The UK's Competition and Markets Authority (CMA) announced on Friday that Tesco had prevented competitors from opening supermarkets in 23 locations in England and Wales, including five in London, according to a published report in The Guardian, as well as other major news outlets.
The CMA said the supermarket did this by either attaching “restrictive covenants” to land sales that allowed former land and property owners to control how plots are developed after they have been sold or sought long exclusivity agreements. Tesco denied it did this.
“It’s unacceptable that Tesco had these unlawful restrictions in place for up to a decade," Andrea Gomes da Silva, the CMA’s executive director of mergers and markets, said, citing "anti-competitive" behaviour. "By making it harder for other supermarkets to open stores next to its branches, shoppers could have lost out.”
In a letter to Tesco CEO Dave Lewis, Gomes da Silva said she was concerned it had “repeatedly breached” the CMA’s 2010 order that was put in place to prevent supernarkets from such actions. The CMA uncovered the breaches in 2018. Though Gomes da Silva acknowledged Tesco tried to rectify the situation, it had "significant shortcomings in compliance for a company of Tesco’s scale and resources”.
Tesco said it did not use restrictive property agreements and blamed “administrative errors.”
“We do not use restrictive property agreements,” Tesco said in a statement. “However, in a small number of historic cases between 2010 and 2015, administrative errors by former advisors meant that our internal processes were not followed correctly.”
According to the Guardian report, Tesco said it had worked with the CMA to resolve the matter and the 23 breaches were small in the context of more than 5,300 land deals over the past decade. “We have since strengthened our controls and training, and are releasing the affected parties from all non-compliant terms,” it said.
The use of restrictive covenants was one of the most contentious areas scrutinised during a three-year investigation into the supermarket sector by the CMA’s predecessor, the Competition Commission. It concluded with a 2010 order that banned new restrictive clauses. Despite this Tesco had introduced three restrictive covenants in Hednesford, Bromborough and Worthing, the CMA said.
The 2010 order also banned exclusivity arrangements more than five years long; Tesco still had 20 in place which have now been removed, the CMA said.
The use of restrictive covenants had been commonplace within the grocery sector and along with Tesco, other supermarkets were ordered to remove certain clauses in 2010. The CMA said it would now write to the other groups affected by the order –Sainsbury’s, Walmart-owned Asda, Morrisons, Marks & Spencer, Waitrose and the Co-op - to ensure that their land agreements complied. It threatened to take enforcement action if there were any irregularities.
Nigel Howorth, a partner at Clifford Chance, and head of the law firm’s London real estate office, said: “Major supermarkets have for many years sought to maintain competitive advantage over rivals through the planning system and restrictive covenants.”
“The CMA’s order demonstrates an increasing lack of tolerance for such activities and the supermarket chains can expect greater scrutiny of their land transactions,” said Howorth.