Canadian Competition Bureau’s Final Guidance Discourages Property Controls

The Canadian Competition Bureau (Bureau) raised concerns in its 2023 market study of the grocery sector about the use of competitor property controls (i.e., terms in commercial leases or covenants that run with the land) to restrict the entry of new grocery stores. These concerns led to changes to the Competition Act (Act), effective in December 2024. These changes extend the civil provisions prohibiting agreements between competitors that substantially lessen or prevent competition to certain types of anti-competitive agreements between non-competitors (e.g., an agreement between a developer and an adjacent landowner or between a landlord and a tenant). 

More recently, the Bureau released draft guidance on its preliminary enforcement position with respect to competitor property controls. (See our discussion of the Bureau’s initial draft guidance for additional background.) Following public consultation on the preliminary guidance and the above-noted changes to the civil anti-competitive agreement provisions coming into effect in December 2024, the Bureau has now released the final version of its guidance, Competition property controls and the Competition Act.

The final guidance contains some helpful changes relative to the draft that clarify the Bureau’s view of aspects of the relevant provisions of the Act; however, the Bureau has largely maintained an aggressive enforcement position with respect to the use of competitor property controls, even outside the grocery sector. In addition, the final guidance asserts an even stronger advocacy position beyond the Bureau’s enforcement of the Act: 

Competitor property controls can raise serious competition concerns. However, not all competitor property controls meet the legal tests to raise issues under the Competition Act. Even if they do not, we still encourage firms to only use them where they increase competition. The widespread use of competitor property controls can make it more difficult for firms to enter new markets or expand, reducing the choices available to Canadians.

Elsewhere in its final guidance, the Bureau encourages “tenants, lessors, landowners, and former landowners to eliminate or modify competitor property controls that are not justified,” including both “competitor property controls that raise issues under the Competition Act and those that do not.”  

Below we focus on the Bureau’s positions on the application of the Act to property controls.

Framework for the Bureau’s Guidance

As it did in its draft guidance, the Bureau identifies two primary types of property controls:

1. Exclusivity Clauses. Clauses within commercial leases that limit the use of land or other leased premises by competitors of the tenant.
2. Restrictive Covenants. Restrictions on land that prevent a purchaser or owner of a commercial property from using the location to operate or lease to operators of certain types of businesses that compete with a previous owner.  

The final guidance contains extensive discussion on when a competitor property control may be justified, which confusingly conflates the Bureau’s policy stance and enforcement guidance regarding the application of the Act. The guidance also suggests that the Bureau considers whether property controls are justified to be a “key part” of its enforcement-related analysis. In the Bureau’s view, a competitor property control will be justified if it has a credible, pro-competitive rationale. Conversely, the guidance says that “competitor property controls that limit competition more than necessary are not justified.”  Although not always apparent throughout the guidance, it includes a clarification that even “[w]here not justified, this does not automatically mean that [the property control] will meet the legal tests to breach the Competition Act.” On the other hand, where the Bureau considers a competitor property control to be pro-competitive and justified, the guidance indicates that the Bureau would not challenge the control under the Act. 

Unlike the draft guidance, the final guidance provides an indication of the factors the Bureau will consider when assessing whether a competitor property control is justified: timeframe, geographic area and scope of products and services captured. These factors generally align with earlier Bureau guidance regarding its review of anti-competitive agreements under the civil provisions, such as non-compete provisions included in a merger agreement. 

Applying the Legal Tests

The guidance suggests that the Bureau will typically investigate competitor property controls under either or both of the abuse of dominance and anti-competitive agreement provisions of the Act. We discuss below the relevant legal tests for each set of provisions and the Bureau’s guidance. 

Abuse of Dominance 

The abuse of dominance provisions historically contained a three-pronged test: (i) a dominant firm (or group of jointly dominant firms), (ii) engaged in a practice of anti-competitive acts, (iii) that has the effect or likely effect of substantially preventing or lessening competition. Following recent amendments to the Act, for the Bureau or a private party to obtain a prohibition order, it is sufficient to establish (i) and either (ii) or (iii). Private parties may also seek payment not exceeding the benefit derived from the impugned practice if this two-pronged test is met. Additional remedies, including administrative monetary penalties and other remedies considered necessary to restore competition, are available where all three elements are established. 

The Bureau’s guidance comments on all three elements of the test, as they apply to competitor property controls: 

1. Dominance. Dominance has traditionally been assessed as requiring market power in a relevant market; litigated cases have typically involved firms with market shares well in excess of 50%. The Bureau’s guidance notes that the abuse of dominance provisions “may apply when at least one of the parties involved in a competitor property control has market power, including as a result of the property control.” The guidance also briefly refers to the possibility that firms may collectively have dominance (known as “joint dominance”). In terms of the relevant “market” in which to assess dominance, the guidance points out that the Bureau may assess dominance at a local, regional or industry level.
2. Practice of Anti-competitive Acts. To meet the statutory definition of an “anti-competitive act,” the conduct must be intended to have a predatory, exclusionary or disciplinary negative effect on a competitor or an adverse effect on competition. In discussing this element of the test, the Bureau’s guidance acknowledges that “pro-competitive or efficiency enhancing justifications for the behaviour” may be relevant to its assessment. As the Bureau presumes that competitor property controls are, by their nature, intended to restrict competition, the guidance further states, “In the absence of evidence of [a] type of pro-competitive justification [recognized by the Bureau, the Bureau] will likely consider competitor property controls used by dominant firms to be anti-competitive business practices.”
3. Substantial Prevention or Lessening of Competition. In assessing the effect of a competitor property control, the Bureau will consider whether it is likely to create, increase or protect the market power of one of the parties, including by creating barriers to entry or expansion. In the Bureau’s view, relevant factors will include the presence and effectiveness of other competitors, available commercial real estate, and existing barriers to entry or expansion that may be compounded by the competitor property control. The final guidance includes a new comment that a competitor property control may create, increase or protect market power of a party in a market that is “different than the market where the target [of the Bureau’s investigation] is dominant.” While this is an accurate statement of law, it is unclear how the Bureau thinks it may apply in the context of competitor property controls.

The guidance also notes that, in most cases, the Bureau will view the party “who proposed or benefits competitively from the competitor property control” to be a potential target of an abuse of dominance investigation. This statement helpfully limits the Bureau’s enforcement focus under this provision to the party that is benefiting from the limitations (as opposed to all parties to the relevant agreements). 

Although not clear from the Bureau’s guidance, it is notable that these provisions will apply only where at least one of the parties to the competitor property control is “dominant” in a relevant market (whether individually or jointly). Businesses should note the Bureau’s view that a competitor property control may create market power (and, by extension, dominance) and should carefully consider whether they are likely to be considered dominant in a local, regional or industry-wide market; however, this element of the legal test seems likely to be an important limitation on the application of abuse of dominance provisions to competitor property controls. 

Anti-competitive Agreements

The civil anti-competitive agreement provisions prohibit (i) agreements between competitors that prevent or lessen, or are likely to prevent or lessen, competition substantially; and (ii) agreements between non-competitors (e.g., commercial leases) in which (a) a “significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in any market” and (b) the agreement or arrangement prevents or lessens or is likely to prevent or lessen competition substantially in a market. Although not the focus of the Bureau’s guidance on competitor property controls, additional criminal provisions prohibit agreements between competitors to fix prices, allocate markets or restrict the supply of goods or services. 

Under the civil anti-competitive agreement provisions, the Bureau or a private party may seek orders prohibiting the continued implementation of the agreement, requiring payment of administrative monetary penalties, and requiring a party to take any other action necessary to restore competition. As with the abuse of dominance provisions, private parties may also seek payment not exceeding the benefit derived from the impugned conduct. 

The Bureau provides limited guidance with respect to the application of these provisions to competitor property controls. The Bureau observes that competitor property controls are “usually” not entered into by competitors, and that it will therefore be required to demonstrate that the property control had both a significant purpose and the effect of harming competition. The Bureau says that it will focus on whether the agreement has the effect of harming competition; if so, it will expect the agreement to raise issues under the civil provision because “if the agreement has the effect of harming competition it will likely also have a significant purpose to do so.” This aspect of the Bureau’s view is similar to its discussion of intent in the “Practice of Anti-competitive Acts” element of the abuse of dominance provisions; however, in this case, the guidance does not expressly discuss how a pro-competitive justification may affect the Bureau’s assessment of what constitutes a significant purpose of a property control. It is also worth noting that the Bureau’s views in this regard remain, as yet, untested in a contested Tribunal hearing.

The guidance further provides that the Bureau will generally consider all parties to an anti-competitive agreement to be potential targets of investigation, but it may seek different remedies from different parties, depending on the circumstances. The Bureau does not expand on how it will assess the effect of the impugned agreement. However concepts from the guidance’s assessment of competitive effects for the purposes of the abuse of dominance provisions will likely be relevant. 

Implications

A week after releasing its final guidance, the Bureau issued a news release and backgrounder announcing that the Bureau is “monitoring” recent commitments by Loblaw, a major Canadian grocery retailer, to eliminate certain property controls in Canada. The Bureau announced in June 2024 that it had received court orders to advance investigations into the use of property controls by Loblaw and Sobeys (another major Canadian grocer) in Halifax; however, the Bureau’s more recent backgrounder does not tie Loblaw’s recent commitments to that investigation nor to any agreement between the Bureau and Loblaw to resolve the Bureau’s concerns. Nonetheless, Loblaw’s public commitments seem geared toward addressing the Bureau’s concerns and may reflect the influence of both the Bureau’s strong policy position about competitor property controls as well as Loblaw’s view of the applicable legal tests.

We have also seen some provinces take steps to limit the use of competitor property controls. For example, the government of Manitoba recently passed The Property Controls for Grocery Stores and Supermarkets Act, which requires persons that currently benefit from a property control restricting the use of land for grocery stores and supermarkets in Manitoba to register the property control. If such controls are not registered within the designated period, they will automatically be void, and even registered controls may subsequently be challenged. We may see the Bureau advocate for and support these types of provincial legislative reforms, which appear to be consistent with its policy views and may address what it perceives to be gaps in the Act. 

Overall, the Bureau’s policy view is clear from its final guidance, even if its approach to challenging competitor property controls under the Act is less so. As a result, we expect this to remain an area of Bureau enforcement (and advocacy) focus in the near term.