Posted by Chantal Lavoie – 2 December 2015
In a judgment of 26 November 2015 in response to a reference for a preliminary ruling, the European Court of Justice (the Court) has confirmed that clauses in commercial lease agreements granting anchor tenants the right to oppose letting of other commercial premises to tenants in the same shopping centre are not considered by their nature to be restrictive ‘by object’ . An anchor tenant refers typically to the lessee occupying the largest area of a shopping centre.
The case concerns Maxima Latvija, a Latvian company which operates large shops and supermarkets in the retail food market in Latvia. Maxima Latvija entered into a series of commercial lease agreements with shopping centres in Latvia. 12 of its 119 contracts contained a clause granting the anchor tenant the right to oppose letting to other tenants. The Latvian Competition Council adopted a decision finding that such a clause had the object to restrict competition in breach of its domestic competition rules (similar to Article 101 TFEU) and that there was no need to analyse the effects on competition in the market. Maxima Latvija was fined EUR 35770 by the Council. On appeal, the decision was upheld by the regional Administrative Court. It was then further appealed to the Supreme Court of Latvia which stayed the proceedings and referred a number of questions to the Court.
The Court’s ruling is a welcome correction of the decision of the Latvian Competition Council. As the Court reminds us, the concept of restriction by object must be interpreted restrictively and relied upon only in cases where there is clearly a sufficient degree of harm to competition. This is typically the case in horizontal price-fixing or market sharing agreements. However, in the case under appeal, the anchor tenant and the lessor are not competitors. Whilst recognizing that vertical agreements might also contain restrictions by object, the Court found that the clauses under review “are not among the agreements which it is accepted may be considered, by their very nature, to be harmful to the proper functioning of competition”. Indeed such clauses do potentially prevent access to competitors but it does not immediately flow that they lead to a restriction of competition.
The Court provides useful guidance for assessing whether such clauses have the effect of restricting competition in the relevant market in breach of Article 101 TFEU (or equivalent domestic rules). Key elements to consider are as follows:
- Whether competitors can establish themselves in the relevant ‘catchment area’. This requires considering if there are alternative premises available and accessible to competitors, taking into account any economic, administrative or regulatory entry barriers.
- What are the existing conditions of competition in the relevant market, i.e. number and size of competitors on the market, degree of concentration, customer fidelity and consumer habits.
- Whether there are similar agreements on the market and if so, whether the agreements under review makes an appreciable contribution to the closing-off of the market. This refers to the Delimitis conditions (established in Delimitis v Henninger Bräu) which set out that the effects of an agreement must be assessed in their context by considering (i) whether there are significant barriers to competitors entering the market or to increasing their market shares e.g. taking into account the existence of parallel networks of similar agreements; and (ii) whether the agreements under review make a significant contribution to these barriers. It is therefore important to consider the cumulative effect of all agreements in the market and then to assess the relevant parties’ contribution by reference to the agreements under review. The position of the parties on the market and the duration of the agreement will be relevant factors to take into account in determining whether that contribution is appreciable or not.
The judgment of the Court provides a useful reminder of the need for a dynamic assessment and constant review of such lease agreements taking into the specific circumstances of the market.
The Court’s judgment is important in two respects.
First, it affords the Court the opportunity to ensure a uniform application and interpretation of European competition law throughout the European Union (including in the context of applying domestic competition legislation which is based on EU rules and on an interpretation of concepts taken from EU law). It provides anchor tenants and lessors with comfort that clauses in commercial lease agreements granting anchor tenants rights of refusal of other tenants are unlikely to be viewed as a restriction by ‘object’. This is of course only a partial victory for parties to such lease agreements as they could still be found to be restrictive by ‘effect’. In this particular case, the matter will now be sent back to the Latvian Supreme Court for a ruling based on the guidance provided by the Court.
Second, the judgment provides useful guidance to parties to commercial lease agreements to assess whether such clauses give rise to a restriction by ‘effect’ (and to third parties seeking to challenge such agreements). This is particularly welcome as, contrary to other vertical agreements, restrictions contained in lease agreements cannot benefit from the block exemption under the conditions set out in the Vertical Block Exemption Regulation. As a result there can be no presumption of legality for such agreements and Article 101 TFEU therefore fully applies. This is because the Vertical Block Exemption Regulation only applies to vertical agreements for goods or services sold by a supplier to a buyer (see paragraph 26 of the Guidelines on Vertical Restraints).