Irish Competition Authority Decisions

1. Notification was made by Boreenmanna Investments Ltd (Boreenmanna) 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 leases between Boreenmanna and its tenants at Elm Court.

2. The notification concerns the leases of offices at Elm Court, Boreenmanna Road, Cork between Boreenmanna as Landlord and 2 tenants.

3. Boreenmanna, a wholly owned subsidiary of FBD Insurance plc, is the owner and landlord of Elm Court. One tenant is engaged in the business of motor distribution. The other tenant is engaged in the business of assurance .

4. One of the notified leases contains the following restricted user clauses viz.

(a) Under clause 3.02(3) the tenant covenants "To keep the demised premises for the purpose of:- Professional or administrative offices (but expressly excluding retail sales therefrom) Provided always that the demised premises or part thereof, shall not be used for the sale, vending, consumption or otherwise of any type of foodstuffs on the said premises for human or animal consumption only and not without the Landlord's consent in writing, which consent shall not be unreasonably withheld, to use or permit or suffer the same or any part thereof to used for any other purpose.

(b) Under clause 3.02(6) the tenant covenants with the landlord "Not to assign, transfer or underlet or part with possession or occupation of the demised premises or any part thereof or suffer any person to occupy the demised premises or any part thereof as a Licensee BUT SO THAT NOTWITHSTANDING the foregoing the Landlord shall not unreasonably withhold its consent to an assignment of the entire or underletting of the entire of the demised premises subject to ...."

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

5. The other lease notified is in similar terms except that the permitted user specified is "Business offices only".

6. The Authority considers that Boreenmanna and its tenants are undertakings and that the notified leases are agreements between undertakings. The agreements have effect within the State.

7. The Lease agreements contain 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. 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.

8. In addition the agreement also provides, by way of the permitted user clause 3.02(3) restrictions on the use of the premises but which effectively allow the 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 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 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 agreements between Boreenmanna and its tenants do not offend against section 4(1) of the Competition Act, l99l.

9. 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 Boreenmanna Investments Ltd and its tenants in relation to the lease of premises at Elm Court, Boreenmanna Road, Cork notified under Section 7 on 30 September 1992 (CA/310/92E), do not offend against Section 4(1) of the Competition Act, l99l.

For the Competition Authority

Des Wall

Member

21 April 1994