Chapter 5: Are there changes we can make to improve the current system?

We have developed a range of options that could help us better protect competition. We have divided these options into those designed to prevent and detect new agreements that may harm competition, and those to help us identify and remedy existing agreements. This section describes the options in more detail and seeks your views on the effectiveness and feasibility of each option.

Our objective is to protect and promote competition, without unduly disincentivising the beneficial use of land agreements.

This objective recognises the benefits that competition can bring and seeks to maximise them by ensuring land agreements do not limit or substantially lessen competition. It also recognises that land agreements can be used for a range of purposes, and we would not want to restrict their use where this is beneficial overall.

The need for change, and what change might look like, depends on the nature of the problem.

The first, and most important, question this document seeks to answer is whether there is a wider problem with the use of land agreements and their effects on competition, and, if so, what that looks like.

The answer to this will determine whether we consider it is necessary to make changes, and what these look like. Therefore, although this chapter discusses various options, that is not to say that any change has been decided on.

Section 1: Overview of the options

We are seeking views on the options at a high-level, and more work will be done to refine these if change is needed

We are seeking your views on where to focus efforts to improve practices around the use of land agreements.

Broadly, we can look at the regulatory tools in prevention, detection, compliance and enforcement to address any problems identified in the lifecycle of land agreements (from when new agreements are made, to when they are extinguished). Figure 2 shows the range of options that could be considered.

We have not attempted to quantify the work involved in making changes and proceeding with any option would be subject to evidence that it would address a problem, and the benefits outweighing the costs. If we did decide to progress any options, further work would be carried out to refine the design.

Figure 2: Overview of the range of options considered in this document

Section 2: Options to better prevent and detect new anti-competitive covenants and agreements

Preventing new anti-competitive agreements being created or registered could involve increasing awareness of the rules, or greater government oversight of the registration process.

Options to prevent new anti-competitive land agreements

Option 1: Increase understanding of existing rules

Why

It is possible that businesses are not aware of these rules or do not know how to comply.

Aim

Reach a different group of businesses to those engaging with the Commerce Commission.

Help empower businesses to ask the right questions of their lawyers when entering an agreement or recording it on the Land Titles Register.

Discussion

• The Commerce Commission has already published guidance on agreements that substantially lessen competition, and examples of where a business may be exempt:
  
  Agreements that substantially lessen competition(external link) — Commerce Commission   
  
  It also published a Fact Sheet specifically on anti-competitive land covenants:
  
  Anti-competitive land covenants(external link) — Commerce Commission    
  
  
• We could look into developing guidance which could be published on the LINZ website.
• May be complementary to other options.

Option 2: Amend standard lease agreements

Why

Current format of templates could encourage the drafting of agreements that have the effect of substantially lessening competition.

Aim

Reduce the unnecessary use of restrictive clauses in lease agreements

Discussion

• May help prevent agreements being made in the first place.
• We could identify the most commonly-used land agreement templates, and work with the organisations that provide these to amend them or provide guidance on potentially problematic clauses.

Option 3: Introduce additional check points in the registration process

Why

When LINZ receives an application to record a land agreement on the Land Titles Register, LINZ checks that it contains the required information, but does not accept or reject agreements based on their content.

Aim

Help to reduce the number or anti-competitive, or potentially anti-competitive, agreements that are recorded on the Land Titles Register.

Discussion

• Significant resourcing implications involved with changing the registration system.
• Considerable change in the role land registration has played to date.

Options to detect new anti-competitive land agreements

Option 4: Introduce a requirement for new agreements to include a description of their ‘purpose’

Why

Difficulties searching data means detecting land agreements is challenging. It also makes it hard to target monitoring efforts.

Aim

Enable the Commerce Commission to flag certain agreements to investigate further.

Discussion

• Limited additional work for parties which apply to record land agreements on the Land Titles register
• Further work would be needed to determine whether this requirement would apply to all types of land agreements and all parties, or whether it should be targeted, and, if so, how.

Option 5: Introduce a requirement for businesses to review certain agreements with the Commerce Commission after a period of time

Why

Many land covenants have long durations, that may run on beyond the time they are needed. This can increase the impacts on competition.

Aim

Provide the Commission with better oversight of agreements and allowing changes over time.

Discussion

• Focusses on better dialogue with businesses.
• Further work would be needed to determine criteria for which businesses would be subject to this requirement, or which types of land agreement, and what the review period should be. 

Section 3: Options to enable and enforce compliance with existing rules

Where prevention is not feasible, minimising the impact would be the next priority, followed by compliance or enforcement activities. We want to be able to incentivise and assist compliance, and take proportionate action in the event of non-compliance. Enforcement, using the full force of the law, is generally reserved for serious non-compliance.

Options to detect existing anti-competitive land agreements

Option 6: Requirement for some businesses to disclose information on certain agreements

Why

We understand that a barrier to monitoring whether existing land agreements harm competition is the lack of information readily available about burdened and benefitted parties.

Aim

• Improve transparency of agreements.
• Remove one of the practical barriers to the Commission enforcing current prohibitions.
• Provide the Commission with a more effective means of information gathering than the status quo.
• Promote compliance with the Commerce Act.

Discussion

• Risk that the requirements could be very broad, creating unnecessary work or uncertainty for Commerce Commission and businesses.
• To mitigate this, requirement could be targeted for example, certain sectors, dominant businesses in a sector, and /or any business with a particular type of agreement in place (for example, one which impedes the development of land or the use of a site for a competing business)
• Complementary to other options.

Options to enable voluntary compliance

Option 7: Introduce a sunset period, after which some existing agreements will be unenforceable

Why

Many land agreements have a long duration and are likely to run well past the date by which a business will be seeing a return on its initial investment. 

Aim

Enable investment but reduce the impact land agreements have on competition once they are in place. 

Discussion

• Which land agreements this would apply to, and how the sunset period would be determined, would be complex.
• Could either be applied on a case-by-case basis, based on information supplied by businesses, which would be time-consuming to determine, or there could be one set limit for different categories of businesses, or levels of investment.

Option 8: Make it easier to remove a land agreement

Why

Seeking agreement of all benefitting parties to remove a land agreement, or removal through the Courts, can be a time-consuming and expensive processes.

Aim

Make voluntary removal of non-compliant agreements easier.

Reduce the time and costs involved in removing a registered land agreement.

Discussion

• Would change an established process and may have implications for other land agreements.
• We would need to limit the types of land agreements that this process applied to.
• Potentially complex to establish suitably narrow parameters when applying changes across the whole economy, and if it applied too widely could result in significant changes to a settled system.
• Would not address any land agreements that businesses chose to keep in place.

Option to make enforcement simpler and more effective

Option 9: Changes to sections 27 and 28 of the Commerce Act

Why

If the prohibitions are exceedingly time-consuming or complex to enforce, this will lessen the effectiveness of enforcement efforts.

Aim

To make enforcement more practical and efficient.

Discussion

• Could involve widening the prohibitions created for groceries to include other sectors, or putting greater burden on businesses to demonstrate that a land agreement is not anti-competitive (as they would be best placed to have information to explain the rationale for the land agreement).
• Legislative changes are time-consuming, and we would need to better understand whether there was a strong case for making them.
• Changes would need to be carved out so that they do not affect agreements other than those relating to use of land.

Section 4: There are risks to making changes that affect land

In our discussion of these options, we have focussed on the individual advantages and disadvantages of each. In addition, we identified three overarching risks that we will need to keep in mind when contemplating any changes:

Land agreements serve many useful and necessary purposes, which we do not wish to curtail

We recognise that maximising competition is not the only consideration in the use of land agreements, and there may be cases where we would not want to make it easier to remove the protections they afford. For example, there are land agreement designed to protect natural values and access, including QEII Trust Open space covenants and private covenants that protect biodiversity, cultural heritage, retired land and special areas of interest.  In considering any of the options above, careful attention will be given to whether and how options might apply in relation to such land agreements.

Land banking can also limit access to sites

There is a risk that any action to limit the use of covenants or similar arrangements may result in some businesses seeking to limit competitors’ access to sites through other means, such as land banking. Land-banking is where a business acquires and holds land without specific plans to use that land for their operations within a set timeframe. The acquisition and holding of new sites as they become available may sometimes form part of a legitimate long-term strategy by a business to grow their operations. However, holding these sites can have anti-competitive effects, such as the potential to prevent or slow entry and expansion by competitors, which become more likely (and more damaging) the longer the land has been held without being utilised.

We have not assessed the likelihood that businesses would move to land banking as a strategy if we were to restrict the use of land agreements. However, we note that there may be other mechanism to address land banking in future, with several local authorities taking increasing interest in land banking. In 2022 Christchurch City Council approved higher rates for vacant properties and in 2023 Wellington City Council announced plans to launch a review into rates, part of which would look at how to discourage land-banking.

Wellington land-bankers could pay more as council begins major rating overhaul(external link) — Stuff.co.nz

Any potential changes to existing land agreements need to consider the implications for property rights

If we were to progress changes that would impact existing land agreements, we would need to consider the implications for property rights. There is generally an expectation that government should not interfere with accrued rights and duties – that is, parties would expect that the terms of an agreement would not be changed once they had entered into it. There are some circumstances where changes may be made even if they impact existing arrangements, but these need to be given particular attention. This is something we are considering, even as we developed the initial, high-level options above.

Section 5: Considering how to avoid ‘over-capturing’ land agreements

We want to ensure that any existing provisions in the Commerce Act that refer to covenants or land agreements and possible future changes (such as widening sections 27 and 28, as discussed above), do not unduly prevent businesses entering into arrangements and recording these on the Land Titles Register when they need to.

This section seeks views on whether the Commission’s authorisation process is sufficient to address these concerns. It also invites views on whether we should consider an exemption to relevant provisions for agreements or covenants with certain purposes, and the possible options to achieve such an exemption.

Taking forward any changes in this regard would be subject to there being evidence that the existing rules are creating issues for businesses.

We seek views on whether the Commision’s authorisation process is sufficient to address these concerns

Under the Commerce Act, businesses can apply to the Commission for ‘authorisation’ of an agreement or covenant that might breach the provisions of the Commerce Act which prohibit anti-competitive conduct. Authorisation allows firms to undertake conduct that would otherwise breach the Commerce Act, and the Commission will grant authorisation when it is satisfied that the public benefit of the agreement outweighs the competitive harms.

Authorisation-Guidelines-December-2020 [PDF, 587 KB](external link) — Commerce Commission

New Zealand’s courts have defined a public benefit as: anything of value to the community generally, any contribution to the aims pursued by the society including as one of its principal elements (in the context of trade practices legislation) the achievement of the economic goals of efficiency and progress.

Agreements and covenants prohibited under sections 27 and 28 of the Commerce Act are both included in the Commission’s authorisation regime.

We consider the authorisation regime provides a robust framework, supported by necessary expertise, for decisions around whether the benefits of an anti-competitive agreement or restriction are outweighed by the competitive detriment. However, we understand that, given the range of factors needing to be considered in each case, assessments can be lengthy.

We would like your views on whether we should include an exemption to relevant provisions to protect certain purposes

There are some circumstances in which a party may want to enter into a land agreement that limits competition, but that they consider is necessary regardless.

If the authorisation process was found to be inappropriate to deal with these, we could look into creating an exception to certain provisions in the Commerce Act which would allow for anti-competitive covenants or agreements to be used where it is reasonably necessary for the protection of certain rationales.

One of the challenges is knowing when a ‘rationale’ or purpose for an agreement or covenant is one that should be protected, and how that assessment would differ from that already in existence as part of the authorisation regime.

We suggest 2 possible options:

1. Create criteria – Under this option, if a party could demonstrate that the covenant or agreement met certain criteria, then it could remain in place. This could include if the land agreement was required for a business reason, it contributed to New Zealand’s collective financial, social, environmental or cultural wellbeing or was required in order to comply with other Government standards or requirements in legislation. In tandem, the business would have to provide evidence that the land agreement has a duration that is no longer than necessary to achieve this purpose and could not be achieved by other means.
   
   
2. Create a test – Instead of a list of criteria, we could create a test whereby the benefit of the land agreement would be assessed against its anti-competitive effect.

There are risks to creating an exemption

We consider that either option would be challenging to develop and implement, and has the potential to duplicate the authorisation process, as decision-making would still be required as to whether a land agreement met the criteria.

We also consider that providing for exemptions may leave the opportunity for parties to use these to undermine competition. It will be important that there are checks in place to limit the ability to use these for an anti-competitive purpose, and therefore we would like your views on the need for an exemption and feedback on how it could be constructed.

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