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Landlords say rental exclusion clauses ‘hurt consumers’

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The SA Real Estate Investment Trust Association is appealing to the Competition Commission to look into exclusivity clauses which it considers to be undesirable, especially where supermarkets in malls restrict each other from gaining market share.

This follows concerns from its members (shopping centre landlords) that grocery retailers are using these exclusivity clauses in their leases to restrict each other from expanding.

Shopping centre owners are caught between their contractual obligations with their supermarket tenants and providing a variety of grocery retailers to their customers.

The association represents South Africa’s listed real estate investment trust sector which represents around R250 billion worth of real estate assets.

Members include almost 20 major retail property firms such as Annuity, Arrowhead, Fountainhead, Growthpoint, Hyprop and Investec.

The association said exclusivity clauses in a lease agreement were driven by retailers to prevent similar competing businesses from being able to trade at the same shopping centre. In most of the instances the property owners were not the original party to the lease agreement where the exclusivity clause was negotiated with the retailer.

In a case which the Cape Argus reported on last year, Shoprite successfully filed an urgent interdict in the Western Cape High Court against Massmart, owners of several retailers including Makro and Game, challenging the legality of a Game store in the Cape Gate shopping mall.

Shoprite’s challenge was based on its exclusivity agreement with Cape Gate’s landlord, Hyprop Investments, which allows it to operate as the sole supermarket, grocery store and liquor store in the centre, apart from Woolworths and Pick n Pay.

The SA Council of Shopping Centre’s chief executive, Amanda Stops, said at the time that historically, mall leases often included exclusivity clauses, especially for large anchor retailers.

‘Today it is widely accepted, as confirmed by the Competition Commission, that exclusivity clauses are anti-competitive. A free trade environment encourages more options, choice and competitiveness, which ultimately benefits the consumer.’

The association said consumers preferred multiple grocery retailers at centres for greater variety and choice.

The Competition Commission had considered the undesirability of the practice some years ago, the association said.

‘While not ruling if it considered the behaviour uncompetitive, in each retail acquisition or merger transaction brought to the commission since 2009, it has noted that it’s the new landlord’s or acquiring party’s responsibility to use its best endeavour to negotiate with their supermarket tenants the removal of exclusivity clauses from their leases,’ said the association.

However, the association said, in all those cases property owners had failed to change the lease agreements.

‘Retailers are unwilling to surrender this hold over their competition and are now taking aggressive advantage of exclusivity clauses, leaving landlords caught between a rock and a hard place, the association said.

Brian Leroni, Massmart’s group corporate affairs executive, said: ‘It has become very clear to us that the entrenched grocery retailers, rather than competing to win customers, prefer to rely on lease exclusivities to insulate themselves from competition and ensure that Massmart and others are prevented from establishing a meaningful presence in the grocery market. This is not in the interests of consumers who would clearly benefit from additional competition.’

The association said it was concerned this push by retailers was driving restrictive business practice and it would ask the commission to again focus on exclusivity clauses. It said it was aware of properties where food retailers had threatened legal action, claiming landlords were in breach of lease agreements, insisting the landlords enforce exclusivity clauses.

Joseph Booysen
Cape Argus

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