Competitive Constraints In Lease Agreements Of Commercial Real Estate

Parties to lease agreements often wish to agree on constraints which may conflict with prohibitions under the Competition Act. We have recently sought an opinion from the Estonian Competition Authority to ask for their specifications on competitive constraints in lease agreements of commercial real estate. As expected the position of the Competition Authority in the matter is conservative. According to explanations, a lessor and lessee whose market shares in a relevant market do not exceed 15% may not rely on exemptions laid down for agreements of minor importance. This is because the majority of problematic provisions (from the viewpoint of competition law) included in lease contracts restrict third person access to the market.

These provisions include:

lessor's obligation not to lease premises to competitors of the lessee located in the same building as the lessee's premises (lessor's exclusivity obligation) and lessee's obligation not to conduct economic activities similar to those conducted on the premises within a given meter radius of the premises e.g. prohibition on opening a similar store at a competing shopping centre (lessee's exclusivity obligation) Therefore all competitive constraints included in lease agreements are regarded as conflicting with the competition law. However, it is possible to analyse this on a case-by-case basis and to take into consideration relevant circumstances in assessing whether constraints comply with conditions established for individual exemptions:

the constraint promotes competition (e.g. in the long run the constraint contributes to increased quantity of goods offered, or decreased expenses); consumers receive a fair share of the positive effects (e.g. as a result of decreased expenses, prices to consumers will be lowered to a certain extent); applying constraint to ensure promotion...