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Right of the anchor tenant to prevent the lessor from letting commercial premises to third parties - the competition law test

02/2016

The international practice of attracting, as early as at the stage of planning of the shopping malls, the so-called anchor tenants, which should generate the main client flow in the mall and contribute to its success, brings about a number of clauses granting the anchor tenants certain privileges with regard to the other occupants. The privileges of the anchor tenants may have a pure financial benefit (e.g. discounted or even zero rental rates), or may be related to the adjusting the architectural plan of the mall in conformity with the needs of the anchor tenant or even more, they may grant the anchor tenant with certain rights through the lease agreement.

Usually one of the rights granted in lease agreements with anchor tenants is the tenant's right to question the lease of commercial premises in the mall to third parties under certain conditions. Thus, in practice, the anchor tenant holds the exclusive right to prevent the entry of each and every competitor of his on the territory of the mall.

Similar clauses in the lease agreements between malls and their anchor tenants bring up a number of questions regarding their compliance with competition law, which prohibits agreements between undertakings that that aim or effect the prevention, restriction or distortion of competition on the relevant market. It becomes clear that such agreements may be prohibited either "by aim" or "by effect". "By aim" restrictions are such restrictions which, by their very nature are so harmful to competition that analysis of their effect thereon is deemed unnecessary. Agreements containing "by aim" restrictions are prohibited in any case.

Anti-competitive agreements are prohibited not only between competitors (i.e. horizontal agreements) but also between undertakings situated at different levels of the supply chain (i.e. vertical agreements).

Granting anchor tenants the right to prevent the lessor from letting commercial premises to third parties is frequent practice and the fines for such prohibited agreements, that the Bulgarian Commission for Protection of Competition ("CPC") may impose, can reach 10% of the total turnover for the preceding business year for each undertaking which concluded the agreement.

The Court of Justice of the European Union ("CJEU") has ruled that the if a commercial lease agreement for the letting of a large shop or hypermarket located in a shopping mall contains a clause granting the tenant the right to oppose the lessor to lease commercial premises to other lessees in that mall, , it does not mean that the agreement aims to distort competition. In other words, competition law does not prohibit the existence of such clauses in lease agreements with anchor tenants. The abovementioned findings of the CJEU are mandatory both for the CPC and for the Bulgarian courts, in particular the Supreme Administrative Court.

However, this does not exclude the risk that a clause, granting such a right to the anchor tenant, will not lead to the interpretation of the lease agreement as an anti-competitive one. Such possibility may occur when the specific clause has or is likely to have a negative effect on competition.

According to the CJEU, on one hand, an assessment of the effects of an agreement on competition, shall be performed, in its economic and legal context (e.g. the availability of and access to other commercial premises and/or commercial land within the shopping mall's catchment area, the existence of administrative and regulatory barriers to entry of new competitors in those areas). On the other hand, the conditions under which competitive forces operate on the relevant market should be assessed, not only the number and the size of the market participants, but also the degree of concentration on the market, the customer fidelity to the existing malls and consumer habits. Only after such analysis, it could be determined whether the agreement makes or could make an appreciable contribution to a potential closing-off of the market.

In addition, in order to assess the actual or potential closing-off effect of an agreement, the duration of the agreement and the position of the contracting parties, and in particular their market shares, shall be analysed and the undertaking's market position, as well as the abovementioned factors, is subject to a change over time.

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Gabriela Edreva