MPs share 'deep concern' supermarkets may seek to profit from axing of covenants

Friday, 17 June 2022

Former Food & Grocery Council boss Katherine Rich voiced her concerns about supermarket covenants in June.

MPs have recommended beefing up a proposed crackdown on restrictive supermarket land covenants, but voiced “deep concern” that supermarkets could seek to profit from the proposed ban.

Parliament’s Economic Development, Science and Innovation select committee has been reviewing a proposed law change that is intended to prevent Countdown and Foodstuffs from using terms and conditions in land covenants and lease agreements to stymie competition.

The law change as originally worded would only ban supermarket groups from using such agreements to restrict competition from other “retail grocery” stores.

The committee has recommended it should instead be broadened to prevent restrictions on any retailer that might compete with the supermarket.

* Competition watchdog prioritises supermarket covenants for further investigation

* Supermarket lease required land-owner 'campaign to block competition', MPs told

MPs are concerned that after benefiting from restrictive covenants for decades, supermarket owners could now demand compensation from landlords for their enforced removal.

Food and Grocery Council chief executive Katherine Rich told the committee earlier this month that the supermarket chains had sought the right to impose restrictions on a wide range of retailers, including those selling clothing, sports and fitness goods, appliances, hairdressing services and arts and crafts.

But at the same time as suggesting tightening the legislation, the select committee voiced fears that the supermarket groups could use their “theoretical loss of exclusivity”, to negotiate lower rental payments from their landlords.

“All members of this committee share a deep concern that affected designated grocery retailers could use their market power to attempt to gain financially from this bill being passed,” the committee said.

“In our view, these outcomes would be contrary to the bill’s purpose.”

But it decided against specifically ruling out such compensation demands, suggesting the Fair Trading Act could instead be used to prevent any “unfair bargaining”.

Foodstuffs North Island chief executive Chris Quin said it would not be seeking compensation from landlords as a result of the law change, while Countdown indicated it might struggle to make immediate comment.

National Māori Authority chairman Matthew Tukaki had told the committee it was important the law change did not leave “loopholes”.

The committee recommended a number of amendments to address that concern and has also proposed a law change giving the Commerce Commission broad powers to demand copies of any covenants and related agreements the supermarket chains enter into.

Rich appeared to shock the select committee earlier this month by a revealing a lease agreement – understood to have been drafted for Countdown – had required a landowner agree to object to resource consent applications that were against the supermarket group’s interest.

In its report, the committee did not propose specifically outlawing such clauses, but described it as an example of “concerning anti-competitive behaviour”.

Such terms might be prohibited under the Resource Management Act which states that act is not to be used “to oppose trade competitors”, but that would need to be assessed on a ‘case-by-case basis’, it said.

The Commerce Commission said last week that it had prioritised supermarket covenants for further investigation.