In brief

The Competition Bureau (“Bureau”) has intensified its scrutiny of property controls in Canada’s grocery sector following legislative amendments to the Competition Act (“Act”). Amendments that took effect in December 2024 permit vertical agreements that have a significant purpose of harming competition to be civilly reviewed. Other amendments to the Act over the past two years, notably to the abuse of dominance provisions, have heightened the Bureau’s ability to pursue this conduct. The Bureau has recently released draft guidance on its preliminary enforcement approach and initiated investigations into two Canadian grocery chains for allegedly using property controls.

Key takeaways

With property controls in the spotlight, businesses should take proactive steps to review how they are using them. This would include conducting a thorough review of agreements and business strategy to ensure compliance to avoid potential legal challenges and penalties, and staying informed of the Bureau’s final guidance and enforcement practices.

Key takeaways for businesses include:

• Legislative amendments. Three sets of amendments to the Act better equip the Bureau to tackle the anti-competitive use of property controls in Canada. These amendments include stronger abuse of dominance provisions which allow the Tribunal to issue prohibition orders against dominant firms for conduct that either has the effect or is intended to harm competition, and an expanded civil agreements provision which now includes agreements that do not involve competitors if a significant purpose of any part of the agreement is to prevent or lessen competition in a market. Common vertical practices in commercial real estate agreements that have not historically been subject to scrutiny under the Act may now be addressed under the civil agreements provision.
• Investigations into Canada grocery chains. The Bureau is currently focused on property controls within Canada’s grocery sector, which consists of a few large players. In March 2024, the Bureau launched investigations into two grocers, Sobeys and Loblaws, on their use of restrictive covenants and exclusivity clauses and the impact these have on retail grocery competition. The Bureau later obtained two Federal Court orders requiring the companies to produce records and information relevant to the investigations. The investigations follow the Bureau’s Retail Grocery Market Study Report which highlights the need for more competition in Canada’s grocery store sector to combat high prices.
• Draft Bureau guidance on property controls. On 7 August 2024, the Bureau issued draft guidance outlining its preliminary enforcement approach to competitor property controls as part of a public consultation process and sought feedback from market participants. The guidance defined key terms such as “exclusivity clauses” and “restrictive covenants,” identified circumstances where property controls may be pro-competitive, and provided questions for businesses to consider when implementing or reviewing their use of property controls. Final guidance is expected in 2025.

In more detail

Property controls, including exclusivity clauses and restrictive covenants that limit access to real estate, have been subject to antitrust scrutiny around the world due to their potential anticompetitive effects. Competition authorities in New Zealand and the United Kingdom have scrutinized the use of property controls in commercial leases and created statutory limitations on large grocers’ ability to use property controls. In Canada, the recent amendments to the abuse of dominance and civil agreements provisions of the Act have enhanced the Bureau’s ability to investigate and take enforcement action against the use of property controls in Canada. This is of significant importance for businesses in the commercial real estate and grocery sectors, and warrant a thorough review of existing lease agreements and business practices to assess potential competition risk.

Canada’s grocery sector has long been a focus of Canadian competition law enforcement. Over the past decade, the Bureau has reviewed multiple significant grocery store mergers, including Loblaws/Shoppers Drug Mart, Metro/Farmboy, Metro/Jean Coutu, and Sobeys/Safeway. The Bureau also investigated whether Loblaws’ distribution practices with its suppliers were an abuse of dominance, but ultimately concluded that there was insufficient evidence that Loblaws’ distribution practices under investigation had anti-competitive effects (Loblaws also ceased certain of the distribution practices during the course of the Bureau’s investigation). The Bureau has also investigated and, in certain cases, taken enforcement action against mergers and conduct in upstream agricultural and food industries.

In 2023, the Bureau released the Retail Grocery Market Study Report, which examined the competitive dynamics of the grocery sector in Canada. The study focused on market concentration, pricing practices, and barriers to entry for new competitors. The Bureau found that the grocery sector is highly concentrated, resulting in higher prices and reduced consumer choice. The report highlighted key findings, including evidence of restrictive property controls and other practices that limit competition. The Bureau ultimately concluded that increased competition is essential to lower food prices for Canadians.

Legislative amendments

Property controls used by dominant firms were historically reviewable under the abuse of dominance provisions of the Act, but no such investigations had been announced by the Bureau and no actions were brought before the Competition Tribunal (“Tribunal”). The recent amendments to the abuse of dominance legal framework make it easier to obtain a prohibition order from the Tribunal. In particular, an abuse of dominance may be established based on (1) dominance and (2) anti-competitive intent or anti-competitive effects, whereas historically all three elements had to be met. Other remedies, including administrative monetary penalties, remain available where all three elements are established. Additionally, the 2022 amendments to the Act introduced private access for abuse of dominance, allowing private parties directly and substantially affected by the conduct to apply to the Tribunal for relief.

Amendments to the civil agreements provision expanded the scope of reviewable agreements, introduced financial penalties and expanded private access to the Tribunal (which comes into effect on 20 June 2025). The civil agreements provision now applies to agreements that do not involve competitors if a significant purpose of any part of the agreement is to harm competition. Including such vertical agreements means that the provision may now apply to property controls if a significant purpose of their use is to harm competition and the agreement has anti-competitive effects.

New Bureau guidance

On 7 August 2024, the Bureau issued draft guidance outlining its preliminary analytical framework and enforcement approach to competitor property controls under the Act. This draft guidance was released as part of a public consultation process where the Bureau sought feedback from relevant stakeholders, including tenants, lessors, and landowners. The consultation period for this draft guidance closed in October 2024, and the final guidelines are expected to be released in 2025.

The draft guidance defines competitor property controls as restrictions on the use of commercial real estate, and primarily addresses “exclusivity clauses” and “restrictive covenants.” Exclusivity clauses are provisions within a commercial lease that limit how the land can be used by competitors to a tenant, such as prohibiting the lessor from leasing a unit to a competing business or restricting what products can be sold. Restrictive covenants, on the other hand, are restrictions 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 draft guidance explains that the use of property controls may be scrutinized under either the abuse of dominance provisions or the civil agreements provision of the Act.

The Bureau has stated that it believes property controls can be anti-competitive because they insulate firms from competition by preventing new entrants from accessing prime commercial locations. This can lead to reduced consumer choice, higher prices, and less innovation in the market. However, the Bureau acknowledges that the limited use of property controls may be justified if they are necessary to incentivize investments that increase competition, such as entering a new market.

The draft guidance has faced criticism from various stakeholders for being overly broad and introducing uncertainty for businesses that use property controls, which the Bureau recognizes are neither inherently anti-competitive nor conduct that is a per se offence under the Act.   

Investigations in the grocery sector

In June 2024, the Bureau announced that it had launched investigations into two Canadian grocery retailers – Sobeys and Loblaws. The Bureau sought and obtained so-called Section 11 orders from the Federal Court compelling Sobeys and Loblaws to provide documents and written data returns. As part of their Section 11 order applications, the Bureau confirmed that they were investigating whether Sobeys and Loblaws were implementing property controls intended to shield their grocery store operations from the emergence of increased competition in the retail sale of food products in certain local markets in Canada, contrary to the abuse of dominance provisions of the Act. The Bureau did not publicly state that it was reviewing the conduct under the expanded civil agreements provision as those amendments had not yet come into effect at the time the investigation was launched.

In January 2025, the Bureau announced that Empire Company, the parent company of Sobeys, voluntarily removed a property control that had been in effect in Crowsnest Pass, Alberta. The Bureau concluded that the property control, which included restrictive covenants preventing any new grocery store from opening in the area since 2017, restricted competition because it prevented entry, thereby ensuring that Sobeys’ IGA store remained the only grocery store in the local area. The Bureau indicated that it expects the removal of the property control will lead to a new grocery store opening, thereby promoting competition. Notably, it appears that Empire Company voluntarily stopped using the property control and at the time of publication had not entered into a formal consent agreement with the Commissioner of Competition in respect of its use of property controls. A consent agreement, once registered, has the force of a court order and usually includes a prohibition on certain conduct for up to 10 years, along with reporting requirements and other conditions. Without a consent agreement, Empire Company may re-instate the property control at any point in the future and avoids the more onerous conditions typically contained in consent agreements.