Landlords and tenants have historically not had much need to call a competition lawyer. That all changed recently when one of the amendments to the Competition Act entered into force, which prohibits anyone from entering into an agreement or arrangement where “a significant purpose of the agreement, or any part of it, is to prevent or lessen competition in any market.”

This is a novel rule that has not been judicially considered. Indeed, the term “significant purpose” is almost unknown in the law and so landlords and tenants have been wondering: What does this all mean?

The issue – Exclusivity clauses in leases

Tenants frequently look to include exclusivity clauses in leases when they want assurance from the landlord that they will be the only particular goods or services provider renting on the complex, building or even the floor of the building. Tenants may ask for these clauses for many reasons, including helping to build the investment case for the lease, confidentiality in the case of professional services providers, or even ensuring that customers aren’t fighting for parking spaces in an undersized parking lot.

However, landlords have started to push back against these exclusivity clauses by arguing that, where they impede the landlord’s ability to sign a lease with another tenant that offers similar goods or services, those clauses could contravene the Competition Act.

Landlords may be concerned both about a Competition Bureau investigation or even the possibility of civil action by a prospective tenant.

On January 16, 2025, the Competition Bureau announced its findings following an investigation into a retail property control in Crowsnest Pass, Alberta. The Competition Bureau found Empire Company Limited (the parent company of Sobeys and IGA) used a property control clause, which was in place since 2017, to restrict competition and ensure Empire’s IGA store would be the only grocery store in the area. Following the investigation, Empire agreed to remove the property control allowing a new grocery store to open this year.

The issue may also be broader than just exclusivity clauses and could encapsulate any contractual term that is directed at a rival such as a most-favored-nation clause (e.g. a tenant is assured the lowest price/square foot compared to a competitor).

What to do

While landlords and tenants are right to be cautious, there are ways to manage this issue. Tenants should be careful about asking for exclusives that are beyond the scope of what’s needed for an investment case on a lease. Ultimately, the basis for liability comes down to the purpose or intention behind the clause and not the market effect. Accordingly, tenants would be wise to document the pro-investment or other economic/business rationale supporting the exclusive and communicate that rationale to the landlord.

For landlords, carefully consider whether the exclusive your tenants are seeking are indeed sufficiently tailored as you could be exposed too under this new provision. If the lease agreement is a key one for your property, make sure to document it as well and maintain this documentation for as long as the lease remains in force.

Going forward

We are continuing to monitor the marketplace and the application of this new provision. The Competition Bureau recently issued draft guidance to the marketplace on its interpretation of the new provision, with final guidance expected this year. Note, however, that Competition Bureau guidance is not law and will not necessarily persuade aggrieved prospective tenants from bringing claims about exclusivity clauses to the Competition Tribunal.

If your business has concerns respecting exclusivity clauses in existing or new commercial lease agreements, and would like assistance navigating the Competition Act, please contact a member of the competition law group or commercial real estate group at MLT Aikins as we would be pleased to assist you.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.

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