Competitor property controls and the Competition Act (2024)

August 7, 2024

Parliament recently made changes to the Competition Act that affect how the Competition Bureau approaches anti-competitive controls on the use of commercial retail real estate.

Below, we outline our preliminary enforcement approach to competitor property controls under the Competition Act. This provides interim guidance to businesses to help them comply with the new law. We will review and update our general enforcement guidelines to ensure transparency and predictability for the business and legal communities in light of the changes to the Competition Act.

Our approach continues to develop. We may revise our approach as we gain more experience, as circ*mstances change, or as the law evolves.

This guide is not a legal document and does not replace legal advice. It does not present a binding statement about how we will consider particular situations.

Competitor property controls

Competitor property controls are restrictions on the use of commercial real estate. These property controls are common across Canada, especially in retail settings. This guidance addresses two primary types of property controls: exclusivity clauses and restrictive covenants.

These property controls insulate firms from competition. Therefore, by their nature these property controls can raise serious competition concerns. However, in limited cases they can be justified if they are necessary for a firm to make investments that increase competition, such as to enter a market. Even in these cases they must be as limited as possible to be justified.

Property controls have been the subject of international enforcement action as a result of the impact they can have on competition. For example, there are specific limitations on large grocers’ ability to use property controls in both New Zealand and the United Kingdom.

Changes to the abuse of dominance provisions (sections 78 and 79) and the anti-competitive collaborations provision (section 90.1) are relevant to our enforcement approach. Property controls used by dominant firms were already reviewable as abuses of dominance prior to the changes to the Competition Act.

There may be other types of restrictions on the use of properties that are not discussed on this web page, which focuses on restrictions on the use of commercial real estate by competitors. Other types of restrictions can also raise issues under the Competition Act in some circ*mstances.

Information for businesses

We encourage all businesses that use competitor property controls to review them and confirm that they are compliant with the Competition Act.

In particular, we encourage all businesses that use competitor property controls to ask themselves:

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?

Answering these questions may reduce the risk of being off-side of the Competition Act.

The circ*mstances where property controls may be justified because they increase competition are discussed below. We encourage tenants, lessors, landowners, and former landowners to eliminate or modify competitor property controls that are not necessary for new entry or investment or are broader than they need to be.

Where competitor property controls raise issues under the Competition Act we will take appropriate action.

• When can competitor property controls be justified?

  For a business, the value of a competitor property control comes from how it can protect them from competition. As such, they can raise significant competition concerns. However, there are certain limited situations where these types of restrictions can be justified because they increase competition overall, such as where they protect incentives for a retailer to make investments in order to enter a market. For example, a limited exclusivity clause may be pro-competitive if no retailer would otherwise make the necessary investments to become a key tenant in a new shopping plaza. Without the exclusivity clause there may be no retailers of a particular type in the shopping plaza, and so the clause increased competition. However, it is important to note that even in such cases the way the competitor property control protects these incentives is by insulating the retailer from the threat of competition from rivals.

  As noted above, both the duration of a competitor property control and the scope of the restriction it imposes on competition are key considerations when assessing if a competitor property control is justified. Competitor property controls that limit competition more than necessary are not justified.

  Exclusivity clauses

  Exclusivity clauses are only justified in limited circ*mstances, such as where they go no further than necessary to encourage new entry or to allow a tenant to make investments to develop their storefront. This could be because once a key tenant has made the investments necessary to open their store and attract customers to the plaza, the increased customer base may make it more attractive for competitors to open stores in the plaza as well. The presence of competitors could in turn reduce the benefit the key tenant receives from its investments in opening their store. This could reduce or eliminate their incentive to make the investments unless they are protected by a exclusivity clause.

  Even where such justifications exist, lessors of property should also consider if there are other suitable tenants who do not require an exclusivity clause, or would require a less restrictive exclusivity clause. We recognize that whether a different tenant would be appropriate may depend on a variety of factors, including the nature of their business, how they would fit within the mix of retailers in the area, and how effective they would be at attracting customers to the development.

  Restrictive covenants

  Restrictive covenants are exclusionary. Restrictive covenants apply to the land itself, and can restrict future owners of the land. They tend to be long lasting, and can create areas where no competitor can operate. Importantly, restrictive covenants create advantages for companies that have historically operated in an area based on their past ownership of land. We do not consider their use to be justified outside of exceptional circ*mstances.

• Enforcement under the abuse of dominance provisions

  Amendments to the abuse of dominance provisions changed the requirements for the Competition Tribunal to remedy anti-competitive behaviours. If a dominant firm or group of firms engages in behaviours that either:

  • Are anti-competitive business practices, because they are intended to have an exclusionary, predatory, or disciplinary effect on a competitor or to have an adverse effect on competition; or
  • Have the effect of harming competition, in the past, present, or likely in the future

  the Tribunal can issue an order ending that behaviour. The Tribunal can also order other measures to restore competition or to issue an administrative monetary penalty if the behaviours are both a practice of anti-competitive acts and have the effect of harming competition.

  • Dominance

    Dominance is the ability to exercise a substantial degree of market power, which can be thought of as a significant ability to influence competition in that market. This can include the ability to restrict competitors or competition.

    When considering if a firm or group of firms is dominant in a market, we may consider several factors, including:

    • The ability to restrict competitors or competition;
    • The presence of effective competitors, which we often consider based on market share;
    • Barriers to entry in the market, including barriers to entry created by the competitor property control;
    • The position of the firm in the broader industry; and
    • Evidence of bargaining leverage, including the ability to seek the competitor property control.

    The scope of the competitor property control itself may be one factor to take into account when assessing dominance. When doing so, we may consider what products, competitors, or geographic areas are subject to a competitor property control. For a competitor property control to have value it must be capable of restricting competition to some degree, so its scope may provide information about market dynamics.

    Dominance can be created by the competitor property control itself in cases where there is already a lack of existing effective competitors and it creates significant barriers to competitors entering the market.

    In most cases, we consider the party who proposed or benefits competitively from the competitor property control to be a target of an abuse of dominance investigation.

  • Anti-competitive business practices

    When assessing if a behaviour is an anti-competitive business practice, we may consider factors like:

    • Subjective evidence of intent, for example, business documents describing the reasons for the behaviour;
    • The likely outcome of the behaviour, as we can infer that firms intended the reasonably foreseeable consequences of their actions; and
    • Any pro-competitive or efficiency enhancing justifications for the behaviour.

    Restricting competition is inherent in a competitor property control. This is because restricting competition is the source of a competitor property control’s value. Competitor property controls may prevent competitors from entering markets in locations that would be competitively significant or exclude them from a market entirely. If a competitor property control is not capable of restricting competition it does not provide any benefit, raising questions about why it exists.

    However, as discussed, there are certain limited situations where these types of restrictions can support competition. We will consider these types of justifications as we determine whether a competitor property control is an anti-competitive business practice. In the absence of evidence of this type of pro-competitive justification we will consider competitor property controls used by dominant firms to be anti-competitive.

    As discussed above, the duration of a competitor property control and the scope of the restriction it imposes on competition are key considerations when assessing if it is justified. We assess whether the duration and scope of a competitor property control are appropriate on a case-by-case basis.

    As noted, we do not consider the use of restrictive covenants to be justified outside of exceptional circ*mstances. Therefore, we will consider their use by dominant firms to be an anti-competitive business practice in almost all cases.

    In some cases, competitor property controls may allow a competitor to engage in a line of business but restrict how they can compete, for example with respect to product availability or pricing. These types of competitor property controls may also raise concerns under the Competition Act.

  • Effect of harming competition

    When assessing the effect a competitor property control has on competition, we consider if it creates, increases, or protects the market power of one of the targets in a market or is likely to do so. Our analysis focuses on the barriers to entry created by the competitor property control and the existence of effective competition. Barriers to entry include restricting tenants from selling products or services that compete with the lessor or other retailers.

  • Remedies

    Where a dominant firm uses a competitor property control that is an anti-competitive business practice or has the effect of harming competition we will likely seek an order prohibiting its use or enforcement.

    If we determine that there is evidence to demonstrate that a competitor property control is both an anti-competitive business practice and has the effect of harming competition we may also seek additional measures to restore competition or administrative monetary penalties. For restrictive covenants, we are also likely to seek administrative monetary penalties where possible, due to the heightened concern associated with this type of control.

• Enforcement under the anti-competitive collaboration provision

  Section 90.1 of the Competition Act applies to agreements that have the effect of harming competition in the past, present, or likely in the future. When an agreement involves at least two competitors and has the effect of harming competition, the Tribunal can:

  • prohibit any person from carrying out any activities related to the agreement
  • order any person against whom an order is sought to take other measures to restore competition
  • order any person to take any action if both the Commissioner and that person consent
  • order the payment of administrative monetary penalties

  At present, section 90.1 does not apply to an agreement if it does not involve competitors.

  Recent changes to the Competition Act will come into force on December 15, 2024 that will repeal an efficiency exception that currently exists in section 90.1. This exception prevents the Competition Tribunal from remedying anti-competitive collaborations where parties can demonstrate that efficiency gains outweigh the collaboration’s anti-competitive effects.

  On December 15, 2024, section 90.1 will extend to agreements that do not involve competitors if the Tribunal finds that a significant purpose of any part of the agreement is to prevent or lessen competition in a market. We will still have to demonstrate that the agreement has the effect of harming competition for the Tribunal to make an order.

  This change will make section 90.1 applicable to competitor property controls. This is because agreements that contain competitor property controls are not usually among competitors.

  In cases where competitor property controls are included in agreements between competitors, they may be considered a criminal offence under section 45 of the Competition Act.

  Our preliminary view is that the same rationale that competitor property controls are generally anti-competitive business practices in the context of the abuse of dominance provisions will also apply to the analysis under section 90.1. Therefore, section 90.1 could apply to competitor property controls where there is proof that the agreement has the effect of harming competition.

  When we investigate agreements under section 90.1, we typically consider all parties to the agreement to be targets of our investigation. In the context of competitor property controls, this could include both tenants and lessors.

  Where a competitor property control raises issues under section 90.1, the remedies we seek will depend on the circ*mstances of the case. This could include:

  • prohibiting the terms of the competitor property control and their enforcement
  • requiring other measures to restore competition where necessary
  • seeking administrative monetary penalties.

Further reading:

• Guide to the December 2023 amendments to the Competition Act
• Competitor Collaboration Guidelines
• Competition Act