The Commerce Commission has issued guidance around anti-competitive land covenants, which may limit competition across many New Zealand economic sectors.
The Anti-competitive land covenants Fact Sheet published recently outlined the Commission’s approach to assessing whether land covenants may breach the Commerce Act.
The Commission’s Competition General Manager, Antonia Horrocks, explained that due to the prevalence of land covenants identified in the fuel, groceries and residential building supplies market studies, the Commission considers that land covenants may be restricting competition in other markets as well.
“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 Horrocks.
Horrocks elaborated that a land covenant could raise barriers to entry or expansion by preventing land from being used to operate a particular type of business or limiting landowners' freedom 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 businesses consider lodging or giving effect to a land covenant, the potential impact of the covenant on competition, including whether the covenant is at risk of breaching section 28 of the Commerce Act, should be considered.
The Fact Sheet provides an overview of some land covenants that may breach the Act and outlines the Commission’s approach to assessing whether land covenants breach section 28.
Horrocks said that while the Fact Sheet provides a general guide, businesses should 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.”
