As we have discussed previously,¹ Bill C-56, the Affordable Housing and Groceries Act (Bill C-56), received royal assent on December 15, 2023, and Bill C-59, the Fall Economic Statement Implementation Act (Bill C-59), received royal assent on June 20, 2024.² The bills amended the abuse of dominance provisions (sections 78 and 79) and the anti-competitive collaborations provision (section 90.1) of the Competition Act (Act), lowering enforcement requirements and expanding private access and remedies under these provisions. In particular, the amendments to the abuse of dominance and competitor collaboration provisions will be relevant to how the Competition Bureau (Bureau) will approach the enforcement of  restrictions used in commercial real estate. Indeed, prior to Bill C-56’s introduction in Parliament, the Prime Minister released a statement indicating that the amendments, although having general application, were intended to address property restrictions that benefit incumbent grocery stores:

The government intends to introduce a first set of legislative amendments to the Competition Act to […] empower the Bureau to take action against collaborations that stifle competition and consumer choice, in particular situations where large grocers prevent smaller competitors from establishing operations nearby.³

On August 7, 2024, the Bureau released preliminary guidance on “property controls” (Guidance) and is now inviting comments until October 7, 2024. Competitor property controls are described in the Guidance as restrictions on the use of commercial real estate, which the Bureau acknowledges are common in retail. The Guidance addresses two specific types of property controls:

• Exclusivity clauses: A provision in a commercial lease that restricts or incentivizes a landlord from leasing real property (including other retail space in proximity to the leased premises) to a competitor of an existing tenant or limits what or how products can be sold by a tenant; and
• Restrictive covenants: A restriction on real property that limits how the property can be used going forward – for example, preventing a purchaser from using the land to operate certain businesses that compete with the prior owner.

In particular, the Bureau believes these types of property controls can raise serious competition concerns under the abuse of dominance and  anticompetitive collaboration provisions of the Act. As noted below, the Bureau takes the position that these controls are only justified in limited circumstances – for example, if necessary to incentivize investments to enter a market.

When does the Bureau believe property controls are “justified”?

In the Guidance, the Bureau outlines certain limited circumstances where property controls may be justified in its view.

In relation to exclusivity clauses, the Bureau indicates that these clauses may be justified in circumstances where they protect incentives for retailers to make investments to enter markets or develop storefronts. For example, exclusivity may be important if no retailer would otherwise make the necessary investments to become a key tenant in a new shopping plaza. However, according to the Bureau, the scope and duration of any restriction must go “no further than necessary” to encourage that entry or investment. The Bureau notes that property controls that limit competition “more than necessary” (duration and/or scope) are not, in its view, “justified.” The Bureau does not specify what might constitute “more than necessary,” which suggests parties will need to undertake a case-by-case analysis.

The Bureau demonstrates a degree of second guessing when it further suggests that landlords still consider if there are other suitable tenants that would not require a restrictive exclusivity clause. However, it appears to recognize that a variety of factors will come into play when a lessor is determining the tenant mix.

With respect to restrictive covenants, the Bureau considers these to be more problematic than exclusivity clauses and justified only in exceptional circumstances because they attach to the land itself and tend to be of long duration, creating zones where no rivals can enter. The Guidance does not provide examples of what it might consider exceptional circumstances.

What provisions of the Act will the Bureau use to address property controls?

Abuse of dominance

The abuse of dominance provisions of the Act apply to dominant firms (unilaterally dominant or jointly dominant in a market). Under the recent amendments to the Act, the Bureau or a private party must demonstrate dominance and either (i) a practice of anticompetitive acts or (ii) that a dominant firm’s conduct is likely to lead to substantial harm to competition that is not the result of superior competitive performance.

Dominance is the ability to substantially influence competition in a market (in other words, restricting competitors or competition through the exercise of market power). In its Abuse of Dominance Enforcement Guidelines, the Bureau indicates that it will generally only consider a firm potentially dominant if it has a market share of 50%.⁴ In cases of potential joint dominance, the Bureau indicates that it will generally only consider several firms as jointly dominant if they have a combined market share of 65%.⁵ According to the Guidance, property controls can establish dominance if they create or increase significant barriers to entry. Further, the Bureau states that it will consider dominant the party who proposes or benefits competitively from the relevant property control. 

In determining whether a property control is anti-competitive, the Bureau will consider evidence of the dominant firm’s reason for the behaviour, the likely outcome of the conduct and any pro-competitive or efficiency enhancing rationale for the conduct.

If the property control does not fall within what the Bureau considers to be “certain limited situations” in which pro-competitive justifications underlie a dominant firm’s use of a property control, it will consider such property control to be anti-competitive. As noted above, the Bureau will generally consider the use of restrictive covenants by dominant firms to be anti-competitive.

When assessing the competitive impact of a property control (another route to finding an abuse by a dominant firm), the Guidance indicates that the Bureau will consider (i) whether the property control creates, increases or protects market power, (ii) whether the property control creates or increases barriers to entry, and (iii) the presence of effective competition in that specific market.

If the property control is found to be abusive, the Guidance indicates that the Bureau will likely seek a prohibition order and/or other measures directed to restore competition as well as administrative monetary penalties (AMPs). The Bureau suggests that AMPs might be higher, or more frequent, in cases of restrictive covenants because they generate “heightened concern.” 

The use of the abuse of dominance provisions challenging property controls is not theoretical. The Bureau is already in the process of investigating the use of property controls by certain large grocery chains under these provisions.⁶

Anti-competitive collaborations

Section 90.1 of the Act applies to agreements between competitors that have the effect of harming competition. At present, this section does not apply to agreements that do not involve competitors and, therefore, is not considered particularly relevant to address property controls.

However, following the amendments to the Act, section 90.1 will be extended to agreements that do not involve competitors in circumstances where a “significant purpose” of the agreement is to prevent or lessen competition in a market. As a result, this provision can apply to  property controls agreed to by parties who do not compete with each other (i.e., landlords and tenants). This amendment will come into force on December 15, 2024.

Unlike its approach to abuse of dominance, the Bureau indicates in the Guidance that it will apply section 90.1 to both landlords and tenants. If the Bureau finds that a property control under investigation is anticompetitive, the Guidance states that it will seek remedies to prohibit enforcement of the restriction, take other measures to restore competition, and/or impose AMPs depending on the circumstances of each case.

Our view

As noted above, the Guidance has been released in preliminary form and is open for comment into early October. Businesses should not necessarily conclude that they represent the Bureau’s final views concerning property controls. It is typical for the Bureau to consider public comments on its drafts before finalizing its guidelines. In our view, there are several issues that should be considered before the Guidance is finalized.

At a high level, we note that the Guidance is unwarrantedly aggressive. Although initially observing that “property controls are common across Canada, especially in retail settings,” the Bureau goes on to suggest that they are only “justified … in limited cases … if they are necessary for a firm to make investments that increase competition.” The Bureau does not appear to appreciate that property controls are ubiquitous because of their commercially reasonable  rationale. While some anticompetitive clauses may exist, broadly brushing property controls as anticompetitive ignores the importance of property controls as key to attract retailers and support their pro-competitive investments in a commercial centre, rather than being efforts to unjustifiably preempt competition.  Further, exclusivity clauses allow a landlord of a commercial centre to ensure the diversity in retail offerings requisite to compete effectively with other commercial centres.

It is also noteworthy that the Bureau takes the position that in order to avoid potential challenge, property controls must be “justified.” This suggests that the Bureau is using its view of “justification” as a line of demarcation between property controls it will view as almost per se prohibited and conduct that it will not challenge. This dichotomy is not consistent with the applicable legal framework in the Act, in which for remedies under abuse of dominance and anticompetitive agreements, the onus is on the Bureau to establish dominance or market power in a relevant product/geographic market, anti-competitive conduct, and/or effects. While a justification analysis may be relevant to determine whether conduct will be considered anti-competitive, the Bureau should provide guidance on its approach to meeting other elements of the abuse and anticompetitive collaboration provisions (for example, how it will approach defining the relevant geographic and product market and how it will determine effects for property controls).  

Instead of taking an aggressive approach to property controls in general, the Guidance would be more helpful if the Bureau clearly enunciated the scenarios where property controls are viewed as anticompetitive or create material risk of being considered as anticompetitive. As noted above, the Bureau has already used abuse of dominance to investigate property restrictions in the grocery sector and the amendments to the anticompetitive collaboration provision (introducing a provision aimed at restrictions in agreements between non-competitors) were undertaken because of concerns that property controls bar entry for potential new entrants in the retail grocery sector. Based on its experience reviewing controls in this sector, it would be useful if the Bureau offered examples of the types of restrictions that, in its view, “go too far” (in terms of necessity, duration, and the scope of products and territory). It would also be helpful if the Bureau could clearly indicate in what circumstances it would pursue property controls under abuse of dominance rather than the competitor/non-competitor collaboration provision.

Next steps

As the Guidance will apply to contracts that are already in force, the Bureau is encouraging all business to review property controls to confirm compliance. The Bureau suggests that businesses consider the following questions to gauge risk:

1. Is the property control necessary to allow a new business to enter the market or to encourage a new investment?
2. Could this property control last for a shorter period of time?
3. Could this property control cover fewer products or services?
4. Could this property control cover less geographic area?

Since the Bureau has not provided clear guidance on what is considered “necessary,” the assessment of whether a property control clause is justified should be considered on a case-by-case basis.

Dentons has extensive experience addressing competition law compliance issues. We are here to help our clients understand the implications and prepare for the changes discussed in this article. For more information, please contact the authors, Sandy Walker, Adam S. Goodman and Camila Maldi.

[1] Adam S. Goodman. Simon Kupi, Sandy Walker, Barry Zalmanowitz KC, and Camila Maldi, “Bill C-56 proposes new amendments to the Competition Act” (October 2, 2023), Dentons Canada Regulatory Review, online: https://www.canadaregulatoryreview.com/bill-c-56-proposes-new-amendments-to-the-competition-act/; Adam S. Goodman. Sandy Walker, Barry Zalmanowitz KC, Margot Patterson, Simon Kupi, and Camila Maldi, “Bill C-59’s third wave of changes to the Competition Act passed” Dentons Canada Insight (June 28, 2024), online: https://www.dentons.com/en/insights/articles/2024/june/28/bill-c-59s-third-wave-of-changes-to-the-competition-act-passed.

[2] Bill C-56, Affordable Housing and Groceries Act, 1^st Sess., 44^th Parl., 2023 (assented to December 15, 2023); Bill C-59, Fall Economic Statement Implementation Act, 2023, 1^st Sess., 44^th Parl., 2024 (assented to June 20, 2024).

[3] Press Release, Prime Minister’s Office, “Fighting for the middle class” (September 14, 2023) [Press Release], online: https://www.pm.gc.ca/en/news/news-releases/2023/09/14/fighting-for-the-middle-class.

[4] Where market shares are below 50%, the Bureau states that it will only further investigate where the evidence indicates the firm possesses “a substantial degree of market power” or it may be able to attain that “substantial degree of market power” as a result of the anti-competitive conduct at issue. Competition Bureau, Abuse of Dominance Enforcement Guidelines (March 7, 2019) at para. 34, online: https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/abuse-dominance-enforcement-guidelines.

[5] Ibid.

[6] Press Release. “Competition Bureau advances investigations into Sobeys and Loblaw’s use of property controls” (June 11, 2024), online: https://www.canada.ca/en/competition-bureau/news/2024/06/competition-bureau-advances-investigations-into-sobeys-and-loblaws-use-of-property-controls.html.