Court says permitted use restriction breaks competition law

Court says permitted use restriction breaks competition law

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Author: Sarah Livestro

In a judgment that is likely to attract considerable attention, the Central London County Court has ruled that a permitted use restriction in a lease is anti-competitive and unenforceable.

Until 2011, the UK Land Exclusion Order exempted "land agreements" from the ban on anti-competitive agreements. This meant that "permitted use" restrictions - which restrict a tenant's ability to carry on certain activities from leased premises - did not breach the UK competition law rules. Although the Order is no longer in force, the view of the UK competition authorities - as set out in official OFT guidance - has always been that permitted use restrictions are unlikely to restrict competition. As a result, both landlords and tenants could be fairly confident that this type of restriction would ordinarily be legal and enforceable.

Both groups may be feeling slightly less assured after the recent judgment of the Central London County Court in Martin Retail Group v Crawley Borough Council. In that case, a dispute had arisen between the council and its tenant MRG, who wished to use premises leased from the council as a convenience store - a use prohibited by a permitted use restriction in the lease. MRG argued that the provision restricted competition.

The presiding judge agreed. He noted that in the parade of shops where the premises were located, only one outlet was permitted to operate as a convenience store -- and so in effect was protected against competition from other shops in the parade. Since the effect of the clause was to restrict competition in the sale of convenience goods on the parade, the council conceded that it fell within the scope of the ban on anti-competitive agreements - a conclusion with which the judge agreed. And since the council was unable to prove that the clause generated any substantial pro-competitive effects, it was therefore void and unenforceable.

Whilst this case may, to an extent, turn on its own facts, its consequences may nevertheless be significant. Tactically, tenants may be more inclined to use competition law arguments against a landlord seeking to impose or enforce a permitted use restriction, given the success of the claimant in this case. And, given the relatively broad interpretation given to the competition law rules by the presiding judge here, landlords may be minded to consider competition law more carefully before seeking to impose such a restriction their tenants.