Real Estate Investor Magazine South Africa November 2014

LEGAL Anti-Competitive Exclusivity Clauses Property owners ask for definitive ruling M assmart has said it will file a complaint with the Competition Commission against exclusivity clauses in shopping mall lease agreements. Massmart CEO Guy Hayward calls this “intuitively anti-competitive.” Massmart’s complaint comes months after the commission wrapped up a four-year probe on supermarket lease agreements. The Commission said lease exclusivity raised barriers to entry into the grocery market. It advocated against the parties entering into long-term exclusive agreements as a default for each new development. It also encouraged this “only where justified” by the investment made by the supermarket in a particular centre. Exclusive lease arrangements are of great concern. In January 2011, the Competition Commission concluded part of its investigation against the four major supermarkets. It found exclusive lease arrangements result in anti-competitive effects where supermarket chains have market power within the relevant local markets. Its analysis indicates they amount to a contravention of the Competition Act. Industry-wide resistance The South African Real Estate Investment Trust (REIT), which represents the JSE’s R250bn listedproperty sector, said it considered exclusivity clauses “undesirable.” The South African Property Owners Association (SAPOA) has officially asked the Competition Commission to investigate the broader prohibitive practice of long-term exclusive leases in shopping malls. SAPOA made a formal complaint against Pick ‘n Pay Group, Shoprite Group and Spar Group, but notes these are only some of a wider number of retailers that are parties to the conduct. Common practice Exclusivity clauses are requested by larger tenants as a condition for entering into long-term lease agreements, 48 November 2014 SA Real Estate Investor specifically in large retail centres. Supermarket chains and property developers enforce long-term exclusive leases through so-called ‘anchor tenancy’. These leases are of a minimum period of ten years with renewal options of up to 40 years. This means competing retail chains are excluded from particular shopping centres by ‘Use and Exclusiveness’ clauses in lease agreements. But it isn’t only competing chains that are excluded. Specialist stores like fruit and vegetable sellers, liquor stores, as well as full-line grocery stores are excluded in shopping malls where one of the main supermarket chains is the anchor tenant. Anti-competitive The South African Property Owners Association (SAPOA) has officially asked the Competition Commission to investigate the broader prohibitive practice of long-term exclusive leases in shopping malls. SAPOA made a formal complaint naming Pick ‘n Pay G

Real Estate Investor Magazine South Africa November 2014 | Page 48