The high penalties imposed for competition law breaches in Australia make it imperative for landlords to understand the legal boundaries within which they must operate.
The Competition and Consumer Act 2010 (the Act), which replaced the Trade Practices Act 1974 from 1 January 2011, prohibits certain types of anti-competitive behaviour and misleading conduct.
The Act applies to the goods (the tenancy) and the services (tenancy services) supplied by landlords to tenants. Certain parts of the Act are also reflected in State and Territory retail tenancy legislation. Landlords need to turn their attention to the restrictions imposed by the Act when both negotiating and managing a lease, as well as when interacting with their competitors.
The ACCC has far-reaching investigative powers, but anyone (including a competitor) can report a suspected breach of the Act.
This article provides some guidance as to the types of competition issues landlords need to be aware of. The reader should bear in mind, however, that this is a snapshot of a complex area, and is no substitute for comprehensive legal advice.
It is common for leases to contain restraints, prohibiting certain tenant behaviour, such as the use of the premises. In some circumstances these types of arrangements may be illegal and unenforceable.
"Use" clauses are widely used. For example, a landlord might grant a lease for a retail outlet in a shopping centre on the basis that the tenant agrees to only sell women's clothes. The intention of these types of clauses is usually to ensure a balanced and varied mix of stores within the centre.
Another example is only agreeing to grant a lease on the condition that the tenant will not lease other space from a competitor of the landlord.
Depending upon how such restraints are framed, they may amount to an exclusive dealing under the Act. These are permitted only if they do not have the purpose, effect, or likely effect, of substantially lessening competition in the market. What the "market" is, and the effect on competition, will vary for each individual scenario. An assessment must, therefore, be made each time.
These restraints can also work in the opposite direction. Supermarket operators have been under real scrutiny from the ACCC in recent years. One of the areas which concerned the ACCC was the ability of the major operators to insist, as a condition of taking a lease at a shopping centre, that the landlord would not lease space to any other grocery retailers. The ACCC was of the view that many of these types of restraints had the purpose, effect, or likely effect, of substantially lessening competition. The supermarket operators have, however, acknowledged these concerns and agreed not to enter into new leasing arrangements with this type of restrictive provision.
We also regularly see tenancies conditional upon the tenant acquiring a third party's goods or services, such as cleaning services, or finance.
Where a tenancy will only be granted if the tenant acquires the goods or services of a third party that is not related to the landlord, this is known as a "third line force", and is prima facie a breach of the Act.
The Act provides for a process by which the ACCC can be notified of third line forcing, and (provided that the conduct has a public benefit that outweighs any anti-competitive detriment), if the ACCC decides not to take objection to it, then the conduct will be immune from prosecution. Immunity cannot, however, be obtained for conduct notified retrospectively.
Resale price maintenance
Put simply, if a tenant has the right to sub-let, the landlord cannot stipulate the price the tenant must charge for the sub-let (unless the tenantis acting as agent for the landlord).This would be a breach of the Act.
Arrangements with competitors
The Act imposes its strictest penalties for arrangements between competitors that breach the "cartel conduct" provisions of the Act. These penalties can include jail terms of up to ten years for those involved.
Two or more competitors must not come to a contract, arrangement or understanding in relation to price fixing, market sharing or bid rigging.
A clear example of cartel conduct would be two landlords agreeing to fix the price of the office space they were each offering. Cartel conduct arrangements can, however, be more subtle, as there only needs to be an understanding between competitors to act in a certain manner - a nod and a wink might be sufficient. There are certain exceptions to cartel conduct, but any discussions and arrangements with competitors must be approached with caution, and you should make sure that you have properly understood all the constraints on dealings with competitors before entering into discussions with them.
Unconscionable conduct, particularly in retail leasing, has been a focus of the ACCC for many years.
The relevant provisions of the Act were introduced to prevent companies taking unfair advantage of other businesses, particularly small businesses in their dealings with larger businesses.
Where landlords are concerned, unconscionable conduct can include things like a disregard for industry codes of conduct, conduct calculated to harm the smaller tenant, failing to honour the terms of a lease or unreasonably refusing to renew a lease. Landlords should, therefore, put in place an appropriate approach to compliance.
False or misleading representations
It is a breach of the Act to make false or misleading representations in relation to the supply of goods and services.
Landlords need to ensure that they do not misrepresent what they are offering. There are numerous examples of the ACCC bring actions against landlords for misrepresentations regarding rent, operating costs, likely turnover, floor space and other inducements.
Penalties under the Act can be high. For a breach of the restrictive trade practices provisions, a court may impose fines of the greatest of up to $10 million, three times the benefit gained from the contravention or 10% of the annual turnover of the body corporate and its interconnected bodies corporate in the first 12 months after the contravention occurred.
Individuals may also be fined up to $500,000, banned from managing a company and, where cartel conduct is concerned, imprisoned for up to ten years.
For unconscionable conduct and false representations, penalties can be up to $1.1million for companies and $220,000 for individuals for each breach.
The Act applies to the relationship between a landlord and tenant, and between landlords.
The provisions of the Act can often be counter-intuitive. Just because others appear to be acting in that manner does not mean it is not a breach of the Act - perhaps they just have not been caught yet.
When negotiating any lease it is important to consider the impact of the Act and obtain the appropriate advice where necessary.
If you have any questions regarding these matters or leases in general, please feel free to contact the DibbsBarker Leasing Team Leader:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.