Developers warned over competition law change

PROPERTY developers and land owners have been warned they could face fines and deals ruled void when land agreements become subject to competition law.

Leases, transfers and other land agreements will have to meet the demands of the Competition Act from April, outlawing a range of practices including price fixing or limited output.

The Office of Fair Trading will have the power to impose fines of up to 10% of the land owner’s global turnover and agreements judged to be in breach of competition law will be deemed void unless the offending clauses can be removed.

Allison Clarke, from law firm DLA Piper’s real estate team in Sheffield, said: “Although the new rules wont come into force until April next year, they will be applied retrospectively, meaning businesses need to start looking at their agreements now.

“Further guidance on the new rules will be issued in the autumn, but the sooner land owners start self assessing their agreements to identify any potential issues, the more time they will have to change covenants as needed, to avoid falling foul of the new legislation and incurring heavy penalties.”

The agreements lawyers believe are most likely to be caught by this legislation include covenants in leases which limit the type of activity that can be undertaken by a tenant or prevent a landlord letting premises for a particular use.

Janine Eaglesfield, head of retail at law firm Gordons, said: “In many shopping centres, tenants can often insist on restrictive covenants to stop any competitors opening in the immediate vicinity. Similarly, landlords can attempt to attract tenants by saying that restrictive covenants apply to their retail parks.

“This new legislation means that these types of covenant can be investigated and the penalties include damages, injunctions and fines of up to ten per cent of global turnover so it is essential that both landlords and tenants take action to prepare themselves now ahead of it coming into force next year.”