Land Exclusion Order revoked – what does this mean for exclusivity covenants?

On 29th June, the Government formally revoked the Land Agreement Exclusion Order relating to the Competition Act.

This revocation will not come into force until 6 April 2011 which means that property owners and occupiers have some further 10 months to assess the implications and to ensure compliance with the Competition Act.

The abolition of the Order means that the exemption, which the real estate sector had for land agreements will no longer exist.  They will now be treated in much the same way as any other commercial agreement and will be subject to the prohibition in the 1998 Act, which applies where an agreement affects competition and trade in the UK.

Most land related agreements do not affect competition and therefore the revocation will have no practical significance.  However, there are a significant number of retailers in particular who, when taking leases for new stores, try to impose obligations on their landlords not to allow competing uses within a particular retail scheme.  These types of covenants come in all shapes and sizes ranging from preventing other named competitors from occupying any part of the scheme to restricting the sale of particular types of goods and/or provision of services – sometimes just on first letting and sometimes for specific periods.

The OFT has promised high-level guidance on land agreements going forward.  The latest information is that the draft guidance will be issued for consultation in the Autumn.

In the meantime, those retail occupiers who routinely insist upon exclusivity covenants should start to review what action they may need to take.