Lease restriction lands Heathrow Airport with £1.6m parking fine

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Heathrow Airport Limited (HAL) and its parent company, Heathrow Airport Holdings Limited, will be fined £1.6m by the Competition and Markets Authority (CMA) for granting a lease containing an anti-competitive restriction on pricing.

HAL leases the Sofitel at Terminal 5 to the Arora Group. The tenant's covenants in the lease restrict the Arora Group's ability to set parking charges at the hotel for non-hotel guests. Chapter I of the Competition Act 1998 (which mirrors the equivalent provision under EU competition law) prohibits agreements which prevent, restrict or distort competition. The CMA investigated whether the covenant in the Sofitel lease prevented the Arora Group from charging non-guests prices below those offered at other airport car parks.

While the full decision is not yet available, the CMA has provisionally found that the covenant restricted price competition. HAL and the Arora Group have accepted this and have agreed to remove the covenant from the Sofitel lease. The Arora Group was granted immunity from fines for disclosing the agreement to the CMA. HAL cooperated with the CMA's investigation and entered into a settlement agreement. HAL will pay a £1.6m fine, reduced by 20% from £2m for HAL's cooperation.

This is the first time the CMA has taken enforcement action in connection with a provision in a land agreement. While further details are still to be released, the CMA's announcement confirms several key points:

  1. Competition law applies to all land agreements. Under UK competition law, a land agreement creates, alters, transfers or terminates an interest in land1. If such an agreement is considered to be an unlawful anti-competitive agreement, both parties to it will have infringed competition law, including the party accepting an offending restriction.
  2. No exemption for old land agreements. There is no time limit on infringing UK competition law, and no exemption from UK competition law for land agreements entered into before any particular date, no matter how old they may be.
  3. Take particular care if your land agreement restricts prices, shares or allocates markets, or contains restricted user or exclusivity covenants. While the CMA's guidance states that permitted and restricted user clauses are unlikely to restrict competition in most cases2, user restraints and exclusivity have previously been challenged under competition law:
    • In Martin Retail Group Limited v Crawley Borough Council, the court found that a permitted use restriction would be anti-competitive and was not exempt from the Chapter I prohibition3;
    • The European Court of Justice held that an agreement allowing Latvian supermarket Maxima Latvija, as anchor tenant of a shopping centre, to prevent its landlord from granting leases to competing retailers may have the effect of restricting competition4;
    • Earlier this year, the Czech Competition Authority fined the landlord of an outlet centre for restricting tenants from opening in competing outlet centres within a particular radius5.

    Price restrictions and market sharing agreements are hard core restrictions under competition law and are unlikely to be permitted.

  4. Be vigilant where the restriction relates to a specialist site or land where space is at a premium. An agreement needs to have an appreciable effect on competition to breach the Chapter I prohibition. A competition authority is less likely to find (or prioritise enforcement over) a restriction where the party bound by the restriction could have chosen between alternative sites, some of which may not have been restricted. In the Heathrow case, car parking at airports is at a premium.
  5. Parties with market power should be especially wary of putting provisions in place which may restrict competition. The Heathrow case concerns the competition prohibition on anti-competitive practices and agreements, but competition law also prohibits the unilateral abuse of a dominant market position, which includes imposing unfair terms on a counterparty. As a general guideline, businesses may be considered dominant where they have a market share of 40% or more (although dominance can be established with lower market shares).
  6. If in any doubt, check the restriction with a competition lawyer before signing the land agreement. Competition investigations lead to considerable disruption and cost to a business, and the consequences for breach of competition law are severe. Businesses risk fines of up to 10% of their global group turnover and exposure to damages actions. In some cases, individuals may be criminally liable and directors may face director disqualification orders. Moreover, anti-competitive restrictions could render the entire land agreement void and unenforceable. Reputational damage can be substantial.

1. CMA guidance, Land Agreements – the application of competition law following the revocation of the Land Agreements Exclusion Order, OFT1280a, March 2011
2. Paragraph 4.11, OFT1280a
3.Martin Retail Group Limited v Crawley Borough Council [2013] EW Misc. 32
4. C-345/14 SIA „Maxima Latvija” v Konkurences padome (2015)
5. Via FOAC, 18/023/HS013 – S0041/2017

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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