With amendments made over the past few years to the Competition Act's abuse of dominance and civil anti-competitive agreements provisions, the Competition Bureau released guidance in 2024 on how restrictions on the use of property may implicate those provisions, which we discussed in our prior bulletin on the Bureau's Preliminary Property Controls Guidelines (the "PPCGs"). The Bureau has also taken some enforcement actions in this space that we discussed here, which to date has focused exclusively (at least based on publicly available information) on grocery store leases that restrict landlords' abilities to lease to competing grocers. The Competition Bureau has now released its updated Competitor Property Controls and the Competition Act enforcement guidelines (the "Property Controls Guidelines"), replacing the PPCGs.
The Property Controls Guidelines seek to explain when competitor property controls found in existing and new commercial leases, as well as in restrictive covenants that are placed on title to land, may raise issues under the recently amended Competition Act. The Property Controls Guidelines address one of the significant unaddressed concerns from the PPCGs by explaining how the Bureau's concept of "justification" ties into the relevant Competition Act provisions. However, there remains a substantial amount of uncertainty regarding how those entering into property agreements should be assessing their use of property controls going forward.
A Shift in Tone
The 2024 PPCGs suggested an aggressive enforcement approach by the Bureau, implying that the Bureau would take potential action against any property controls that were not competitively justified.
The updated Property Controls Guidelines soften the Bureau's position. The Bureau expressly acknowledges that, even when property controls are not justified under the Bureau's test (which we discuss below), the property control does not automatically violate the Competition Act. However, the Bureau continues to advise the market that the safest option for avoiding enforcement risks under the Competition Act is to ensure that any property controls they use are "justified". To be clear, neither the PPCGs nor the Property Controls Guidelines suggest that the Bureau intends to exempt property controls that existed prior to the legislative amendments, with both sets of guidelines advising businesses to review any property controls in their agreements to ensure they comply with the Competition Act.
How the Bureau Assesses Whether a Property Control is Justified
The Bureau confirms that the first step of its enforcement analysis will focus on whether a property control is justified, based on whether it is narrowly-tailored and reasonably necessary to support a pro-competitive objective. The Bureau indicates that it will not seek to challenge property controls it views as being pro-competitive (and thus competitively justified).
The following questions guide the Bureau's justification analysis (both in the initial PPCGs and in the revised Property Controls Guidelines):
- Is the property control necessary to allow a new business to enter the market or to encourage a new investment? Are there other ways to allow for this entry or investment that do not make it more difficult for rivals to compete? (The Property Controls Guidelines clarify that this analysis could include a property control that is needed to incentivize a retailer to invest in improving an existing space that it already leases.)
- Could this property control achieve its "legitimate objective" if it were to last for a shorter period of time?
- Could this property control achieve its "legitimate objective" if it were to cover less geographic area?
- Could this property control achieve its "legitimate objective" if it were to cover fewer products or services?
Additional Factors for Justification
In the Property Controls Guidelines, the Bureau adds that it is particularly interested in three key factors when assessing the justification question:
- Timeframe: Is the restriction limited to the minimum duration needed to protect investment? The Bureau noted that competition legislation in the United Kingdom requires that, with limited exceptions, large grocers cannot enter into exclusivity clauses lasting beyond five years after the store opens.
- Geographic Scope: Does the clause apply only to the specific property in question or extend unnecessarily to other sites? The Bureau suggests that a clause restricting competition at other properties owned by the same landlord would usually not be justified.
- Product and Service Scope: Does the restriction cover only the categories of products or services that are reasonably necessary to achieve the legitimate objective?
These considerations are not determinative, but the Bureau suggests that controls which go beyond these bounds are unlikely to be justified.
Clarifying the Enforcement Framework: Sections 79 and 90.1
As was the case in the PPCGs, the Property Controls Guidelines indicate that the Bureau may challenge unjustified competitor property controls primarily using two provisions of the Competition Act:
- Section 79 (abuse of dominance), where the focus is typically on the party that proposed or benefits from the restriction, which will often be the tenant in a lease, or the vendor in respect of a restrictive covenant. The Property Controls Guidelines clarify that the Bureau may assess whether a party is dominant at a local, regional, or industry level, depending on the structure and dynamics of the market. This can include an assessment of how broadly competitor property controls are used and how competition operates on the ground. They also clarify that, if the Bureau seeks administrative monetary penalties, they will seek "ones that are meaningful and designed to encourage that firm to comply with the provision".
- Section 90.1 (anti-competitive agreements), where all parties to the agreement—tenants, landlords, sellers or buyers—may be investigated. The Property Controls Guidelines clarify that the Bureau may seek different remedies from different parties to such an agreement, depending on the circumstances.
Assessing Anticompetitive Effects
In the Property Controls Guidelines, the Bureau indicates that it will evaluate whether a restriction is harming competition by focusing on barriers to entry or expansion created by a property control and considering:
- The number and effectiveness of competitors in the market;
- The availability of alternative sites not covered by the property control(s);
- Whether forcing competitors to select locations without property controls materially impairs competitors' ability to compete effectively;
- Whether competitors need to open multiple locations to compete effectively; and
- Whether other existing barriers amplify the effects of the clause.
However, the Property Controls Guidelines provide limited guidance as to what level of effects may be required for a property control to be considered to substantially harm or prevent competition. Instead, the primary guidance provided by the Bureau continues to be encouraging parties to avoid entering into or implementing existing competitor property control provisions that are not competitively justified.
New Ambiguity in Enforcement of Agreements between Non-Competitors (Section 90.1)
For agreements between non-competitors, section 90.1 only applies if the agreement has the effect of substantially preventing or lessening competition, and a "significant purpose" of the agreement or any part of it is to prevent or lessen competition in a market. In the Property Controls Guidelines, the Bureau, in somewhat circular fashion, notes that its assessment of whether an agreement or part of an agreement has a "significant purpose" to harm competition is accomplished by assessing whether the agreement harms competition:
"When assessing an agreement that contains a competitor property control, we focus on if the agreement has the effect of harming competition. If so, we expect that the agreement will raise issues under section 90.1. This is because if the agreement has the effect of harming competition it will likely also have a significant purpose to do so."
It is not entirely clear what this means. The Bureau's guidance appears to conflate "effect" with "purpose", and this interpretation suggests that there is no actual meaning to be given to the recent amendment to the Competition Act requiring that there be an anticompetitive purpose in order to challenge anticompetitive agreements involving non-competitors.
Practical Implications
The Property Controls Guidelines introduce a more balanced tone but do not materially change the Bureau's advice to market participants nor provide material assistance in understanding whether a competitor property control is at risk of violating the Competition Act. It appears that determining whether a particular clause violates the Competition Act will continue to be a highly fact-specific exercise, requiring close attention to the relevant legal provision, market context, and business rationale.
It is also worth noting that neither the Competition Tribunal nor private parties who may seek to challenge competitor property controls before the Competition Tribunal are bound by the Bureau's enforcement approach set out in the Property Controls Guidelines.
Recommendations
We recommend that businesses:
- Audit existing agreements to identify and evaluate competitor property controls at risk of challenge.
- Document legitimate, pro-competitive rationales where property controls are implemented or preserved.
- Seek legal advice when assessing, introducing, or renegotiating commercial lease clauses that could restrict competitor access.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
