JSE-listed landlords oppose exclusive leases

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Roy Cokayne

Members of the SA Reit Association believe exclusivity clauses in leases, particularly shopping centre contracts with grocery retailers, are anticompetitive and undesirable and want the Competition Commission to provide certainty on the issue.

However, Dov Green, the chairman of the association’s legal and competition committee, confirmed yesterday that its members had not yet decided whether to offer its assistance to the commission or to lay a formal complaint.

The association, which represents all members of the listed real estate investment trust (Reit) sector, believes grocery retailers are using exclusivity clauses in their fight to restrict competitors from growing their market share.

Exclusivity clauses in leases are driven by retailers seeking to prevent similar competing businesses from being able to trade at the same centre.

Masstores was temporarily prohibited in June by the North Gauteng High Court from opening or operating a FoodCo outlet within the Game store at the Liberty Midlands Mall in Pietermaritzburg until arbitration proceedings on this issue instituted by Pick n Pay Stores were finalised.

Interference

The Massmart subsidiary, trading as Game, was also prohibited from interfering in the contractual relationship between Pick n Pay and Liberty Group Properties until the arbitration was finalised.

Liberty Group Properties, the mall’s owner, was prohibited from acting in breach of contractual obligations to Pick n Pay in terms of an exclusivity clause by permitting, consenting to and/or allowing Masstores to operate a FoodCo within the existing Game store.

Green said such court battles were not the main reason for the association’s decision to approach the commission.

Instead it was the need for a definitive answer because the overwhelming percentage of its members believed it was anti competitive and to the detriment of consumers.

In January the commission released a report on an investigation it had initiated in 2009 against Pick n Pay, Shoprite, Woolworths, Spar and Massmart for alleged contraventions of sections of the act, including substantially preventing or lessening competition and engaging in exclusionary conduct.

The investigation found that exclusive lease agreements raised barriers to entry into grocery retailing. But the commission said shopping centre landlords, supermarket chains and wholesalers would not be prosecuted over alleged contraventions of the Competition Act related to these exclusive lease agreements.

Trudi Makhaya, the deputy commissioner, said the investigation did not find sufficient evidence to meet the tests set out in the act for demonstrating anticompetitive effects to prosecute the firms involved. It had taken a decision not to refer the matter to the Competition Tribunal.

Green denied that the motivation in seeking intervention was that landlords wanted a wider pool of potential tenants rather than concerns about anticompetitive behaviour.


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