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Wake-up call: When is an offer too good to be true?

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Wake-up call: When is an offer too good to be true?

Be wary of accepting enticing offers – it’s up to you to ensure that you’re operating on the right side of business laws, says Rory Ashmore

You’re told by a competitor what their menu pricing or room rates will be for the next few months, and they suggest keeping their billboards in the southern part of your area, while you “keep the north”.

Your landlord tells you someone is trying to set up a rival outfit in one of their other units nearby, but that you could stop them under your lease. Then local university offers you a chance to run the restaurant in its new research centre. And the local council writes to say that you are due a tax break this year.

If these opportunities seem too good to be true, they probably are.

The law
The Competition Act 1998 makes it illegal for competitors to act in ‘cahoots’ by co-ordinating their prices or sharing markets or customers. This also applies to land agreements since 2011, so lease terms (especially user restrictions) can also be illegal.

The Concessions Contracts Regulations 2016 require concessions to be let under a strict procedure by public bodies like museums, libraries and universities. The EU state aid rules outlaw state assistance that gives the private sector recipient an unfair advantage.

Expert advice
You must avoid any possibility of communicating or co-ordinating your pricing strategy with a competitor, or agreeing (even on a ‘nod and a wink’ basis) to divide up markets or customers. Setting minimum resale prices for distributors or franchisees is also illegal.

This means having clear guidance in place for staff and management about dealings with competitors. You should ensure they know what information is commercially sensitive (especially up-to-date prices) and report any ‘dodgy’ offers. Also, unlawful use restrictions in leases could become unenforceable.

If a public body offers a concession, but has not followed the required procedures or made sure a tax break is fair and compliant with the state aid rules, you may also be at risk.

To-do checklist
You need to take steps to distance yourself from any suggestion you’re involved in something anti-competitive. This means, in relation to price-fixing and market-sharing risks:

  • Destroying or returning any competitor price lists – ideally before looking at or circulating them – and making sure nobody acknowledges them in writing or acts on them.
  • Refusing the offer to parcel out the ‘north’ and ‘south’, and politely reinforcing your determination to compete vigorously, but honestly, all across town – and beyond.
  • Issuing a warning to staff not to respond to or act upon any competitor information or offers, and urging them to attend training.
  • Always check lease terms before signing – and get specialist advice if you’re unsure.

In relation to public bodies and concessions or state aid, make sure you check the value of the concession. If it’s worth more than £4m over its lifetime, it should have been advertised and tendered properly.

Don’t rush to accept a council tax break – if (in combination with any other state assistance your business has received in the previous two years) it’s worth more than £172,000, then unless it is part of an EU-approved scheme (or otherwise specially exempt) it will infringe the rules.

Beware
Infringements of competition law, notably price fixing and market sharing, can lead to fines of up to 10% of worldwide group turnover, plus director disqualification, potential criminal sanctions and major damages claims – not to mention seriously adverse PR.

If it turns out the procurement or state aid rules haven’t been followed, you could find yourself having your concession cancelled and having to pay back any support with interest.

Contact
Rory Ashmore is an EU competition and procurement associate at Charles Russell Speechlys LLP

rory.ashmore@crsblaw.com

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