Manitoba consumers could see the distance shrink between competing grocery stores with the adoption of new provincial legislation. Bill 31, the Property Controls for Grocery Stores and Supermarkets Act — to prohibit the imposition of restrictive covenants and exclusivity clauses and allow for the removal of such controls where they currently exist — passed third reading in the Manitoba legislative assembly with all-party support earlier this week.
The legislation is in line with the urgings of the Competition Bureau of Canada, which has called on provincial/territorial governments to implement measures to restrict or outright ban lease and land title mechanisms that give benefitting grocery store operators dominance within a mall or larger trade area. Manitoba is the first Canadian jurisdiction to take that step, authorized through provincial/territorial responsibility for the oversight of commercial property transactions.
The Act addresses both restrictive covenants, which are registered on land titles to prevent certain types of commercial operations, and exclusivity clauses, which are enacted through leases to prevent landlords from renting space to potential rival businesses selling similar products or services. It will apply to retail establishments larger than 3,000 square feet that primarily sell food products for off-site preparation and consumption.
“This will stop the use of property controls in ownership and the leasing agreement in the grocery sector to increase competition and stabilize the grocery prices,” maintained Mantu Sandhu, Manitoba’s Minister of Public Service Delivery, as he introduced third reading of the bill on May 5. “More competition in the grocery industry is expected to increase access to healthy food and make life more affordable for all Manitobans.”
Once Bill 31 receives royal assent and is enacted, retailers that do not register existing property controls with provincial administrators within 180 days will automatically forfeit their entitlements. Even beyond that date, legacy property controls can be challenged and subject to a Manitoba Municipal Board hearing to determine their legitimacy.
The latter action could occur if the Minister directs the Board to consider it, or if a member of the public submits a request for a review and it is deemed in the public interest to proceed with a hearing. In determining the public interest, the legislation instructs the Board to consider whether property controls benefitting existing grocery store operators have reasonable geographic boundaries, time horizons and designated protected offerings to consumers, and whether they hinder residents of the community from gaining convenient and affordable access to food products.
“In essence, the Board must ask whether the restriction serves a legitimate public purpose or whether it primarily functions as a private commercial protection — with a clear legislative directive to strike down restrictions that fall into the latter category,” Nick Noonan an associate with Winnipeg-based Fillmore Riley LLP, observes in a summary the firm released after the Bill’s introduction in March. “Even landlords and tenants who successfully navigate the registration process and preserve existing restrictions will remain exposed to future challenges and ongoing uncertainty about the enforceability of those rights.”
Holders of property controls who are subject to a Municipal Board hearing will have an the opportunity to make written or oral submissions. However, the Act stipulates that there will be no compensation for the loss of, or adjustments to property controls, either due to failure to register within the legislated 180 day period or a Municipal Board decision to rescind or alter them.
There continues to be an option for governments (federal, provincial and municipal) and their agencies to impose property controls that are tied to development schemes within a subdivision plan or enacted through zoning laws. The Act also allows for exemptions that might be prescribed through regulation.
Despite supporting the bill, some Opposition members of the legislative assembly (MLAs) expressed skepticism that it would accomplish the Government’s objective to make food more affordable. Progressive Conservative MLA Josh Guenter also called the new registration system for existing property controls a “loophole” that will keep many existing restrictive covenants and exclusivity clauses in place.
“The bill is, notionally, a reasonable bill and one that our PC team will be supporting. However, our broader concern is that I don’t think it is going to have any impact at all,” Guenter stated during the debate associated with third reading.
The Competition Bureau is continuing to seek input to help inform its in-progress investigation of Empire Company Limited and George Weston Limited, the parent companies of Sobeys Inc. and Loblaw Companies Limited, and whether their use of property controls unduly curtails market competition. Through other negotiations with the Competition Bureau, Empire Company Limited, also agreed, earlier this year, to lift a property control in Crowsnest Pass, Alberta, meant to ensure it would remain the sole grocery store operator in the area.
“Market forces — not property controls — should determine whether and where new grocery stores can open in communities across Canada,” says Matthew Boswell, Canada’s Competition Commissioner.
The Competition Bureau released a broader study of grocery store competition in 2023 and issued guidance on property controls last year. In both cases, it acknowledges that commercial landlords may be under pressure to secure highly sought anchor tenants. The guidance affirms that scrutiny for anti-competitive behaviour will “in most cases” focus solely on the “party who proposed or benefits competitively” from the property control.
In Manitoba, Noonan suggests commercial real estate owners should audit their leases, development agreements and title documents for embedded property controls they may not be aware of. They should also assess whether existing property controls could stand up to the test of public interest.
“Businesses may need to explore alternative methods to protect key tenants, preserve the integrity of retail developments and ensure that mixed-use sites remain viable and attractive to anchor tenants,” he submits.
