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Much has been written recently about the Competition Act and the
implications for exclusivity covenants following revocation of the
Land Agreements Exclusion Order. However, there is another
area of competition law which can also impact on the real estate
sector.
Over the past 12 months the OFT has investigated two separate
shopping centre acquisitions. The first, last summer, was
Capital Shopping Centre's purchase of the Trafford Shopping
Centre. More recently in March 2012 the OFT cleared CSC's
acquisition of the Broadgate Shopping Centre in
Nottingham.
The reason for the OFT involvement is the Enterprise Act 2002
which covers merger situations (i.e. where two or more enterprises
are brought under common ownership or control). The term
"enterprise" is very widely defined as the activities, or
part of the activities of a business, and therefore a property such
as a shopping centre, may in itself be an
"enterprise".
The OFT only has the power to review a merger where either
the target's turnover exceeds £70m or if a "share of
supply" test is met (i.e. both the acquirer and the target
supply the same goods or services and after the acquisition they
would together supply at least 25% of that good or service in the
UK or a substantial part of the UK). In some cases, depending on
the size and nature of the parties involved, real estate
transactions may also trigger requirements to seek merger clearance
from the European Commission. And under both UK and EU merger
control rules, certain joint ventures can also require merger
clearance.
The Trafford Centre acquisition fell within the OFT's remit
because the annual turnover exceeded the £70m
threshold. The Broadmarsh transaction fell well below the
turnover threshold but satisfied the "share of supply"
test because the parties together would account for 65-70% of the
combined share of "shopping centre retail space" in
Greater Nottingham – Greater Nottingham constituted a
substantial part of the UK, in the OFT's view.
In both cases the OFT did give clearance.
Sellers and buyers of shopping centres in particular (but also
potentially other assets such as factory outlet schemes) need to
make sure they fully consider the potential impact of the
Enterprise Act before entering into purchase contracts. In
practice the parties have two alternatives. The first is to
make the transaction conditional on OFT clearance (with potential
implications for timing depending on how long the OFT investigation
takes). The second is to complete the transaction and take
the risk that the OFT subsequently decides to investigate and refer
the matter to the Competition Commission (and the Competition
Commission have wide powers to order remedial action including
potentially even unwinding the deal).
In the past we have seen a number of institutional investors and
property companies pooling assets to create larger (and
non-competing) retail schemes. The two best examples are
probably the Birmingham Alliance and also more recently the Bristol
Alliance which led to the development of Cabot Circus.
Parties will need to ensure that they fully consider the potential
implications of the merger rules on any such future project.
This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register for
Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance
only. The information and opinions expressed in all Law-Now
articles are not necessarily comprehensive and do not purport to
give professional or legal advice. All Law-Now information relates
to circumstances prevailing at the date of its original publication
and may not have been updated to reflect subsequent
developments.
The original publication date for this article was
01/06/2012.
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