Prepared for the competition?

The Land Exclusion Revocation Order is due to come into effect this month. This will mean commercial property transactions become subject to scrutiny under the Competition Act 1998 and the Enterprise Act 2002, whereas previously they were exempt. This may not sound particularly exciting, or perhaps even relevant, but it could, in fact, be the most significant change in property law for decades.

Introduced to ensure fair play in the marketplace by preventing anti-competitive practices, the Competition Act 1998 stated that criminal sanctions could be levied against organisations that either entered into anti-competitive agreements with another organisation, or abused a dominant position. Under the terms of the act, any legal entity, such as a company carrying out an economic activity, may be affected by the legislation; this includes public sector clients.

Once the land exclusion block is removed, any company or person involved in commercial property transactions, the development of commercial property, those involved in owning or leasing commercial property and, of course, those advising in relation to commercial property matters, will be affected. The sorts of agreements that will be affected by the Land Exclusion Revocation Order include transfers, leases and assignments as well as the creation of easements and licences.

Whatever happens, it is well worth preparing for this change now, so that the removal of the exemption doesn’t come as a surprise

The regime is administered by the OFT, which has wide ranging powers, and the consequences of the findings of an anti-competitive agreement could be significant. Aside from the inconvenience that an OFT investigation would have - potentially lasting up to two or three years - and the fact that land agreements may be declared unenforceable or void, a breach could land an organisation with a fine of up to 10% of its group worldwide turnover. Combined with a breach of the Enterprise Act 2000, this means that individuals could also be fined, disqualified or imprisoned.

While there will be a transitional period to allow for assessment of agreements, there is little detail on this from the government at the moment. It is expected that the government will provide guidance, but the nature and extent of this is unknown. It may be possible, for example, to protect some land agreements within the general block exemption from the effects of the act and it will be necessary for commercial entities to consider whether the block exemption criteria can be met.

Whatever happens, it is well worth preparing for this change now, so that the removal of the exemption doesn’t come as a surprise.

One of the first things that can be done is to ensure that employees are trained and knowledgeable when it comes to compliance with competition law. This will mean that
the negotiation and management of current and future land agreements will comply with the changes.

All future land agreements will need to be risk-assessed against any potential commercial implications of competition law. However, when it comes to existing land agreements, organisations can think about undertaking a full audit to identify any areas of concern now.

Any land agreements that are currently being negotiated will need to be reviewed to ensure that they will comply with competition law. Additionally, any amendments that may be necessary to existing agreements need to be considered to ensure that they remain enforceable once the revocation order is in place.

It is unlikely there will be an immediate change in the present climate, but in perhaps eight to 12 months’ time we may see parties that are interested in challenging particular arrangements using this as a way of bringing pressure to bear.

Whether this turns out to be a white elephant or not, by taking action now organisations can ensure they are in the best possible position to avoid any breaches of competition law.

Simon Lewis is a partner in Dickinson Dees