Competition Bureau investigating use of restrictive property clauses in grocery

The Competition Bureau is investigating the use of restrictive real estate clauses in the Canadian grocery sector.

Deputy commissioner Anthony Durocher told a House of Commons committee studying food prices that these measures, often called “property controls,” can be a major barrier to entry and expansion in the Canadian marketplace. 

“We are actively pursuing an enforcement investigation in the grocery sector relating to the use of property controls,” Durocher told MPs on Thursday. 

The Competition Bureau confirmed the investigation via email, noting there’s no conclusion of wrongdoing at this time. 

In the Bureau’s June 2023 report on competition in the grocery sector, it described property controls as clauses added to a lease or deed that limit how real estate can be used by competitors.

This can include limiting the kinds of stores that can open in a mall, or limiting the kind of store that’s allowed to open in that location after a tenant leaves the property. 

For example, if a grocery store is moving to a nearby location, the property control clause could prevent a competitor from entering the old store. That might be a rival grocer or even a more specific business such as a bakery. 

The clause might also limit other stores from selling similar products. 

“The effect is they can ultimately just make it harder for a competitor to get into the same space,” explained associate deputy commissioner Bradley Callaghan at the committee meeting. 

“It could be the same commercial mall, but it also could cover a wider geographic area.”

The Bureau’s report recommended that governments limit use of the clauses in the sector, saying they make it harder for new supermarkets to open, and can curb competition. 

Durocher said that recent amendments to the Competition Act have given the Bureau more tools to protect and promote competition, particularly through Bill C-56, which became law in December. 

“The Bureau is committed to using the new tools made available through these amendments wherever necessary to protect competition,” said Durocher. 

Keldon Bester, executive director of the Canadian Anti-Monopoly Project, welcomed the announcement of an investigation by the Bureau. 

“I’m glad to see the bureau moving quickly,” he said. 

One key amendment in C-56 broadens the scope of the kinds of agreements the Bureau can look into, said Bester. 

Previously, the Competition Act had provisions against competitors making agreements that could prevent or lessen competition in a market. Now, those provisions include agreements that aren’t just between two competitors — such as an agreement between a grocer and its landlord, explained Bester. 

Property controls also make it more attractive for companies to consolidate as a way of expanding, said Bester.

“If the prime real estate is wrapped up in these kinds of agreements, if a company wants to expand, they are encouraged to buy up and reduce competition,” he said. 

The bar will be high for the Bureau to prove that such clauses are being used on a widespread basis, and that their widespread use is hurting competition, said Michael Osborne, chair of the Canadian competition practice at law firm Cozen O’Connor.

“It’s not an easy case to make, nor should it be,” he said. 

“The Competition Bureau must still prove that, overall, it causes a substantial lessening or prevention of competition.”

Durocher told MPs that property controls can be an obstacle both for independent grocery stores and chains looking to expand, as well as for foreign players to enter the Canadian market. 

“That is why one of our recommendations in the report, and this is something that a number of other countries have done, is to consider limiting their use or banning them altogether in the grocery sector, because they can be harmful to competition,” he said.

Industry Minister Francois-Philippe Champagne recently said he’s been trying to attract foreign grocers to enter Canada as a way of boosting competition.

Champagne did not provide a comment on the Bureau’s investigation. 

If the bureau finds that property control agreements in Canadian grocery are limiting competition, it can make its findings public and communicate that these kinds of agreements are “no longer acceptable,” said Bester. And if Bill C-59’s further amendments to the Act are passed, it will also have the power to levy fines over such agreements, he added. 

But it would also be good for governments to follow that up with legislation restricting such agreements, Bester said. 

“What we really need to be doing in Canada, at a broad level, is changing what the business as usual standard is,” he said.

“By doing that — and you do need the law to do that — we can actually get more competition out of existing players.” 

This report by The Canadian Press was first published Feb. 8, 2024.

Rosa Saba, The Canadian Press