The Federal Trade Commission (the “FTC”) and Department of Justice, Antitrust Department (the “DOJ”) (together the “Agencies”) continue to perform the Biden Administration’s mentioned objective to renew antitrust enforcement to “ Promote Competitors in the American Economy“
Among the Agencies’ top priorities has actually been to try to end, or a minimum of considerably reduce, using limiting covenants, consisting of those utilized in sale of organization deals and in employment agreement. For instance, the FTC brought an enforcement action in 2022 that needed ARKO Corp. and its subsidiary GPM to roll back presumably anticompetitive arrangements of their acquisition of 60 Express Stop retail fuel outlets from Corrigan Oil Business pursuant to which the celebrations accepted restrict their contract not to contend that they troubled Corrigan Oil Business.
More just recently, the FTC’s provided through its rulemaking authority a proposed restriction on limiting covenants in employment agreement. While the guideline has actually not been settled and might undergo difficulty, the proposed guideline shows the FTC’s hostility towards limiting covenants.
Professionals are most likely questioning whether there is more to come from the Agencies, specifically, whether there are other kinds of limiting covenants that will be targeted in the future. Although there has actually not been any specific action by the FTC or the DOJ, FTC authorities have actually just recently turned their attention to limiting covenants in property, especially those utilized in the retail market.
Limiting covenants in property are frequently utilized throughout the retail market. For instance, grocery store owners typically will typically consist of unique usage securities in their leases which will vary from a basic restriction on other supermarket in the shopping mall to more complex limitations where they restrict any companies offering supermarket items for off-premises usage, based on an incidental sale principle. Those limitations then get consisted of in the renter’s memorandum of lease that gets taped versus the shopping mall as an entire or in limiting covenants in a set of covenants, conditions, and limitations (CC&R) or comparable files so that they limit using other area in the center. Periodically there will be an extra limitation on the proprietor not to rent area to another supermarket at any residential or commercial property owned by the proprietor within a particular radius around the residential or commercial property (e.g., 1 mile, 5 miles, and so on).
These practices might now be under increased antitrust analysis. In a March 2022 panel moderated by AttorneyâAdvisor to FTC Chair Lina Khan, Thomas Dahdough, Yale Law School Teacher Christopher Leslie blamed limiting covenants for producing and extending food deserts throughout America that disproportionately impact bad communities and reject those homeowners cost effective healthy food.[1] He even more argued that anti-grocery covenants enforced by leaving grocery stores must be unenforceable as a matter of law and required an across the country restriction of limiting covenants in the grocery context.[2] Land usage limitations have actually likewise been the topic of current lobbying by interest groups, academics, and the media, and numerous state chief law officers have actually examined sellers. Lastly, since lots of limiting covenants in property are submitted with regional authorities, they can be accessed quickly by the Agencies.
Provided the existing antitrust enforcement environment and the possibly substantial effect a federal government antitrust examination can have on an organization, sellers must think about examining their existing practices as part of remaining ahead of the next prospective wave of antitrust enforcement.
FOOTNOTES
[1] Christopher Leslie, Anti-Grocery Covenants, Reforming America’s Food Retail Markets (March 12, 2022).
[2] Id.