The Commerce Commission has recommended an economy-wide review into the use of land agreements to assess whether a wider, multi-sector solution is needed to address their impacts on competition.
To initiate this review, this document seeks information to help determine whether there is a problem, define the nature and scale of this, and inform future actions.
Competition is important to building a productive economy, and in delivering good outcomes for consumers in the long-term.
Competition between businesses is a key driver of the prices, quality, ranges and services offered to New Zealanders. We want to be sure that consumers are not being charged more than they should be, and competition between businesses is an important way of disciplining prices, as well as improving quality, ranges, and services.
A competitive market requires there to be space for new entrants, or expansion by existing players. If there are costs or an impediment that an entrant faces in a market that an incumbent (existing business) does not face, we call these factors ‘barriers to entry’. In 3 of its market studies, the Commission identified that the use of land agreements may be a barrier to entry.
Land agreements is a term we are using to mean any legal agreements (including covenants and restrictive leases) that a party can enter into to either restrict the way land can be used or require it to be used in a certain way. We are interested in private land agreements, meaning those made by individuals, businesses or non-government organisations.
We are now gathering information to help us understand whether, and how, land agreements are being used across the economy in a way that create a barrier to entry.
We want to hear from you
Part of our review will involve considering whether we need to make changes, but before we decide on this, we want to understand whether the use of land agreements is impacting competition. We are looking across the whole economy, both retail and non-retail, and rural and urban businesses. This document is divided into 3 sections and, depending on who you are, different parts of this document are likely to be of more interest to you:
Describes how land agreements can be used to lessen competition
- We want to hear from businesses and individuals that have been adversely impacted by land agreements. This could be by limiting the options available for sites, making it difficult to attract or retain customers, or imposing higher costs.
Asks how land agreements can be used to promote positive outcomes
- We want to hear from businesses that benefit from land agreements, to understand what purposes these serve and whether there are practical alternatives to achieve this.
Chapter 3, 4 and 5
Discusses how well the current rules protect competition and proposes options to improve this
- We want to hear views on the options we propose for change.
There are questions throughout the document that we have designed to prompt your responses, but all questions are optional and you can choose to respond to whichever feel most relevant to you.
We want to understand whether, and how, other land agreements may limit competition
We are interested in whether, and how, land agreements can be used to create barriers to entry or otherwise reduce competition. This could be by preventing land from being used to operate a certain type of business or limiting the freedom of landowners to choose what, or how, they buy or sell, or who they do business with. Such land agreements have the potential to:
- prevent a new business (or existing business wishing to expand) accessing a suitable site
- restrict the ability of a competing business to attract customers; or
- reduce the choices available to customers.
Where this happens, consumers will have fewer options to choose from and existing businesses who hold these restrictions can take advantage of market power by raising prices (or keeping prices higher than would otherwise be the case) and lowering quality. We would like to hear from businesses that have experienced obstacles in entering or expanding in a market as a result of a land agreement, or that have been impacted in other ways, and how this impacted the choices you have made.
We will use this information to understand whether there is a problem with the use of land agreements, and whether there are some situations where they are more likely to have negative effects. This will inform whether we need to make changes, and how they should be targeted.
We want to understand what reasons there are for putting land agreements in place
Businesses use land agreements for a multitude of reasons, many unrelated to competition. It is often difficult to understand what the original reason for a covenant was – particularly when they have been in place many years, and land has since been sold numerous times.
While we have concerns about the potential for land agreements to limit competition, we also appreciate that they can create incentives for development and investment, and allow businesses to use land in the way they consider more efficient.
We would like to hear from businesses that benefit from land agreements to understand the purposes they serve. We are also interested in whether this can be achieved by another way, with less impact on competition. This will help us understand the benefits of land agreements for businesses and the wider economy and allow us to balance this against any potential harm. We will use this when analysing the scale of the issue, as well as in evaluating potential interventions later on.
Chapters 3, 4 and 5
We seek your views on potential options for changes
Sections 27 and 28 of the Commerce Act 1986 (the Commerce Act) prohibit covenants, contracts and agreements that have the purpose, effect or likely effect of substantially lessening competition in a market. Despite this, three of the Commission’s market studies have identified that covenants that could restrict the availability of land to competitors. This indicates that these laws could be working better, but it is unclear why the existing provisions are not providing sufficient deterrence.
This paper sets out:
- options designed to prevent and detect new land agreements that may harm competition
- options to help us identify and remedy existing land agreements.
Whether to progress any option, and which one may be most appropriate, depends on the strength of evidence that there is a problem to be addressed and the nature of the problem identified.
Finally, we ask for information on whether the current rules in section 30 of the Commerce Act are at risk of over-capturing covenants, and, if so, whether an exemption should be considered, to relevant provisions for agreements or covenants with certain purposes.