NON-COMPETITION CLAUSES IN COMMERCIAL LEASES


NON-COMPETITION CLAUSES IN COMMERCIAL LEASES

NON-COMPETITION CLAUSES IN COMMERCIAL LEASES

The property sector is having to come to terms and is still trying to understand competition law. There have been several challenges to determine the lawfulness of non-competition clauses in leases and estate management agreements.

NON-COMPETITION CLAUSES IN COMMERCIAL LEASES

NON-COMPETITION CLAUSES IN COMMERCIAL LEASES

The property sector is having to come to terms and is still trying to understand competition law. There have been several challenges to determine the lawfulness of non-competition clauses in leases and estate management agreements.

The recent ECJ decision in a Latvian case provides useful guidance on the lawfulness of non-competition clauses in commercial leases.

In 2013 a Latvian court applied to the ECJ for a preliminary ruling on the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) as to whether a tenant’s right of refusal on competing tenants in shopping centres should be considered a restriction of competition by object under Article 101 (1) of the TFEU.

BRIEF FACTS OF CASE

The brief facts of the case are that one of Latvia’s largest chain of supermarkets, Maxima Latvija, was party to several lease agreements with shopping centres that granted Maxima Latvija the right to agree to the allocation of commercial premises to other tenants. Thus allowing Maxima Latvija to block competition on the shopping estate.

At the local hearing in 2013 The Latvian Competition Council held that the offending agreements infringed Article 11(1) of the Latvian Law on competition, which is based on Article 101 of the TFEU.

Maxima Latvija appealed the decision to the Latvian Supreme Court. The Latvian Supreme Court referred the matter to the ECJ.:

DECISION OF ECJ

Upon considering all the facts the ECJ made the following observations:

1. To be caught by the prohibition laid down in Article 101(1) TFEU, an agreement must have ‘as [its] object or effect’ the prevention, restriction or distortion of competition within the internal market.

Accordingly, where the anti-competitive object of the agreement is established it is not necessary to examine its effects on competition. Where, however, an analysis of the content of the agreement does not reveal a sufficient degree of harm to competition, the effects of the agreement should then be considered and, for it to be caught by the prohibition, it is necessary to find that factors are present which show that competition has in fact been prevented or restricted or distorted to an appreciable extent.

The Court ruled that in the light of all the considerations Article 101(1) TFEU must be interpreted as meaning that the mere fact that a commercial lease agreement for the letting of a large shop or hypermarket located in a shopping centre contains a clause granting the lessee the right to oppose the letting by the lessor, in that centre, of commercial premises to other tenants, does not mean that the object of that agreement is to restrict competition within the meaning of that provision.

2. The Court held that the effects of an agreement on competition must be assessed in the economic and legal context in which it occurs and where it might combine with others to have a cumulative effect on competition. Therefore, a holistic approach needs to be adopted when considering anti-competition law.

COMMENT

This decision is in my opinion a welcome one and one that serves to clear up the uncertainty in this important area of property law. It is a decision where common sense prevails in favour of commerce and free trade. The ECJ appears to have taken the stance that provided there is no abuse of competition laws landlords and tenants should be able to leverage their commercial strength in order to operate efficiently and effectively.

At GloverPriest we have experts who can advise you on all commercial matters.

For further information on anything contained in this guide please contact our Head of Commercial, Ifzal Akhtar, Email: - Ifzal.Akhtar@gloverpriest.com

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