Lease Restrictions Under Scrutiny: Competition Act Implications for Exclusive Use and Other Clauses

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Exclusive use clauses continue to attract increased attention from the Competition Bureau (the “Bureau”). While there have not yet been any Competition Tribunal or court decisions applying the amended Competition Act to exclusive use clauses, the Bureau has signalled increased enforcement activity in this area, and early responses from the commercial leasing industry are beginning to emerge.

Our latest update builds on our previous article and explores recent developments, including factors landlords and tenants should consider when negotiating lease restrictions and some insight into where this could evolve going forward.

Exclusive Use Clauses Under Review

On June 22, 2026, the Bureau announced that it was advancing its investigation into competition in the Canadian grocery sector. The Bureau obtained orders from the Federal Court requiring Empire Company Limited (“Empire”), the parent company of Sobeys, Farm Boy, Safeway, IGA, Foodland and FreshCo, to produce documents and provide testimony about its use of exclusive use clauses and restrictive covenants.^[1]

In response, on July 21, 2026, Empire announced that it will no longer use or enforce restrictive covenants that historically allowed it to prevent rivals from opening stores on former Empire sites after Empire had moved away.^[2] Empire also announced a significant shift in its approach to existing exclusive use clauses, stating that:

• it will not enforce such clauses on the properties identified in the Bureau’s June 2026 order, which appears to include 33 properties in Alberta, Ontario, Quebec, New Brunswick and Nova Scotia;
• it will not enforce exclusivity clauses re-registered in Manitoba following the passage of Bill 31;^[3]
• it will not enforce or enter into radius clauses; and
• it will not enforce or enter into exclusivity clauses that restrict specialty food retailers, such as butchers and bakeries, that sell only a subset of the products typically sold by a grocery store.

For future grocery store leases, Empire indicated that it will limit the geographic scope, product scope and duration of exclusivity provisions. It has established a complaint-driven review process through which parties affected by a restrictive covenant or exclusive use restriction held by Empire can ask the company to remove the restriction or limit its application. Presumably, this process would apply both to currently affected parties and to parties seeking to enter into future leases. Empire’s announcement follows similar signals from other major Canadian retailers, including Walmart and Loblaws, that they may not enforce certain property controls relating to retail competition.

Following Empire’s announcement, the Bureau stated that it is reviewing the announcement and emphasized that it does not end the Bureau’s investigation or its monitoring of the industry.

Implications for Commercial Leases

Although the Bureau’s current focus is on large grocery retailers, its interest in the broader leasing industry should be monitored and considered when negotiating future leases. One notable aspect of Empire’s announcement is its position on radius restrictions. Although likely not Empire’s intention, this position could have implications for commercial leases with percentage rent components. Because percentage rent depends on a tenant’s sales at a particular location, landlords commonly include a radius restriction, often covering several kilometres, that prohibits the tenant from opening another location nearby. The commercial rationale is straightforward: a nearby second location may cannibalize sales at the existing location and reduce the percentage rent payable to the landlord.

Given the Bureau’s increased attention to commercial leases, it is possible a tenant could seek to challenge these restrictions in an existing lease. If that occurs, landlords may become less willing to enter into percentage rent arrangements. Whether the Bureau would view a radius restriction as reasonable and proportionate would likely depend on the size and commercial context of the restriction. Clauses that cover an overly broad area, or that use boilerplate distances from a landlord’s standard lease form rather than being tailored to a particular property, may be more difficult to justify and could carry higher enforcement risk.

The announcement also raises a broader question: whether other common lease provisions, such as no-build restrictions and prohibited use restrictions, could come under increased scrutiny where they have the practical effect of limiting retail competition. This remains an evolving area, and it will take time for the legal and commercial implications to become clear. In the meantime, landlords and tenants should ensure they have a clear, well-documented rationale for any restriction which might one day come under the scrutiny of the regulators.

The Real Estate Group at Aird & Berlis LLP provides full-service legal support on all aspects of leasing, acting for both landlords and tenants on commercial lease negotiations and workouts. Please contact the authors or a member of the group if you have any questions or require assistance.

[1] The Commissioner of Competition v. Empire Company Limited and Orlando Espinola (June 18, 2026), Montreal, FC, T-2713-26 (order).