Irish Competition Authority Decisions

1. Notification was made by Moralto Investments Limited on 30 September, 1992 with a request for a certificate under Section 4(4) of the Competition Act, 1991 in respect of leases between Moralto Investments Ltd and the tenants of Island House.

2. The notification concerns the leases relating to office units in Island House, Nun's Island, Galway between Moralto Investments Ltd as landlord and the tenants.

3. Moralto Investments Limited are the owners and landlords of Island House and they are engaged in the letting of office accommodation. The tenants are engaged in commercial, administrative and educational activities at the premises.

4. The leases notified contain the following restricted user clauses viz.:

(a) Under clause 13 the tenant covenants with the landlord:

" Not to use the premises for any purpose other than that of professional offices.."

Note In some of the agreements notified the permitted user also includes a reference to the particular administrative or educational activity of the tenant.

(b) Under clause 27 the tenant covenants with the landlord:

" Not to assign or underlet or part with the possession by way of mortgage or otherwise of the whole of the premises without the previous written consent of the Lessors which shall not be unreasonably withheld and not to share the possession or occupation of the premises or any part thereof.

and

Not to assign, transfer, charge, underlet or part with possession of any part of the premises provided that the Lessors will not unreasonably withhold consent to an underletting at a rack rent of any one whole floor or part of any one whole floor of the premises PROVIDED ALWAYS that there shall not be at any time during the term more than one tenant or undertenant of the Lessee in the premises."

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

6. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State, or in any part of the State.

7. The term "undertaking" is defined in Section 3(1) of the Act, as "a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service". Some of the tenants of Island House are engaged for gain in the provision of services such as engineering consultancy and education for gain and are therefore undertakings under the Act. A number of tenants may not come within this definition of an undertaking and are not covered by the Act. The agreements relating to them are not included in this decision.

8. The Authority considers that Moralto Investments Ltd and a number of its tenants are undertakings and that the notified leases between them are agreements between undertakings. The agreements have effect within the State.

9. The lease agreements contain standard restrictions and obligations on both the landlord and tenant which are necessary for the maintenance of the landlord/tenant relationship in respect of the tenancies. These do not raise issues under the Competition Act. 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 tenant may do so by occupying any other premises within the State.

10. In addition each agreement also provides, by way of the permitted user clause 13, restrictions on the use of each premises but which effectively allow each premises to be used for the purpose 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 in 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 provide that a landlord cannot unreasonably withhold consent to a change of user requested by the tenant. 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 the lease agreements are not therefore anti-competitive. The Authority therefore considers that the notified agreements between Moralto Investments Ltd and the tenants do not offend against Section 4(1) of the Competition Act, 1991.

11. 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 agreements between Moralto Investments Limited and the tenants in relation to the leases of premises at Island House, Nun's Island, Galway notified under Section 7 on 30 September,1992 (notification no. CA/242/92E), do not offend against Section 4(1) of the Competition Act, 1991.

For The Competition Authority

Des Wall

Member

21 April, 1994.