Non-compete covenants in commercial leases – European Court Ruling

The Court of Justice of the European Union (CJEU) rules that a non-compete covenant in a commercial lease does not automatically infringe EU competition law.

24 December 2015

The recent decision in SIA Maxima Latvija (“Maxima”) v Konkurences Padome (“Competition Council”) Case C-345/14 has clarified whether an existing tenant is able to rely on a non-compete clause in a commercial lease in order to refuse its permission to allow competitors from opening shops within a shopping centre. This decision is relevant to both commercial landlords and tenants.

Previously the Latvian Competition Council had fined Maxima, an operator of large shops and hypermarkets, for having concluded commercial leases, 12 of which contained a clause granting Maxima as ‘anchor tenant’ the right to oppose other tenants from letting premises in a particular shopping centre.

The Latvian Competition Council insisted the leases restricted competition under Latvian competition law and that it was not necessary to carry out any further examination of the circumstances. Maxima appealed this decision first to the Regional Administrative Court and then to the Latvian Supreme Court. A preliminary ruling was then requested by the Latvian Supreme Court from the Court of Justice of the European Union (CJEU).

The CJEU set out that an agreement such as a commercial lease may infringe Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) if it has either an anti-competitive object or effect. An anti-competitive object is established through the prevention, restriction or distortion of competition within the internal market. Analysis of anti-competitive effect is only required where the context of the agreement does not show a significant degree of harm upon competition.  

The CJEU ruled that the agreements did not have an anti-competitive object. The CJEU then analysed the availability or accessibility of commercial land to new competitors, the existence of other administrative, economic or regulatory barriers of entry and the ability to close off a particular market by such measures. It then ruled that there was also no anti-competitive effect. 

The ruling is helpful because if landlords and tenants apply the systematic analysis adopted by the CJEU in the Maxima case they will be better able to identify whether their agreements’ non-compete covenants infringe competition law.