Competition Bureau Takes Legal Action Against Loblaw and Sobeys Over Restrictive Land Use

The Competition Bureau of Canada has initiated a significant legal challenge against two of the country's largest grocery retailers, Loblaw Companies Limited and Empire Company Limited, the parent company of Sobeys. In an application filed with the Competition Tribunal, the federal watchdog alleges that the companies are using restrictive covenants in their lease agreements to unlawfully stifle competition, leading to higher prices and fewer choices for Canadian consumers.

The case centres on the use of so-called "property controls" or restrictive covenants in commercial real estate contracts. These are clauses that landlords and tenants agree upon which can dictate how the property and surrounding land can be used. The Bureau's investigation found that Loblaw and Empire have been systematically including clauses in their lease agreements that restrict or prohibit landlords from leasing space to other potential grocery store tenants within the same shopping plaza or in nearby properties. According to the Bureau, this practice effectively creates a local monopoly, making it exceedingly difficult for new competitors, including independent and discount grocers, to enter the market and offer consumers an alternative.

Matthew Boswell, the Commissioner of Competition, stated that eliminating these anti-competitive restrictions is crucial for fostering a more competitive grocery landscape in Canada. "This action is part of our ongoing effort to ensure that Canadians have access to more choice and more affordable food," a statement from the Bureau read. "When new stores are prevented from opening, Canadians pay higher prices and have fewer options. These restrictive clauses are hampering competition in a sector that is critical to all Canadians."

The Mechanics of Market Control

Restrictive covenants are not uncommon in commercial real estate. A business making a significant investment as an "anchor tenant" in a new development often seeks assurances that a direct competitor will not open next door, thereby protecting its investment and customer base. However, the Competition Bureau argues that the scale and scope of their use by the grocery giants go beyond reasonable business protection and actively harm the public interest.

The Bureau's application highlights specific examples where these property controls are in effect, citing instances across Canada, including in Halifax, where Sobeys is headquartered. The agency claims these controls can remain in effect for decades, effectively locking out competition from entire neighbourhoods long after a store's initial lease term has expired. This creates what economists call high barriers to entry, a key characteristic of an uncompetitive market. For a new grocery chain or an independent owner, finding a suitable location with adequate space, parking, and visibility is already a challenge; these restrictions can make it nearly impossible.

This legal filing is a key part of the Competition Bureau's broader actions against grocery giants, which have been under intense public and political scrutiny for several years amid soaring food inflation.

Industry Response and Broader Context

In response to the allegations, both Loblaw and Empire have defended their practices as standard and legal within the commercial real estate industry. Representatives for the companies have argued that such clauses are common, long-standing, and necessary to ensure the viability of their stores and the shopping centres they anchor. They contend that these agreements are negotiated freely with landlords and are a legitimate way to manage business risk.

The dispute now moves to the Competition Tribunal, a specialized quasi-judicial body that adjudicates cases brought forward by the Bureau under the Competition Act. The Bureau is not seeking financial penalties. Instead, it is asking the Tribunal to issue an order that would strike down the restrictive clauses and prohibit Loblaw and Empire from enforcing or entering into similar agreements in the future.

To succeed, the Bureau's lawyers will need to prove that these property controls have the effect of substantially preventing or lessening competition in the market. The outcome of the case could set a major precedent for the retail and real estate sectors in Canada.

The action comes at a time of heightened concern over Canada's highly concentrated grocery sector, which is dominated by a handful of major players. Numerous parliamentary studies and public inquiries have examined the issue of food pricing and competition. The decision to escalate the matter demonstrates a new level of assertiveness from the regulator, as the Competition Bureau's lawsuit against the grocery giants moves the conflict from investigation to formal adjudication. This follows legislative changes aimed at strengthening the Bureau's powers to tackle anti-competitive behaviour. The federal government has been under pressure to show it is taking concrete steps to address the cost of living, and the grocery industry has been a primary focus of that pressure.

What Lies Ahead

The legal proceedings are expected to be lengthy and complex, involving detailed economic analysis and testimony from real estate and retail experts. The Tribunal will weigh the Bureau's evidence of harm to competition against the companies' arguments of standard business practice. If the Bureau is successful, the ruling could reshape commercial leasing practices across the country and potentially open the door for increased competition from international chains like Aldi or independent grocers who have struggled to gain a foothold in Canada. For consumers, a more competitive market could eventually translate into the one thing they have been demanding: lower prices at the checkout counter.