The Competition & Markets Authority (“CMA”) has recently announced that it intends to extend its investigations into anti-competitive practices in the field of estate and lettings agencies and has made formal approaches to various agencies requiring an explanation for alleged anti-competitive conduct.
In December 2013 the Office of Fair Trading (“OFT”) announced it had opened a formal investigation under Chapter 1 of the Competition Act 1988 (“the Act”) into suspected anti-competitive agreements and/or concerted practices involving organisations in the property sales and lettings sector (“the Investigation”).
On 8 May 2015 the CMA announced that it had issued a decision against an estate and lettings agency in Hampshire and a local newspaper as regards a breach of the prohibitions contained in Chapter 1 of the Act.
The Investigation, which was subsequently taken over by the CMA, was launched following receipt of a complaint about the rules of membership of Three Counties Estate Agents Limited trading as Three Counties Estate Agents Association (“Three Counties”).
In December 2014 the CMA sent a statement of objections to Three Counties together with other agencies, namely Waterford (Estate Agents) Limited (“Waterfords”), Castles Property Services Limited (“Castles”), Hamptons Estate Limited trading as Hamptons International (“Hamptons”) and Trinity Mirror Southern Limited, the publishers of the Surrey & Hants Star Courier (“Trinity”).
Chapter 1 of the Act
Chapter 1 of the Act prohibits any “agreements between undertakings, decisions by associations of undertakings or concerted practices which:
(a) Directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) Limit or control production, markets, technical development or investment;
(c) Share markets or sources of supply;
(d) Apply dissimilar conditions to equivalent transactions with any trading parties, thereby placing them at a competitive disadvantage;
(e) Make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.”
In March 2015 the CMA announced that the agencies and Trinity had all admitted a breach of Chapter 1 of the Act and that a settlement had been reached involving fines exceeding £775,000.00 (although these have subsequently been reduced by further agreement).
The admitted breaches were as follows:
- Waterfords, Castles & Hamptons (members of Three Counties) entered into an agreement that prevented members of Three Counties (including themselves) from advertising their fees or discounts in Trinity.
- Waterfords & Hamptons extended the scope of this arrangement, with the co-operation of Trinity, to prevent any agents (whether members or non-members of Three Counties) from advertising their fees or discounts in Trinity.
- The membership rules of Three Counties prohibited the association’s members from advertising their fees or discounts in Trinity.
The CMA found these arrangements had the object and potential effect of reducing competitive pressure on estate and lettings agents’ fees in the local area in and around Fleet in Hampshire. In addition, they may have made it harder for potential competitors to enter the market by using the level of their fees to attract new customers. These practices potentially limited consumers’ choice and ability to compare prices and assess value for money.
As a result of this decision, the CMA has recently announced that it has sent letters to several estate and lettings agents warning them that it has reasonable grounds for suspecting that they may have been involved in anti-competitive agreements to restrict the advertising of fees. Letters have also been sent to the property industry and newspaper publishers to raise awareness that the type of activity established in the recent decision is illegal.
The letters to the property industry highlight three points:
- Agreeing with competitors to restrict the advertising of fees is likely to be unlawful.
- Trade associations can be liable for breaking competition law.
- The consequences of breaking competition law can be severe.
The CMA has not yet decided whether it will pursue the investigation further – a decision is not due to be made until June 2016. In the meantime, it has indicated it is keen to work with businesses across the property and newspaper publishing industries to explain the implications of the recent decision and ensure they understand what they need to do in order to comply with competition law and recognise where they may be at risk of breaking it. Given the recent decision and the fines imposed, businesses operating in the estate and lettings agencies sector should take care not to fall foul of the provisions of the Act, and to handle any enquiries from the CMA at a senior level. Lack of knowledge of the law will not be a defence to any allegations of breach, and the fines imposed by the CMA can be very severe, usually calculated by reference to turnover, rather than the profits of a business.
For more information about the Competition Act 1988 or to find out more about how the Dispute Resolution team can help you please contact Ally Tow on 0118 952 7206 and [email protected] or Mike Robinson on 0118 952 7206 and [email protected].
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.