Shopping for Competition: New Proposed Amendment to the Competition Act Affecting Commercial Leases

On September 21^st, 2023, the Canadian Government proposed several bold new amendments to the Competition Act (the “Act”) under Bill C-56. One of the major headlining amendments was the new proposed restrictions placed in leases under section 90.1 of the Act.

In a press release from September 14th, 2023, the Prime Minister’s Office (the “PMO”), previewed what they wanted to use their forthcoming amendments to Section 90.1 of the Act. The PMO stated they had a particular interest in targeting large grocery stores who prevent smaller competitors establishing nearby. This takes direct aim at exclusivity clauses often found in commercial lease agreements. Large tenants, such as any of the major grocery chains, have significant bargaining power due to their size and financial liquidity to allow them to secure such clauses. Through this new amendment, the Government hopes to remove this security blanket moving forward.

However, the PMO’s office never stated that these updates solely targeted grocery stores, and the proposed amendment reflects that intention. The proposed amendment states:

“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, it may make an order under subsection (1) even if none of the persons referred to in that subsection are competitors.”

Theoretically, this amendment can be applied to any lease that has an exclusivity clause in it that stifles competition (E.g. from major fast-food chains who often negotiate exclusivity clauses into their leases as well). This is because while the landlord and the tenant may not be competitors, the exclusivity clause seeks to stifle competition in the market. As such, Landlords and Tenants are captured by the new definition. 

It seems the Federal Government may have drawn its inspiration from the United States Anti-Trust laws found under 15 U.S.C §§ 1-38. Better known as the Sherman Anti-Trust Act (the “Sherman Act”) of 1890, §1 states, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal”.

From a practical perspective, it will be the task of the Canada Competition Bureau to test and contour the new boundaries of this amendment. By looking to the United States again for inspiration on enforcement, §1 violations under the Sherman Act generally fall into two categories: 1) Per Say violations; and 2) “rule of reason” violations.  Per Say violations are simple as they are obviously anti-competitive prima facia. There is no defence available to these violations. Meanwhile, the Rule of Reason involves a more fact-specific inquiry, as to the intent of the agreements and their desired results.

Like in the US, Bill-56 will likely not mean the end of exclusivity clauses for leasing, that would potentially infringe on freedom of contract rights. However, it will be interesting to see if the proposed amendments to the Act force exclusivity clauses in general to be more narrowly tailored. The proposed regulations have the potential to generate measurable change in areas of the retail and franchise spaces. Through these amendments, lawyers will have the opportunity to be more creative in securing competitive spaces for their clients, and their businesses. That being said, lawyers may have to consider not just how their agreements appear prima facia, but in their intent as well.