After identifying restrictive land covenants as a particular issue in its Retail Grocery Sector Market Study, on 19 June 2024 the Commerce Commission filed a proceeding in the High Court against Foodstuffs North Island in relation to such covenants.

The Commission has alleged that anti-competitive land covenants were lodged by the supermarket operator with the purpose of blocking competitors from opening rival supermarkets at particular sites and developing existing ones at several locations across the lower North Island. The proceeding has been settled between the parties and the Court will determine any orders to be made in relation to Foodstuffs North Island in due course.

Land covenants and competition law

Land covenants are agreements that affect how land can be used and are very common in New Zealand. In certain circumstances, however, these covenants can make it harder for competitors to compete effectively by raising barriers to entry or expansion in markets. Under section 28 of the Commerce Act 1986, the requiring, giving, carrying out or enforcing of a covenant that has the purpose, effect, or likely effect of substantially lessening competition in a market is prohibited. Land covenants falling foul of section 28 are also unenforceable.

Continuing focus on anti-competitive land covenants

Identifying and stamping out anti-competitive land covenants has become somewhat of a priority in recent years. The use of land covenants is a significant issue that the Commission has identified as a factor affecting competition in its three completed market studies. In its Residential Building Supplies Market Study, the Commission recommended an economy-wide review of land covenants and exclusive leases to assess whether a multi-sector solution is needed to address the impact on competition more generally. The previous Labour Government accepted this recommendation and that review is underway.

Additionally, following the Retail Grocery Sector Market Study, specific provisions were added to the Commerce Act in June 2022 providing that certain “grocery-related covenants” are to be assumed to have the purpose, effect, or likely effect of substantially lessening competition.

The Commission has also previously taken action on anti-competitive land covenants in the High Court. In 2023 NGB Properties Ltd, a company connected with the Tauranga Mitre 10 MEGA store, admitted that it had contravened section 28 of the Commerce Act by placing a covenant on a site for the purpose of preventing Bunnings Ltd from opening a Bunnings Warehouse in the area. The High Court imposed a $500,000 penalty for the conduct.

The Commission’s announcement of the proceeding against Foodstuffs North Island (media release here) is a timely reminder that businesses must ensure that any land covenants they have previously lodged, or may lodge in the future, comply with the provisions of the Commerce Act.

If you have any questions about land covenants or related competition issues, please get in touch with us.