In 2022, the Competition Bureau (the Bureau) launched a study of grocery store competition in Canada and released its report in June 2023, concluding that "Canada Needs More Grocery Competition." In response to the Bureau's study, the federal government introduced the Affordable Housing and Groceries Act,1 which includes significant changes to the Competition Act2 (the Competition Act) and which came into effect December 15, 2024. Although the study focused on competition between grocery stores, the amendments to the Competition Act will impact all landlords and tenants, not just those in the grocery industry.
Prior to the amendments, the wording of section 90(1) of the Competition Act permitted the Bureau to request that the Tribunal issue an order where an agreement or arrangement, whether existing or proposed, prevents or substantially lessens competition (or is likely to do so) in situations where at least two parties to the agreement or arrangement are competitors.
As of December 15, 2024, a new subsection was added:
90.1(1)(1.1) "If the Tribunal finds that a significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in any market, [the Tribunal] may make an order under subsection (1) even if none of the persons referred to in that subsection are competitors" (emphasis added).
The removal of the requirement that the parties to an agreement or arrangement be competitors vastly expands the Tribunal's power. This new provision will expose restrictive covenants and exclusive use covenants to sanction because while the landlord and the tenant may not be competitors, the Bureau's position is that these types of provisions seek to stifle competition in the market and insulate businesses from competition.
The Bureau has released preliminary guidelines3 which address restrictive covenants and exclusive use covenants. These guidelines suggest that restrictive covenants, which restrict purchasers or owners of properties from using the location to operate a certain business that competes with a previous owner, are by their very nature exclusionary and anti-competitive, and will not be justifiable "outside of exceptional circumstances." However, exclusive use covenants, which limit how the property in question can be used by competitors, may be justified in limited circumstances, provided "they go no further than necessary to encourage new entry or to allow a tenant to make investments to develop their storefront."
For example, the Bureau acknowledges that under certain circumstances, a limited exclusive use covenant may be considered "pro-competitive if no retailer would otherwise make the necessary investments to become a key tenant in a new shopping plaza." However, the duration and scope of the exclusive use provision will be key considerations when assessing whether the exclusivity is justified. Provisions that limit competition more than necessary will not be justified.
The Bureau has encouraged all businesses that use competitor property controls, such as exclusive use covenants, to review their provisions in detail to ensure compliance with the Competition Act. In particular, the Bureau recommends that landlords and tenants alike review their existing and potential lease agreements to clearly document justifications, and ensure that the property control in question are as limited as reasonably possible. Franchisors and franchisees should take note of these developments and ensure that their leasing arrangements are compliant.
Footnotes
1. SC 2023, c 31.
2. RSC 1985, c C-34.
3. Competition Bureau of Canada, "Competitor property controls and the Competition Act" (August 7, 2024).
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