Lease of commercial space requires prior antitrust clearance

The Argentine Antitrust Commission (the “Antitrust Commission”) issued Consultative Opinion No 173, dated December 17, 2003, where it interpreted that the lease of an industrial bread premise by a well-known supermarket chain requires the prior notification of the Antitrust Commission, pursuant to the terms of Sections 6 (d) and 8 of the Antitrust Law No 25,156 (the “Antitrust Law”).

This Consultative Opinion confirms the intention of certain members of the Antitrust Commission to revise all transactions in which the thresholds provided in the Antitrust Law are met, even when the requirements of change of control provided in Section 6 of the Antitrust Law are not clearly met. This interpretation creates more uncertainty on how to create an objective parameter to assess whether a transfer of assets must be notified to the Antitrust Commission beforehand or not.

In the case under comment, a very well-known supermarket chain, with branches all over Argentina, executed a 5 year term lease agreement with the owner of an industrial bread premise. According to the information mentioned in the Consultative Opinion, the industrial premise was duly registered as an industrial premise for manufacturing bread and related products, and included industrial type electricity, gas, water and restrooms and all types of machinery for the industrial manufacturing of bread and related products.

The parties required the Antitrust Commission to issue a consultative opinion since they were not sure whether the transaction could be considered as an economic concentration, according to the Antitrust Law, and therefore, be subject to prior notification obligation. If the parties do not comply with this requirement, they will be subject to a fine of up to 1 million Argentine Pesos for each day they fail to comply (approximately US$ 300,000). The request of a consultative opinion suspends all running terms for the imposition of penalties and grants the parties security on whether a transaction must be notified or not.

Section 6 (d) of the Antitrust Law states that an economic concentration are those transactions that result in the change of control by transferring the assets of a company to an entity or economic group. The above-mentioned economic concentrations require notice and approval by the Antitrust Commission should the aggregate volume of business of the companies involved in the transaction exceed 200 million Argentine Pesos. This mandatory notice must be delivered prior to or within one week following the first to occur of: (i) the date that any transfer effectively occurs, or (ii) the publication of any cash tender or exchange offer.

The Antitrust Commission has accepted the European Union interpretation on the definition of transfer of assets that are subject to antitrust approval. In Consultative Opinions Nos 83, 98, 100, 101, 127 and 130, the Antitrust Commission interpreted that the transfer of assets, to be considered an economic concentration, must allow the development of one or more activities, for which an independent volume of business can be attributed, with a clientele and values of its own originated in the possibility of generating business.

Lease of space with dimensions suitable for use as a supermarket is an issue that has been discussed at length beforehand by the Antitrust Commissio. In Consultative Opinion No 95 dated February 12, 2001 the Antitrust Commission mentioned that leasing space for a supermarket, in which another supermarket used to be located since 1997 did not have to be notified beforehand to the Antitrust Commission, since the transaction did not include squatters, intruders or tenants, employees, goods, machinery, trademarks, customers, if the place were closed for a period of 90 days to be reformed. The Antitrust Commission mentioned that the case “included the simple lease of space, suitable for installing a supermarket, without involving the transfer of a business unit, for which reason this Antitrust Commission opines that the mentioned transaction can not be considered included within Section 6 of the Antitrust Law and consequently, must not be notified beforehand”.

On the other side, in Consultative Opinion No 147, dated November 20, 2001, the Antitrust Commission established that in order to assess the existence of a change of control in the transfer of assets, qualitative rather than quantitative criteria must be used, including factual considerations and the economic reality principle. Moreover, in the case of lease agreements that transfer certain assets, the term of the lease agreement must also be analyzed, requiring a case by case analysis. In this particular case, the Antitrust Commission considered that the term of two years was a reasonable term that did not show a change of control situation.

As a consequence of the different consultative opinions issued regarding the lease of industrial premises and commercial space that may involve the transfer of assets and therefore imply a change of control since “it may actually or legally transfer the assets of a company to an person or economic group”, the following parameters may be considered elements necessary to evaluate whether a transfer of assets is an economic concentration under the terms of Section 6 of the Antitrust Law: (i) customers; (ii) trademarks; (iii) agreements and suppliers; (iv) employees or other type of personnel related to the industrial premise; (v) term of the lease agreement; (vi) volume of business. If the lease of the property involves any of these elements, the Antitrust Law may consider the transaction as an economic concentration, according to Section 6 (d) of the Antitrust Law and impose the obligation of previous notification. On other words, the Antitrust Tribunal is looking to revise transactions where a lease of going concern is involved.

However, in the Consultative Opinion under comment, the elements mentioned above were not clearly met and, therefore, the interpretation derived from this Consultative Opinion creates uncertainty on the definition of transfer of assets through a lease agreement. According to the information provided, a supermarket leased an industrial premise without involving the transfer of customers, trademarks, suppliers and volume of business. On the other hand, the parties informed that the lease agreement had a term of 5 years. The Antitrust Commission decided that there is a transfer of assets through a lease agreement and imposed the obligation of previous filing on the parties.

In conclusion, lease of industrial space for a term longer than 2 years must be notified to the Antitrust Commission beforehand, even when the requirements to consider a transfer of assets as an economic concentration are not clearly defined. Such transaction must be notified to the Antitrust Commission if the volume of business of the involved parties is higher than 200 million Argentine Pesos. Otherwise, the Antitrust Commission may impose penalties of up to 1 million Argentine Pesos for each day the parties fail to request antitrust approval. If there is any doubt, we recommend requesting the Antitrust Commission to issue a consultative opinion confirming whether the prior notification must be done or not.

Based on this interpretation, it is highly suggested that any party that may lease an industrial space for industrial use requests the Antitrust Commission to issue a consultative opinion to confirm whether the lease transaction must be previously notified or not.