Irish Competition Authority Decisions

1. Notification was made by Swintron 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 Swintron Ltd and Design Factory Ltd.

2. The notification concerns the lease relating to premises at 3/4 Merrion Place, Dublin 2 between Swintron Ltd as Landlord and Design Factory Ltd as tenant.

3. Swintron Ltd is the owner and landlord of the premises at 3/4 Merrion Place. Design Factory Ltd is engaged in the business of software design.

4. The notified lease was made on 29 May 1992 for a term of 35 years from 1 June 1992. The restricted user clauses in the lease are as follows:-

(a) Under clause 3.20 the tenant covenants with the landlord "Not to use or permit the Demised Premises or any part thereof to be used for any purpose other than the use specified in the Second Schedule hereto AND for no other purpose save with the Landlord's written consent which consent shall not be unreasonably refused ......"

User is defined in the Second Schedule as "Software design and office"

(b) Under clause 3.22 the tenant covenants with the landlord "Not to assign transfer or underlet or part with the 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 withold its consent to an assignment of the entire or underletting of the entire of the demised premises subject to the following...."

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

5. The Authority considers that Swintron Ltd and Design Factory Ltd 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. 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.

7. In addition the agreement also provides, by way of the permitted user clause 3.20, restrictions on the use of the premises but which effectively allow 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 provide that a Landlord cannot unreasonably withhold 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 agreement between Swintron Ltd and Design Factory Ltd does not offend against Section 4(1) of the Competition Act, 1991.

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 Swintron Ltd and Design Factory Ltd in relation to the lease of premises at 3/4 Merrion Place, Dublin 2 notified under Section 7 on 30 September 1992 (notification no. CA/963/92E), does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Des Wall

Member

21 April 1994