Post-pandemic inflation and the rapidly rising cost-of-living in Canada, particularly the price of groceries, has brought the country’s competition policy to the forefront of the minds of Canadian policymakers. 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 (Bill C-56), which includes significant changes to the Competition Act (the Act). Although the study focused on competition between grocery stores, the proposed amendments to the Act will impact all landlords and tenants, not just those in the grocery industry.
Background
The Bureau, which describes itself as the “watchdog” of competition between businesses in Canada, is an independent law enforcement agency created under the Act. The Bureau is responsible for policing commercial competitors to ensure that they are complying with the Act and to bring non-compliant parties in front of the Competition Tribunal (the Tribunal). The Tribunal has the power to make certain orders under the Act, ranging from prohibition to monetary penalties and fines to criminal prosecution in certain circumstances.
Impact of the New Provisions on Commercial Leasing
As a result of Bill C-56, significant amendments to Section 90.1 of the Act will come into effect on December 15, 2024.
As of today, Section 90.1(1) of the Act permits 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 will be 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.]
This addition vastly expands the Tribunal’s power to issue an order if it finds that a “significant purpose” of an agreement (such as a lease agreement), or any part of it, is to prevent or lessen competition, regardless of whether the parties involved are competitors.
As currently drafted, 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 takes the position that these types of provisions seek to stifle competition in the market and insulate businesses from competitors.
Preliminary Enforcement Guidelines from the Bureau
On August 7, 2024, the Bureau released its preliminary enforcement guidelines (Preliminary Guidelines), which address the two common forms of property controls noted above:
- Restrictive covenants, which restrict purchasers or owners of properties from using the location to operate a certain business that competes with a previous owner; and
- Exclusive use covenants, which limit how the property in question can be used by competitors.
The Bureau’s Preliminary Guidelines suggest that restrictive covenants are by their very nature exclusionary and anti-competitive, and will not be justifiable “outside of exceptional circumstances.”
Exclusive use covenants, on the other hand, 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.” 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.
Takeaways
The Bureau’s Preliminary Guidelines are open for public consultation until October 7, 2024. Parties impacted by these changes may wish to consider submitting feedback for the Bureau’s further consideration before the final guidelines are issued, as the Preliminary Guidelines leave many questions unanswered, including the details of the new legal test for determining what constitutes a “significant purpose.”
In the meantime, the Bureau is advising all businesses that use competitor property controls, such as exclusive use covenants, to review their provisions in detail to ensure compliance with the Act. In particular, the Bureau recommends that businesses start asking themselves the following questions:
- Is the property control necessary to allow a new business to enter the market or to encourage a new investment?
- Could this property control last for a shorter period of time?
- Could this property control cover fewer products or services?
- Could this property control cover less geographic area?
Both landlords and tenants are encouraged to review existing and potential lease agreements to clearly document justifications for the duration and scope of their respective restrictions and exclusives, including any reasons why a less restrictive alternative may not be sufficient. The Property Leasing team at Cassels is available to assist with this review process.
Expanded Private Access to the Tribunal for Civil Anti-Competitive Agreements
Stay tuned! Additional changes to the Act will be coming into effect on June 20, 2025. Private litigants will be able to seek leave to bring applications to the Tribunal to challenge a wider range of civil anti-competitive agreements and seek relief, including damages, from the Tribunal under section 90.1 of the Act.