Lease Permitted Use Restrictions Can Breach The Competition Act 1998

The Central London County Court has ruled that a user restriction in a lease breaches the Chapter I prohibition in the Competition Act 1998.

The Chapter I prohibition prohibits certain agreements that are deemed to be anti-competitive. These include agreements that have an effect on trade and restrict competition. Since 6 April 2011, the Chapter I prohibition has applied uniformly to all land agreements without exception, in just the same way as it applies to any other type of agreement.

Article 9(1) of the Competition Act contains criteria for agreements to be exempt from the Chapter I prohibitions.

It is relatively common for leases to specify the ‘permitted use’ of a shop or unit, for example so the landlord can control the type of shops in a larger shopping centre or development. The permitted use under a lease is separate to the permitted planning use, and often more restrictive.

In the recent case of Martin Retail Group Limited v Crawley Borough Council (Case 3CL 10014), Central London County Court, 24 December 2013 the Chapter 1 prohibition and exemption was considered.

The landlord conceded that the permitted use clause restricted competition. The judge commented that, on the facts, this was the correct decision.

Accordingly the Court considered whether the permitted use clause satisfied the exemption conditions under Article 9(1). In conjunction with the four conditions in Article 9(1) the Court used Guidance prepared by the Office of Fair Trading to reach a decision.

The Court concluded that the permitted use clause, within the context of the letting scheme, would breach the prohibitions contained in Chapter I and the Article 9(1) exemption was not applicable.

It should be noted that the above case only constitutes guidance and the outcome is likely to differ depending on the specific terms of the lease and situation.

This case is of interest to both landlords and tenants, whether in connection with the grant of a new lease, an assignment or a proposed change of use to an existing lease.

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