Can a Commercial Landlord Accept a Competing Store Next to You in the UK?

You are not alone if you run a business and are concerned about the impact of competing businesses near you. You may feel that it is important your neighbouring business’ activities are not in direct competition with yours as this could deter potential customers and harm your commercial success. In a shopping centre, those businesses all likely lease their commercial premises from the same commercial landlord as you. This article will explain if a commercial landlord can grant leases to your direct competitors.

Lease Agreement

Your commercial lease agreement will stipulate if your landlord can accept a competing store next to your business premises. A lease agreement is a legally binding contract between you and your landlord. This document contains the terms and conditions and both parties’ rights and obligations under the commercial lease. Once both parties sign, you are contractually entitled to sole occupancy of the commercial property as your business premises. 

Lease Covenant

A lease covenant can prevent your landlord from accepting a competing store next to your commercial premises. A lease covenant is worth negotiating at the heads of terms stage of your commercial lease and will state that:

• the landlord will not carry out business activities in connection with their commercial tenants; and
• the landlord will not allow another business nearby to conduct business activities with its retail tenants.

As the tenant, you should ensure that such a lease covenant is in the lease agreement. If your commercial landlord accepts a competing store next to you, they are likely in breach of the lease agreement. 

Permitted Use 

Your landlord may need to insert a restrictive clause or exclusivity clause into their lease agreement with other tenants to prevent them from running a competing business near yours. This will be a part of their permitted use clause.

However, your landlord may be rightly wary about agreeing to include a permitted use clause in its commercial agreements. This is because a permitted use clause may be considered anti-competitive and a breach of UK competition law. The Competition Act 1998 became relevant to commercial leases over 10 years ago, and a breach can come with a hefty fine. 

For your landlord to ensure the proper use of a restrictive or exclusivity clause in the commercial agreement, they need to demonstrate in doing so that:

• it positively helps production or distribution or promotes progress in a technical or economic sense;
• any benefits are open to consumers to take a fair share of these;
• it does not contain more restrictions than necessary for its effect; and 
• it does not allow for the potential restriction of your business activity more widely.

Cheat Sheet for Leasing Terms

This cheat sheet outlines what you should be aware of in your lease agreement.

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Key Takeaways

You are likely and rightly concerned about competing businesses operating near you if you are a business owner. To alleviate this problem, you may want to negotiate an exclusion clause with your landlord. This is understandable, as a competing business operating near you could harm your business’ success. This clause or lease covenant must be present in your commercial lease agreement for you to rely on it. If such a clause is present in your lease agreement, it should prevent your landlord from conducting business activities like yours. Your landlord should also be prohibited from leasing premises to a potential tenant who could be considered a direct competitor. 

However, your landlord will likely be wary about agreeing to include such an exclusion clause in your lease agreement. These types of clauses can be considered anti-competitive and, as such, unlawful in the eyes of UK competition law.

If you need help understanding if your landlord can accept a competing store next to you, contact our experienced leasing lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page. 

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