Property Controls Under Review: What the Empire Deal with the Competition Bureau Means for the Future

By: Jason Brisebois and Bailee Kleinhandler

The Competition Bureau (the “Bureau”) has taken a significant step to challenge anti-competitive practices in the grocery industry. After an extensive investigation by the Bureau, Empire Company Limited (“Empire”) has agreed with the Bureau to remove a property control clause in a commercial lease that had previously prevented competitors from establishing competing grocery stores in Crowsnest Pass, Alberta only. This action by the Bureau represents one of the first applications of the newly-amended Competition Act (the “Act”) provisions.

What is a property control?

Property controls are negotiated restrictions in commercial lease agreements that limit how commercial real estate spaces may be used (including by other potential tenants), imposing restrictions on landlords as to who they may lease space to. Such provisions often decide what types of businesses may lease space from landlords, preventing certain businesses (namely competition), from establishing operations in violation of the provision.

While the largest commercial landlords in Canada generally enjoy significant bargaining power over potential tenants, the consolidated nature of the grocery industry in Canada, combined with the fact that grocery stores tend to be desirable and traffic-generating anchor tenants that drive potential customers to larger commercial developments, Canada’s large and mid-sized grocery chains have had significant success negotiating property control provisions to their benefit. In the grocery industry specifically, large grocery chains often use property controls to restrict landlords from allowing competing grocery businesses to open on lands owned by the landlord unrelated to the location. As a result, property controls have a direct impact on market competition, making it significantly more difficult to open competing stores in the same commercial plaza, or potentially nearby commercial plazas controlled by the same commercial landlord.

The impact of such provisions are acutely felt in smaller communities with limited commercial real estate, or in areas where commercial real estate is controlled by one or a small number of large commercial landlords.

How does the Competition Act address this issue?

The Act has been recently amended to prohibit companies from forming agreements that significantly restrict or reduce competition. Prior to the above amendments, the Bureau was restricted in its ability to investigate agreements between parties that were not considered competitors, such as supply and lease agreements. For example, agreements between landlords and grocery retailers fell outside the Bureau’s scope because the parties were not classified as “competitors” under the Act. However, the recent changes and specifically the amendments to Section 90.1 of the Act, have expanded the authority of the Competition Bureau. Now, the Competition Bureau can challenge agreements between parties that restrict or lessen competition, even if those agreements do not involve direct competitors.

What happened between the Competition Bureau and Empire?

In 2024, the Bureau began investigating the use of property controls by Empire, the parent company of Sobeys Inc., which operates grocery banners such as “Sobeys”, “IGA”, and “FreshCo”. The investigation was conducted to help “determine whether Sobeys and Loblaw are imposing anti-competitive restrictions on the use of real estate…that impact competition in the retail sale of food products”. During the investigation, the Bureau became aware of a property control restriction that was imposed by Empire on one of its “IGA” brand stores, located in Crowsnest Pass, Alberta, a town of approximately 6,000 people.

This property control provision was imposed by Empire in the region in 2017, and effectively eliminated the ability of other parties to establish competing stores to service Crowsnest Pass. The Bureau found that the provision “protected Empire’s grocery store from competition and ensured that it would continue to be the only grocery store in the area”. While conducting their investigation, the Bureau considered the question of whether the restrictions were anti-competitive in nature.

Following the investigation, Empire agreed to remove the property control. As Commissioner of Competition Matthew Boswell stated:

“Market forces – not property controls – should determine whether and where new grocery stores can open in communities across Canada. The removal of this property control in Crowsnest Pass will allow for more grocery competition to the benefit of its residents. We encourage all businesses that use property controls to review them and ensure that they comply with the law.”

The Bureau’s intervention in Crowsnest Pass raises broader questions about the future of property controls in Canada’s grocery industry.

What does this mean for the grocery industry generally?

Competition is key to affordability and choice for consumers, as it may drive the stores to offer lower prices and a wider selection of products to attract consumer dollars. However, property controls can severely limit this competition, and reduce incentives on retailers to compete for such consumer dollars. Even certain large retailers, such as Walmart, have noted that property controls restrict consumers options, making it more difficult for new players to enter the market. This issue is particularly important in smaller communities, where consumer choice is limited, and the ability to “shop around” may be limited or non existent.

The recent amendments to the Act therefore aim to provide the Bureau the power to challenge restrictive covenants in commercial lease agreements. However, the impact of these changes will likely have a greater impact in smaller towns than in major cities like Toronto. In large cities, consumers have access to numerous competing retailers within a short distance, making it easier to avoid the restrictions imposed by a single lease agreement. In contract, in smaller towns, a restrictive covenant can effectively eliminate all competition, leaving residents with no alternative grocery or retail options, as they are unable to drive to another nearby store.

In larger cities, the general thinking is that competition is easier to come by, as density translates to a larger number of consumers, which in turn drives a great number of commercial real estate for grocers to choose form, as well as an ability of consumers to more easily shop around. In smaller towns like Crowsnest Pass, however, there may only be demand for one or a small number of grocery retailers, which means that anti-competitive practices are significantly more easy to impose, but also for the Bureau to police.

While it remains to be seen whether the Bureau intends to continue to take action against property controls, those who will benefit the most from a sustained effort by the Bureau against these practices are likely to be independent grocers and smaller chains, especially those in smaller and rural communities. Assuming that the Bureau continues to challenge property controls, the end result may reduce the practice by large grocers to insist on property controls, potentially creating new opportunities for smaller chains and speciality stores to open in prime retail spaces, such as the same malls or plazas as larger grocery chains.

Certain large grocery chains have expressed openness to removing these restrictive provisions but have conditioned their willingness on all similarly large grocery chains doing the same. Without a broad, industry-wide change, large grocery retailers that also own shopping centers and retail spaces could still control who operates on their properties. This means that those larger chains will strategically select tenants to maintain their dominance in the market, resulting in restrictive agreements continuing in a different form. Additionally, it remains unclear whether the Bureau intends to take an active role in enforcing these new provisions, leaving questions about how much will actually change in practice.

Final guidelines from the Bureau regarding property controls are expected to be published later this year. These guidelines will be informed by the recent public consultation process, where the Bureau encouraged market participants in the food retail and real estate sectors to share their experiences with this practice. While the Bureau has not yet provided specific guidance on how future investigations will be initiated, it is likely that such investigations will be triggered by complaints, market studies, or the Bureau’s general monitoring of the grocery sector.

Conclusion

The recent amendment to the Act are intended to promote greater competition in the grocery sector, especially in smaller communities. However, for real, industry-wide change, major grocery chains would need to willingly stop using property controls altogether, which is something that remains unlikely in the short term.

It is still too early to determine whether this signals a broader push by the Bureau to actively scrutinize and challenge property controls altogether. The recent ruling in Crowsnest Pass sets a precedent, but how these changes will be applied in larger markets with multiple stores remains uncertain. What works in a small town may not have the same impact in a city where competition is already present and where commercial real estate is controlled by the very corporations that dominate the grocery industry.

If major grocery chains continue to enforce property controls wherever possible, the impact of these amendments could be limited. The real test will be whether the industry as a whole moves toward loosening these restrictions, or whether these changes simply create small victories in select markets without disrupting the status quo.

If you have any questions or concerns relating to the enforcement of property controls, Sotos LLP can assist. Please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca or Bailee Kleinhandler at 416.572.7311 or bkleinhandler@sotos.ca to discuss your grocery sector needs.

1. Government of Canada, Competition Bureau, Competition Bureau advanced investigations into Sobeys and Loblaw’s use of property controls (2024).
2. Ibid.
3. Government of Canada, Competition Bureau, Competition Bureau takes action to protect competition in the grocery industry in an Alberta community (2025).
4. Rosa Saba, “Walmart Canada axing some property controls amid grocery competition scrutiny” Canadian Grocer (November 22, 2024).
5. Government of Canada, Competition Bureau, Call-out for information about property controls in the Canadian grocery industry (2024).