Anti-competitive Land Covenants May Be Limiting Competition, Commission Says

The Commerce Commission has today issued guidance around anti-competitive land covenants, which may be limiting competition across many sectors of the New Zealand economy.

The Anti-competitive land covenants Fact Sheet published today outlines the Commission’s approach to assessing whether land covenants may breach the Commerce Act.

The Commission’s Competition General Manager, Antonia Horrocks, says 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,” Ms Horrocks says.

“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 businesses are considering lodging or giving effect to a land covenant, they should consider the potential impact of the covenant on competition, including whether the covenant is at risk of breaching section 28 of the Commerce Act.

The Fact Sheet provides an overview of some of the types of land covenants that may breach the Act and outlines the Commission’s approach to assessing whether land covenants breach section 28.

Ms Horrocks says 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.”

A copy of the Fact Sheet is available on our website.

Background

Section 28 of the Commerce Act prohibits certain land covenants that harm competition. 

More specifically, it 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 section 28 are also unenforceable.

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