Restriction On Tenant's Use Was Unlawful

Summary and implications

A proposed restriction on a tenant's use of its property has been struck down as void under competition law (Martin Retail Group Ltd v Crawley Borough Council). This is the first reported case on how competition law applies to a user covenant in a lease.

In this case, the tenant was Martin Retail Group, which operated a newsagent in a parade of shops in Crawley, East Sussex. The parade was in the centre of a housing estate and both the parade and the majority of the houses on the estate were owned by Crawley Borough Council.

The dispute between Martin's and the Council arose when Martin's wanted to renew its lease under the Landlord and Tenant Act 1954. Martin's wanted to expand the user clause in its lease, to enable it to sell alcohol and convenience goods. The Council objected to this and proposed a clause which expressly excluded the sale of alcohol, grocery and convenience goods.

The judge had to decide whether the clause proposed by the Council was valid under competition law.

The impact of competition law on property contracts

As from 6 April 2011, the competition law regime under the Competition Act 1988 (the Act) applies to property contracts. There are no transitional provisions for the Act, so the competition regime will apply to property contracts whenever they were entered into.

Under the Act, an agreement will infringe competition law if it affects "trade within the UK and has as its object or effect the prevention, restriction or distortion of competition within the UK". This is known as the Chapter I prohibition.

Exemptions to the competition law regime

However, under section 9(1) of the Act an agreement may be exempt from the Chapter I prohibition if the agreement satisfies the following conditions:

the agreement contributes to improving production or distribution, or technical or economic progress; it allows consumers a fair share of the resulting benefits and it only imposes restrictions which are necessary to achieve those objectives and it does not allow the parties to eliminate competition in respect of a substantial part of the products in question. The Council's arguments

The Council conceded that the restricted user clause would be anti-competitive, as it would restrict competition for the sale of convenience goods in the parade. The Council therefore...