Commerce Act reform: Implications for retail property expansion in constrained markets

Overview

Proposed amendments to the Commerce Act 1986 (Act) under the Commerce (Promoting Competition and Other Matters) Amendment Bill (Bill) will, if they become law, materially change how the Commerce Commission (Commission) views property acquisitions in markets where competition may be constrained.

Although there forms have been shaped by issues observed in grocery retail, their reach is much broader.  They introduce a more interventionist framework that will apply across sectors where access to suitable land or premises plays a role in shaping competition.  A core shift is that land and premises may be treated as strategically significant competitive assets, not merely passive property investments.  

For property owners, particularly retailers, pursuing network growth through land acquisitions, leasehold interests and broader asset accumulation strategies, this elevates property strategy from a purely commercial or operational consideration to one that also carries regulatory significance.  Cumulative site acquisitions may attract greater scrutiny, even where individual transactions appear benign.

The Bill

The Bill introduces a cluster of inter-related amendments to the Act, materially expanding the Commission’s ability to scrutinise acquisitions and aligning New Zealand more closely with Australian and other international competition regulators.  Key changes include:

• repeal of current section 46 in Part 2 of the Act, which presently provides a “saving” for certain business acquisitions –opening them up to scrutiny under the restrictive trade practices regime in Part 2 and (as amended) the business acquisitions regime in Part 3;
• amendment of section 47 in Part 3 of the Act (prohibition on acquisitions of assets of a business or shares that would have, or would be likely to have, the effect of substantially lessening competition in a market) so the prohibition will apply to asset acquisitions generally, not merely assets “of a business” – widening the provision from a relatively traditional merger-control provision focused on business acquisitions;
• clarification that a “substantial lessening of competition” may include creating, strengthening, or entrenching market power;
• express recognition of “creeping” or serial acquisitions, allowing the cumulative effect of acquisitions by the same party (and associated persons) over the preceding three years to be considered; and
• significant strengthening of enforcement mechanisms.

What is changing (and why it matters)

• Lower practical threshold for regulatory intervention - The Commission will have greater ability to intervene even where there is no immediate or direct competitive harm, allowing it to focus on future constraints on competition such as limiting entry or expansion opportunities.
  • What this means: Expansion activity may be assessed, and potentially challenged, at an earlier stage, particularly where it shapes how markets could evolve.
• New test: strengthening or entrenching market power - Alongside the existing “substantial lessening of competition” (SLC) test, the Bill introduces a new limb targeting acquisitions that create, strengthen or entrench a substantial degree of market power.  This captures situations where individual transactions may seem unobjectionable in isolation but, taken together, shift the competitive balance over time.
  • What this means: Growth through incremental site acquisition may become problematic because of its future trajectory, not just its immediate impact.
• Stronger focus on cumulative effects - The proposed amendments (including new interpretive provisions) make clear that the Commission will not be confined to assessing a transaction in isolation.  Instead, the Commission may consider the cumulative effect of a series of acquisitions or strategic conduct, including existing landholdings and leases, past acquisitions and whether a transaction forms part of a pattern of expansion.  Relatively small or individually benign transactions may give rise to concern when viewed as part of a broader pattern of expansion.
  • What this means: Rolling expansion programmes and network build-outs are now a regulatory focus.  Seemingly routine or low-value site deals may carry increased weight when viewed as part of a wider footprint-building strategy that contributes to increasing competitive strength.
• Land and leases are treated as competitive assets - The Bill signals that control over strategically important sites, through ownership or leasehold interests, may affect entry conditions and expansion opportunities for competitors and function as a barrier to competition.  Under the reform, land and leasehold interests are likely to be treated as competitive assets rather than passive investments, particularly where sites are limited because of zoning, size requirements, location, or development constraints.  Property arrangements such as exclusive occupation rights, options or rights of first refusal, restrictive covenants, management agreements, infrastructure access arrangements, veto rights over development or use, staged acquisition arrangements and contractual dependency relationships could also be scrutinised.
  • What this means: Holding or securing key locations may be assessed not just as a commercial decision, but as something that could shape who else can compete, and where.

Why retail property is squarely in scope

Retail competition is often site-driven, influenced by zoning and planning constraints, scarcity of large-format or high-traffic locations, proximity to complementary businesses and clustering effects, visibility and accessibility.

Under the amended regime, the Commission may increasingly look at whether a retailer’s site expansion strategy narrows the range of realistic options available to rivals or confers a structural advantage that is difficult to replicate.

Situations likely to draw closer attention

If the Bill is passed into law, retailers should anticipate a higher level of engagement from the Commission where property transactions involve:

• scarce or “must-have” sites within a catchment;
• further expansion into areas where the retailer already has a strong local presence;
• clustering of multiple sites in close geographical proximity;
• acquisition of sites capable of supporting comparable competing formats; or
• leasing arrangements that secure long-term control over strategic locations.  

Sectors reliant on specific formats or limited site types are likely to be more exposed.

Land and leasehold transactions: how competition issues may arise

• Substantial lessening of competition (SLC) - Concerns may arise where a transaction removes realistic entry or expansion opportunities or materially reduces the pool of viable sites available to competitors.  
• Entrenchment of market power (new limb) - Issues may also emerge where an acquisition adds to an existing portfolio of strategically important sites and makes it increasingly difficult for competitors to enter or expand over time.  Importantly, an acquisition does not need to create market power on its own.  It is sufficient to raise concern if it strengthens or entrenches an existing position.  
• Cumulative effect is critical - Even low-risk transactions may become problematic if they form part of a broader pattern of strategic site accumulation that collectively limits competitors’ ability to access viable locations or establish a competing network.

Likely areas of Commission inquiry

The Commission has broad statutory powers to investigate potential competition issues and does not need to rely on voluntary cooperation. It can compel the production of information, documents and data, including detailed disclosure of property portfolios, lease arrangements and transaction histories, with non-compliance carrying potential penalties.

If the reforms are enacted, the Commission is likely to adopt a forward-looking, portfolio-based analysis in scrutinising property acquisitions, focusing on how acquisitions may shape future competitive conditions, not just their immediate effects.  This would include comparing market conditions “with and without” the acquisition, assessing whether viable alternative sites exist for competitors, and examining how the acquisition aligns with the party’s existing property footprint and broader growth strategy.  

Where concerns arise, the consequences could be significant. The Commission may seek injunctions to delay or prevent transactions, require divestment or unwinding of acquisitions, or negotiate enforceable undertakings imposing ongoing constraints on how land is used or developed.  Parties could also face pecuniary penalties, investigation costs, extended transaction timelines, conditional approvals and reputational impacts, particularly where a pattern of acquisitions is seen as limiting competitive entry or expansion.

Practical considerations for retail property strategies

• Embed competition assessment into site selection early - Competition considerations should sit alongside commercial and property criteria when retailers assess new sites and deal structuring, especially in constrained locations or where they already have local market strength.
• Take a portfolio-wide view - Retailers should maintain a clear understanding of all existing owned and leased sites, geographic clustering and network density within catchments.  Expect that the Commission will assess transactions in aggregate, not just transaction by transaction.
• Scrutinise lease structures - Higher risk features for leases will include exclusivity clauses, restrictions on competitors within a development, and long-term control or any other rights that effectively lock up strategic space in a development.  
• Align internal documentation - Regulators routinely review internal materials.  Board papers and strategy documents should emphasise commercial drivers (growth, demand, operational efficiency) and avoid language suggesting an attempt to pre-empt or exclude competitors or “lock up sites”.  
• Consider early engagement on higher-risk deals - Where a transaction sits in a more sensitive category, retailers may need to consider engaging with the Commission early or seeking formal clearance to provide greater certainty, manage execution risk and avoid later challenges.

Implications for current acquisition programmes

For retailers actively acquiring or leasing sites:

• due diligence should expand beyond title and planning issues to include competition considerations;
• a portfolio-level analysis, not just a deal-specific review, will be increasingly important; and
• longer acquisition timeframes may potentially be required where regulatory engagement is required.

Bottom line

If the reforms are enacted, they will not prevent network expansion, but they will fundamentally change the lens through which expansion is evaluated.  The focus will shift from the immediate effect of a transaction to its role in shaping future competitive conditions, particularly when combined with an existing network of sites.  Retailers who approach property acquisition with a strategic, network-wide perspective, and who factor competition considerations into decision-making early, will be better placed to navigate the new regime.

If you would like to talk to us about what the Bill might mean for your property acquisitions, we are happy to help.

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Disclaimer: The content of this article is general in nature, does not constitute legal advice and should not be relied upon for that purpose.  Parties should seek specific legal advice tailored to their circumstances before acting on any of the matters discussed.