Businesses urged to consider if covenant could breach section 28 of the Commerce Act
The Commerce Commission has published the Anti-competitive land covenants fact sheet to provide businesses guidance on how to assess whether land covenants may breach the Commerce Act.
Section 28 of the Commerce Act, in particular, prohibits the requiring, giving, carrying out, or enforcing of a covenant that has the purpose, effect, or likely effect of substantially lessening competition in a market. Covenants that breach this provision are also unenforceable.
“In certain circumstances, land covenants can harm competition by raising barriers to entry or expansion in a particular market, making it harder for competitors to compete effectively and gain scale,” said Antonia Horrocks (pictured above), the commission’s competition general manager. “For example, a land covenant could raise barriers to entry or expansion by preventing land from being used to operate a certain type of business, or limiting the freedom of landowners to choose what or how they buy or sell, or who they do business with.
“The party benefiting from the land covenant may enjoy reduced competition, enabling it to maintain or increase its market share, increase prices, reduce quality, service and innovation, and potentially worsen terms to the detriment of consumers.”
When considering lodging or giving effect to a land covenant, businesses should consider how the covenant would potentially impact competition, including whether the covenant could be in violation of section 28 of the Commerce Act.
Some types of land covenants that may breach the act are included in the fact sheet, which also outlines the commission’s approach to assessing whether land covenants breach section 28.
But while the fact sheet provides a general guide, businesses are urged to seek independent legal advice to ensure they are not at risk of breaching the Commerce Act.
“As indicated in the final report of our market study into residential building supplies, we are launching a programme this year which will promote compliance with the Commerce Act in this area,” Horrocks said.
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