If your restaurant or business lease includes an exclusive use clause, major changes could affect how these clauses are enforced and whether they will remain valid going forward.

Recent amendments to Canada’s Competition Act, are reshaping the rules for exclusive use and restrictive covenants in commercial real estate. These updates apply across Canada but are particularly important for Ontario restaurant and retail operators who rely on exclusivity to protect their business from direct competitors in the same plaza or building.

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What Is an Exclusive Use Clause?

In most restaurant or retail leases, an exclusive use clause gives a tenant the right to be the only one in the property or plaza allowed to sell certain products or provide specific services.

For example:

• A pizza restaurant might negotiate the exclusive right to sell pizza within the plaza.
• A coffee shop might prevent other tenants from selling espresso-based drinks.
• A fitness studio might have exclusivity over group exercise uses.

These clauses help tenants protect their investment, but they also limit what other businesses can do nearby. Regulators now view this as a potential restriction on competition and consumer choice.

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What Is Changing Under the New Law

Until recently, the Competition Act primarily targeted agreements between competitors, such as two restaurants agreeing to fix prices.

Starting December 15, 2024, that will no longer be the case. Agreements between non-competitors, such as a landlord and tenant, can now be reviewed if their purpose or effect is to reduce competition. Exclusive use clauses and restrictive covenants will now fall under this scrutiny.

Here are the main changes:

1. Exclusive use clauses can be challenged if they unfairly restrict competition, even if the landlord is not a competitor.
2. The long-standing “efficiencies” defence has been removed. It is no longer enough to argue that a restriction creates operational or business benefits.
3. Starting June 20, 2025, private businesses will be able to bring complaints directly to the Competition Tribunal, not just the government.
4. Existing agreements may also be reviewed if they continue to have anti-competitive effects.

As a result, clauses such as “exclusive pizza,” “no coffee competitors,” or “no other bakeries” may soon face legal challenges.

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What This Means for Restaurant and Business Owners

If you are a tenant:

• Review your lease carefully, especially any clauses that limit what other tenants can do.
• Expect landlords to become more cautious about granting broad exclusivity.
• If another tenant’s exclusivity prevents you from opening or expanding, you may have a new legal pathway to challenge it.

If you are a landlord or property owner:

• Revisit your lease templates and ensure that exclusivity is narrow in scope, limited to specific menu items or service types.
• Be prepared to justify why a clause is necessary, for example, to secure a key anchor tenant or protect a significant capital investment.
• Seek legal advice before renewing, extending, or assigning any lease that includes exclusivity provisions.

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How to Move Forward

Exclusive use clauses are not being eliminated entirely, but the rules around them are becoming stricter. Going forward, exclusivity should be:

• Clearly and narrowly defined (for example, “exclusive right to sell bubble tea” rather than “exclusive beverage sales”).
• Geographically limited (for example, within the same building rather than across a wide radius).
• Justified by legitimate business reasons rather than convenience or preference.

If exclusivity is essential to your business model, such as when making a major investment in a flagship restaurant, work with your legal and leasing advisors to ensure the clause is reasonable and compliant under the new standards.

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The Bottom Line

Exclusive use clauses have long been a standard feature in restaurant and retail leases, but that is about to change. As the new Competition Act amendments take effect in 2024 and 2025, both landlords and tenants in Ontario’s restaurant and hospitality sector will face greater scrutiny and potential challenges.

If you are negotiating, renewing, or expanding a lease, make sure your exclusivity terms are carefully drafted and legally defensible.

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Need Expert Guidance?

At Northern Hospitality Real Estate, we specialize in commercial and restaurant leasing across Ontario. Our team helps operators and landlords navigate the evolving commercial real estate landscape while protecting their business interests. If you would like to review your lease or options, please contact us. We can help you understand your options and position your business for success.