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Competition and restrictive covenants in leases

The Central London County Court has held that a user clause proposed in a lease renewal by a local authority landlord which would prohibit the tenant from selling convenience goods and alcohol would breach the prohibition in section 2 of the Competition Act 1998. The landlord failed to demonstrate that the user clause would be exempt from the prohibition.

The facts of this case should be viewed against the backdrop that the Act applied to property contracts from 6 April 2011 and therefore, pursuant to section 2 of the Act, property contracts cannot now: 

  • Affect trade within the UK; or 
  • Have as their object or effect the prevention, restriction or distortion of competition within the UK. 

The landlord owned and let a parade of shops within a residential area. Each lease restricted the user of the premises to encourage a variety of shops within the parade. On expiry of the lease before the court, the tenant proposed a change to the user covenant which included the ability for it (a newsagent) to sell convenience goods and alcohol. The landlord rejected this proposal and put forward a counter-proposal which included an express clause prohibiting such use…

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