Developer in legal battle with supermarket giant

A NORTH West property developer has issued legal proceedings against supermarket giant Tesco claiming it is breaching competition law.

The claim, issued by Manchester law firm Pannone Corporate on behalf of High Peak Developments, relates to Tesco’s refusal to release a restrictive covenant which enables the retailer to control how the land surrounding its store at Whaley Bridge in the High Peak district of Derbyshire can be used.

Tesco bought the land for its store back in 1997 and insisted that the surrounding land not be used in the future for the sale of food, convenience goods or pharmacy products. 

Twentyyears later, Tesco is still relying on the restrictive covenants to stop competing grocers setting up.

High Peak Developments is being advised by the real estate and competition teams at Pannone, which specialises in providing commercial advice to corporate clients from the public and private sectors.

Restrictive covenants have been commonplace within the grocery sector and have been used to prevent potential competitors from setting up on nearby plots.

High Peak Developments says that Tesco’s refusal to release the restrictive covenant affecting the land it owns, adjacent to a Tesco supermarket, breaches the Competition Act 1998.

To enable the land to be developed for retail purposes it is now seeking a declaration that the restrictive covenant is void and unenforceable, and damages for the losses incurred as a result of their inability to develop the site due to the existence of the restrictive covenant.

These types of restrictive covenants are a highly contentious issue and one that was scrutinised closely by the Competition Commission (now replaced by the Competition and Markets Authority) during its three-year investigation into the supermarket sector.

One outcome of that investigation was the Groceries Market Investigation (Controlled land) Order 2010, which requires restrictive covenants in favour of the largest supermarkets to be removed in very concentrated local markets where there is little consumer choice.

Tesco has been forced to remove similar restrictions on a number of sites in order to comply with the 2010 Order but says that the 2010 Order does not apply at Whaley Bridge.

High Peak Developments say that whether or not the 2010 Order applies, competition is still being prevented, resisted and distorted in breach of the Competition Act 1998.

It is believed to be the first time that the retailer has faced formal legal proceedings relating to this issue, in what will be a test case in the Competition Appeal Tribunal.

The case is likely to affect the enforceability of all restrictive covenants in England and Wales used to protect retailers in all sectors, and not just the grocery sector.

Gareth Birch, solicitor at Pannone, representing High Peak Developments, said: “These covenants are controversial to say the very least. Our client has attempted on several occasions to negotiate a settlement with Tesco to remove the restrictive covenant. However, despite much effort, we have now been forced to issue legal proceedings.”

“Our client firmly believes that Tesco has taken an anti-competitive stance. It also believes that a new entrant from the discount sector would better service the needs of the local community.”

In July last year High Peak Developments entered into a conditional agreement with a discount retailer to construct a new retail store providing that the restrictive covenant is first released.

The discount retailer also committed to a long term lease, assuming that the conditionality is satisfied.

High Peak subsequently entered into negotiations with Tesco and agreed to pay the supermarket an agreed sum for the release of the restrictive covenant.

Panone says the sum was confirmed in writing by Tesco’s solicitors and, in August 2015, the legal documentation to effect the release was prepared on behalf of High Peak Developments.

However, in November, the law company says Tesco changed its stance and refused to proceed with the release of the restrictive covenant.

Adam Aldred, competition specialist barrister at King Chambers who is also acting for High Peak Developments said: “The Competition Appeal Tribunal is an ideal forum for a claim like this. 

“It specialises in Competition Law, and has just introduced a new Fast Track procedure to help small businesses which are victims of anti-competitive behaviour to obtain swift justice against large corporates.”

A spokesperson for Tesco said: “We have been in commercial negotiations about a site next to our Whaley Bridge Superstore and remain willing to continue these negotiations to reach a mutually acceptable agreement.”