Canada’s Competition Bureau has released updated guidance on how it will interpret the recent Competition Act amendments targeting property controls. The amendments prohibit certain competitor property controls—exclusivity clauses and restrictive covenants—that restrict the use of commercial retail real estate and can make it more difficult for companies to enter new markets or expand. For more information about the amendments, which came into effect on December 15, 2024, see our previous update.
In mid-2024, before the amendments came into effect, the Bureau released interim guidance and undertook a process of consultation. It has updated its guidance, which is intended to help businesses understand how the new law applies to both commercial tenants and property owners.
The amendments regulate two types of controls:
- Exclusivity clauses, which are clauses in commercial leases that limit how land can be used by a tenant’s competitors.
- Restrictive covenants, which are restrictions on land use that prevent a purchaser or owner of commercial property from using the property to operate or lease to a business that competes with the previous owners.
The key changes in the Bureau’s guidance are:
- The Bureau will not enforce where agreements are pro-competitive. The Bureau previously confirmed that some competitor property controls may be pro-competitive—e.g., where necessary to allow a company to make investments that increase competition. In its updated guidance, the Bureau confirmed it will not take enforcement action against controls that are credibly pro-competitive. However, where a company wants to argue that its property restriction is pro-competitive, the restrictions must be as limited as possible.
- Property controls may be unjustified (and potentially offside the Competition Act) where a different approach is available that would allow for the entry or investment without making it more difficult for rivals to compete. The Bureau will consider the following three factors when considering if a competitor property control is justified:
- Timeframe. The Bureau will assess the timeframe case-by-case, but, generally, “[t]he longer a competitor property control lasts, the less likely it is to be justified.”
- Geographic area. Generally, competitor property controls that cover multiple properties will not be justified.
- Products and services. Any restrictions on the products or services competitors can sell should be as minimal as possible.
- Some controls may not meet the applicable test for enforcement. Even where competitor property controls are not justified, they may not meet the legal test under the Competition Act. The Bureau will only take enforcement action if the controls meet the legal test. In short, there may be situations where a property restriction may not be procompetitive, but nonetheless does not contravene the Competition Act.
- The Bureau is particularly concerned about restrictive covenants. The Bureau has emphasized it is particularly concerned about restrictive covenants, which are tied to the land and often long-lasting. It is unlikely to view any such covenants as justified absent “exceptional circumstances” and warned they are “more likely to attract scrutiny.”
- The Bureau will assess whether a firm has dominance at a local, regional, or industry level. The approach it will take in a particular case will depend on factors including how broadly property controls are used and how competition occurs in that sector. For example, if an incumbent firm uses property controls across a region where a new retailer would have to develop a local supply chain to serve several stores, it may be more likely to analyze dominance at a regional level than at a local level. In contrast, where competition occurs at a more localized level, the assessment will involve a narrower approach to market definition.
- The Bureau clarified its approach to enforcement under the abuse of dominance provision. The Bureau provided the questions it may ask when considering the effect of competitor property controls under the abuse of dominance provision. These include questions about the state of competition prior to the competitor property controls, whether competitors have other “feasible options” (and whether those other options would negatively impact their ability to compete), and whether existing barriers to entry or expansion “compound the effects” of the relevant property controls.
- The Bureau may seek remedies to restore competition as well as a monetary penalty to enforce compliance. The Bureau has clarified that, where a control is both an anti-competitive business practice and harms competition, it not only “will likely” seek an order prohibiting its use or enforcement, but may also seek both additional measures to restore competition and an administrative monetary penalty. If the control at issue is a restrictive covenant, the Bureau is likely to seek an administrative monetary penalty.
- The Bureau confirmed its approach to enforcement under the civil anti-competitive collaboration provision. The Bureau amended its earlier guidance to reflect recent changes to the Competition Act‘s civil anti-competitive collaboration provision, which now not only prohibits anti-competitive agreements between competitors, but also agreements that do not involve competitors if a significant purpose of any part of the agreement is to prevent or lessen competition in a market. To fall under the anti-competitive collaboration provision, however, the agreement must result in a substantial lessening of competition. The Bureau suggested it will focus on whether a competitor property control agreement has the effect of substantially lessening competition, because if it does, a significant purpose of that agreement will likely be the lessening of competition.
In addition to publishing updated guidance, the Bureau has been investigating property controls in the grocery industry for more than a year. This appears to be having some effect. In what the Bureau has described as a “key milestone for competition in the Canadian grocery industry,” Loblaw committed to end its use of property controls across Canada. The Bureau published a statement advising it is closely monitoring Loblaw’s implementation of this commitment, and confirmed its investigation remains ongoing, as it “continues to monitor the industry closely.”
Key takeaways
As a result of the changes to the Competition Act and in light of the Bureau’s guidance, commercial property owners and tenants should revisit existing property controls and ensure any future property controls do not raise compliance issues.
In assessing whether a particular property control could raise competition law compliance concerns, property owners and tenants will need to consider the potential competitive impact of the property control. In almost all cases, it will be prudent to draft property control provisions carefully and more narrowly than has historically been the case.
The authors would like to thank Jaden Love, summer student, for her contribution to preparing this legal update.
