.

Restrictions that require the tenant to obtain certain goods and services from one supplier.

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Restrictions accepted by a vendor of a property not to sell adjacent property to a competitor of a buyer.

A breach of the law could lead to fines of up to 10 per cent of worldwide group turnover and unlimited damages to affected third parties.

In addition, the changes to the law can be applied retrospectively, so property owners, landlords and tenants should review restrictive provisions in existing agreements.

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