property & projects update

13 August 2008

The Australian Competition & Consumer Commission (ACCC) submitted its report on the competitiveness of retail prices for standard groceries to the Federal Government on 31 July 2008. One important aspect of the report deals with whether leasing arrangements between major supermarket chains (MSCs) and shopping centre landlords are anti-competitive and as such in need of legislative reform.

Restrictive provisions in leases and deeds of surrender

The ACCC received submissions that such clauses are included as a matter of course in MSC standard leases and that they are necessary as a means of encouraging MSCs to shoulder the risk of being the anchor tenant in ‘greenfield’ developments. The ACCC found this standardised approach inappropriate as it does not account for the anti-competitive impact of these restrictive clauses in leases within shopping centres located in established urban areas, which happen to constitute the majority of retail locations.

In gathering evidence, the ACCC’s focus centred on the presence of clauses in shopping centre leases which limit the ability of landlords to introduce a second or third supermarket tenant to the centre. Ordinarily, such clauses either prohibit a second chain’s introduction into the shopping centre for a specific period of time or provide for a significant rent-reduction if the lease to the second chain goes ahead. As you would be aware, such clauses are perennially a sticking point in shopping centre lease negotiations and it is welcome that the ACCC has drawn its attention to them.

The Government’s response

The ACCC has indicated that it is likely that reforms to the Trade Practices Act 1974 (Cth) will be recommended to the Government to prohibit such provisions. However, disappointingly, it seems actual reforms in this regard do not carry the requisite degree of political capital to prompt the Minister for Competition Policy and Consumer Affairs, Chris Bowen, to include them in the Government’s response ‘preliminary action plan’. Rather, the Minister last week reserved any policy judgments until further reviews are conducted, so it is likely meaningful reform remains a long way off. It is also unclear whether any reform would unwind existing restrictive covenants.