Irish Competition Authority Decisions

1. Notification was made by Cosine Ltd on 30 September, 1992 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2), in respect of a lease between Cosine Ltd and Con O'Sullivan.

2. The notification concerns the lease of shop premises at 3 Grafton Street, Dublin 1 between Cosine Ltd as Lessor and Con O'Sullivan as lessee.

3. Cosine Ltd, which was formerly named PMH Hairstylist Ltd, is a property holding company. Con O'Sullivan, as successor in title, is engaged in the retail of radio, TV and HI FI equipment at 3 Grafton St.

4. The notified lease was executed on 30 December 1988 for a term of 35 years from 30 October 1988. The restricted user clauses in the lease are as follows:

(a) Under clause D.17 the lessee covenants "Not without the consent in writing of the Lessor to use or suffer the demised premises or any part thereof to be used for ...any purpose other than for the retail sale of watches, clocks and accessories".

(b) By way of indenture dated 13 December 1988 the Lessors consented to a change of user to "Retail sales of HI-FI Equipment Radio and T.V. Equipment and Ancillary Equipment."

(c) Under clause D (31) the Lessee covenants "Not to assign transfer or underlet....(a) of the whole of the demised premises without the previous consent in writing of the Lessor (but so that such consent shall not be unreasonably witheld) or (b) of any part of the demised premises under any circumstances whatsoever."

In addition there are a number of other standard restrictive covenants and obligations in the lease.

5. The Authority considers that Cosine Ltd and Con O'Sullivan are undertakings and that the notified lease is an agreement between undertakings. The agreement has effect within the State.

6. The Lease agreement contains standard restrictions and obligations on both landlord and tenant which are necessary for the maintenance of the landlord/tenant relationship in respect of the tenancy. These do not raise issues under the Competition Act.

7. The very act of leasing the premises to a particular tenant prevents competitors of the tenant from using those premises to compete with the tenant. Clearly this cannot be regarded as preventing, restricting or distorting competition since it would imply that the leasing of a commercial premises in order to carry on a business therein was prohibited unless licensed under section 4(2) of the Competition Act. Anyone wishing to operate a business in competition with the tenants may do so by occupying any other premises within the same catchment area. The tenants are prevented from operating a business which would compete with those operating from the landlord's adjoining premises. Again such a restriction would not prevent the tenant or anyone else from operating such a business from another premises within the same catchment area. In addition the notified agreement also provides, by way of the permitted user clause D(17) restrictions on the use of the premises but which effectively allows the premises to be used for the purposes of the business of the tenant. Such permitted user clauses are normally based on the user proposed by the tenant at the time the lease is first executed but are also governed by considerations such as the physical characteristics of the premises, the requirements of the Planning Acts and the landlord's own policy, when granting the lease, on how the premises should be used. The Authority considers that such user restrictions in the letting of premises do not have the object or effect of preventing, restricting or distorting competition in the State or any part of the State. In taking up the lease the tenant negotiates the permitted user required for his business. This is reflected in the lease but if he were subsequently to seek a change of user he could in most instances have recourse to the provisions of the Landlord and Tenant Act 1980 which provides that a Landlord cannot unreasonably withold consent to a change of user requested by a tenant. In this case such a change of user has already been allowed by the Lessor. In addition the tenant is free to undertake other businesses in many other premises, both in the vicinity or elsewhere in the State. The object or effect of such permitted user clauses in lease agreements are not therefore anti-competitive. The Authority therefore considers that the notified agreement between Cosine Ltd and Con O'Sullivan does not offend against section 4(1) of the Competition Act, l99l.

8. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement between Cosine Ltd and Con O'Sullivan in relation to the lease of premises at 3 Grafton St, Dublin 3 notified under Section 7 on 30 September 1992 (Notification No CA/1010/92E), does not offend against Section 4(1) of the Competition Act, l99l.

For the Competition Authority

Des Wall

Member

4 February 1994