OFT given power to challenge supermarkets’ restrictions on land use

The Office of Fair Trading (OFT) announced this week that from 1st July 2012 businesses will be able to apply to the regulator to challenge restrictions on land use put in place by supermarkets in order to control competition in local grocery markets.

Under the new procedure businesses will be able to make an application to the OFT where they are prevented from using land in particular way by a restrictive covenant or exclusivity arrangement that benefits one of the seven leading supermarket chains – Asda, the Co-operative Group, Marks and Spencer, Morrisons, Sainsbury’s, Tesco and Waitrose.

Upon receiving an application to lift a restriction on land use, the regulator will first undertake a ‘local market share test’ to assess the level of competition in the local area. If the restriction fails the test, the regulator will not have the power to remove the restriction itself, but it can require the supermarket to use its best endeavours to remove the restriction. If the supermarket is unable to remove the restriction they must undertake not to enforce the restriction under any circumstances.

A restrictive covenant is a legal obligation relating to a piece of land which places an onus on the owner or occupier not to do something with that land. In the case of restrictions put in place by supermarkets, such a restriction will prevent the land owner from using the land for a supermarket location.

An exclusivity arrangement is an agreement between the supermarket and landowner preventing another grocery store operating on the site, or limiting the extent to which such a business can operate.

These additional powers were awarded to the OFT following an investigation into anti-competitive practices in the grocery sector carried out by the Competition Commission (CC) in 2008. The CC identified several factors within the market which prevented and distorted competition in favour of medium – large operators such as those named above.

The findings of the CC’s investigation led to a ban on any new restrictive covenants of this nature from 10 August 2010 and any new exclusivity arrangements agreed after this date were not allowed to restrict grocery retailing for a period longer than five years starting on the date the benefitting store began trading.