On 24 January 2014, the Competition Commission decided not to refer a complaint based on allegations of exclusionary behaviour in the property and supermarket retail markets to the Competition Tribunal. The decision followed the conclusion of  the Commission's investigation into the potential deleterious effects that exclusivity provisions in lease agreements with anchor tenants in shopping centres have on competition in the retail grocery market.

The Commission was initially concerned that exclusivity provisions in anchor tenant leases increased the barriers to entry faced by smaller independent grocery retailers and single line shops such as bakeries and butcheries, by denying them access to retail space in shopping centres.

That the matter has not been referred is to be commended. Exclusive lease agreements with anchor tenants play an important role in ensuring the commercial viability of new retail property developments. Exclusivity acts as an incentive to anchor tenants to accept the risk of being the first tenant in a new development. In turn, the presence of a strong anchor tenant in a new development gives smaller stores comfort that the centre will draw the feet required for them to trade profitably and this allows developers to sign up the suite of lessees required to obtain funding for new developments,
in advance.

However, there is an important lesson to learn from the Commission's decision. During the period that the Commission was investigating the effects of the impugned exclusivity provisions, it also used its powers to impose conditions on parties to mergers to extract undertakings from landlords that they would attempt to negotiate exclusivity provisions out of leases with anchor tenants. Although these conditions are similar in effect to the behavioural remedies that would ultimately be competent after a finding of a contravention by the Tribunal in complaint proceedings, in certain instances the conditions were requested by the Commission in merger investigations only at a late stage of the Commission's investigation of the transaction and without a proper assessment of the actual effects of the exclusivity provisions in the context of the merger being undertaken.

That the Commission has now come to the conclusion that "the anti-competitive effects of the conduct could not be demonstrated conclusively" in its complaint investigation, casts serious doubts over the appropriateness of the conditions which the Commission sought to impose on merging parties during the currency of the complaint investigation into exclusivity in retail leases.

The Commission also seems to still want to have its cake and eat it when it comes to its investigation of the conduct in question. Although it makes a decision not to refer the matter to the Tribunal for lack of evidence, it still cautions that "notwithstanding this, the Commission remains concerned about … the potential dampening effects of exclusive leases on competition...".

Written by Albert Aukema, Senior Associate, Competition, Cliffe Dekker Hofmeyr