Businesses will be able to challenge supermarkets' potentially uncompetitive land use restrictions

The new procedure allows businesses to apply to the regulator where a restrictive covenant or exclusivity arrangement benefitting one of the UK's seven largest grocery retailers prevents them from using land in a certain way. The OFT will carry out a 'local market share test' to consider whether there is an appropriate level of local competition in the area before deciding whether to take action. The regulator cannot remove the restrictions itself, however it can require large grocery retailers to use their best endeavours to release restrictive covenants and not to enforce exclusivity arrangements.

The OFT was given the power to challenge anti-competitive land use restrictions benefitting large grocers following an investigation into anti-competitive practices in the grocery market by the Competition Commission (CC) in 2008, however this power had not previously been brought into force. It will accept applications from 1 July.

The test can be carried out on restrictions which benefit Asda, the Co-operative Group, Marks and Spencer, Morrisons, Sainsbury's, Tesco and Waitrose as well as their subsidiaries.

"This is an important and long-awaited development," said commercial property law expert Stephen Brown of Pinsent Masons, the law firm behind Out-Law.com. "We have clients who have been itching to submit applications to the OFT to determine whether restrictive covenants can be removed."

A restrictive covenant is a legal obligation tied to a piece of land which forces the owner or occupier to do or not to do something. An exclusivity arrangement is an agreement by a landowner with the grocery retailer not to allow another grocery retailer to operate a grocery store from a site, or to limit the extent that site can be used for grocery retail use.

Competition law expert Amy Procter of Pinsent Masons said that companies outside the retail sector should be aware that other UK and EU competition measures could apply to new or existing land agreements, particularly following the revocation of the block exemption last April.

"Although this is a relatively untested area, it is one to watch out for, particularly where land for the particular use is in short supply or the parties have market power," she said.

The CC's market investigation uncovered various features in local markets which benefitted mid-size and larger grocery stores that prevented, restricted or distorted competition. These features included high levels of concentration at a local level, aspects of the planning regime and the control of land by incumbent retailers.

New restrictive covenants were banned following the CC's investigation, and any new exclusivity arrangements cannot restrict grocery retailing for more than five years from the date on which the benefitting store first began trading. The rules apply to arrangements restricting the use of land, but may in some cases apply to arrangements impacting on land use by limiting access or parking.

The Groceries Market Investigation (Controlled Land) Order (42-page / 324KB PDF), which contained the new powers, also identified certain specific arrangements that the CC deemed anti-competitive. Restrictive covenants identified in this way were released, while retailers benefitting from named exclusivity arrangements were obliged to stop enforcing them after the five-year period had passed.