The Competition Bureau of Canada is focusing on exclusivity clauses in retail leases and restrictive covenants in land deals as it continues to scrutinize the market conduct of two of Canada’s major grocery chains. A newly issued call-out to commercial real estate practitioners asks them to share specific examples of how such property controls may have undermined competition, and to weigh in generally on business implications for retailers, landlords and landowners.
The Competition Bureau is currently examining how Sobeys Inc. and Loblaw Companies Limited may have relied on exclusivity clauses and/or land covenants to block other food retailers from opening a business or selling particular types of products. The investigations are authorized through the federal Competition Act’s provisions related to restrictive trade practices and abuse of dominance. Information gathered through the process will also be used in a review of property controls across the wider grocery retailing industry.
The call-out for information follows after the Competition Bureau released guidance on how it views the potential competitive impact of property controls earlier this summer. This suggests some tolerance for exclusivity clauses in limited circumstances, while land covenants are deemed rarely justifiable. In determining whether a market player demonstrates abuse of dominance, investigators will consider the company’s power in the broader industry, evidence that it exerted pressure to implement property controls, and the presence, or lack thereof, of effective competition.
“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,” the guidance states. “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.”
Respondents to the call-out for information are promised confidentiality.
