from the CEO
Competition Commission Code of Conduct On 6 October 2019, the Competition Commission released a draft “Code of Conduct”, requesting members of SAPOA to sign it
T
his document suggests that the Commission may be moving away from trying to engage in direct rental regulation. However, we are concerned that the document still contains a number of problematic provisions, and would purport to bind the entire industry on a “voluntary basis” or risk facing regulation. SAPOA obtained an opinion from CDH and sent a letter to the Commission on 11 September 2019, advising the Commission that it is very concerned by the Grocery Retail Market Inquiry’s (GRMI’s) initial findings on rentals and the decision to issue the Code of Conduct with such limited opportunity for engagement by affected parties. We have concerns regarding the process adopted in relation to both the Code and the GRMI’s consideration of rentals in the market for lettable retail property. At the outset, SAPOA disagrees that the market for lettable retail property is characterised by structural competition concerns, discriminatory rentals or the prevalence of unfair practices engaged in by owners of lettable retail property against tenants and prospective tenants. The leasing practices of owners of lettable retail space, and specifically rentals, escalations and related contractual arrangements, are complex matters distinct from the issue of lease exclusivity in retail property as identified in the terms of reference and statement of issues published by the GRMI. SAPOA was not aware that interventions in rental pricing were being considered within the context of the GRMI. Had there been notice that rental pricing formed part of the GRMI process, we have no doubt that our members would have participated
vigorously and constructively in the GRMI process on rentals, escalation rates and related contractual arrangements. We are of the view that by not formally expanding the scope of the GRMI to consider rentals, escalations and related contractual terms, the GRMI has missed an opportunity to properly consult and gather facts from stakeholders. Although we are aware that some of our members have now, at a very late stage in the GRMI process, received requests for information regarding rentals after the publication of the preliminary report, this process has not afforded stakeholders sufficient time to appreciate the full import of the Commission’s process and the basis for the findings about inequity in the market for lettable retail property insofar as rentals, escalation rates and other contractual arrangements are concerned. We do not believe it is reasonable of the GRMI to expect parties to comment on the Code within a period of four business days. Stakeholders must be given an opportunity to meaningfully engage with the issues underlying the
Code. The Code will have a fundamental impact on the market for lettable retail space, and there are many difficulties with the current draft from a practical and legal perspective. There are also many areas of the Code that need to be explained by the GRMI before stakeholders can meaningfully engage with it. We are fully aware of, and support, the imperative for South African businesses to support small, medium and blackowned businesses in order to grow the economy and create jobs. We are, however, concerned that the Code in its current form has not been prepared based on enough empirical data to ensure that no unintended adverse consequences arise, both for the economy and jobs and for the “designated class” of more vulnerable tenants. Material concerns harboured by SAPOA include the potential that the Code may result in higher prices where tenants are no longer able to aggressively negotiate for differential terms. In addition, the requirement to give transparent insight into how a given firm’s rentals are determined, differences in rental levels and a push by the Code to ensure escalation uniformity may well have the effect of reducing competition in what is currently a very competitive market. There are examples where measures imposed in the UK energy market aimed at increasing price transparency and uniformity in the pursuit of increased “fairness” have resulted in significant harm to users of electricity by increasing overall energy prices. Intervention in the mechanisms for determining prices (rentals and escalation rates) in a dynamic and competitive market for lettable retail property should be done SOUTH AFRICAN PROPERTY REVIEW
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