Introduction
In the Annapolis Group Inc. v. Halifax Regional Municipality1 decision, rendered on October 21, 2022, the Supreme Court of Canada sided with current case law2 by ruling in favour of the taxpayer when it confirmed that merely demonstrating that a municipal by-law removes an owner's reasonable use of real property is sufficient to constitute a disguised expropriation.
In light of this decision, it can be concluded that municipal by-laws that would not constitute a total "confiscation" of an immovable could nevertheless be a form of disguised expropriation when, without rendering the use of the land impossible, the said by-laws prevent the owner from making reasonable use of his or her land for a public purpose without compensation. For more details on this decision or the concept of disguised expropriation, please see our article on the subject.
In a decision dated January 17, 2023, on SBFD inc. v. Ville de Saint-Augustin-de-Desmaures3 (hereinafter the "Decision"), the Superior Court of Quebec added that municipalities can be condemned in civil proceedings for disguised expropriation when they choose to adopt municipal by-laws under the Cultural Heritage Act4 (hereinafter the "CHA") that have the effect of including immovables in a heritage site, thereby depriving the owner of the right to make any use of such immovable, without having exercised the power of expropriation that would allow the owner to be compensated.
The Decision
The Facts
In summary, SBFD Inc. (hereinafter "SBFD"), owner of a lot (the "Lot") on the territory of Ville de Saint-Augustin-de-Desmaures (hereinafter the "City") located in the vicinity of a heritage site named Domaine des Pauvres (hereinafter the "Site"), and Simon Bouffard, the sole owner of SBFD, are suing the City for disguised expropriation, alleging that the effect of the municipal by-law adopted and amended by the City following the acquisition of the Lot by SBFD was to prohibit any new construction on the Site. In order to block SBFD's construction project, the City decided to use its by-laws to include the Lot where the construction was planned onto the Site. The City argued before the Court that the effect of the by-laws was not to prohibit all construction on the Lot, as there were still highly discretionary, if not arbitrary, criteria by which it could authorize construction.
The Lot had been created as a result of a subdivision of the Site that was authorized by the City in November 2018, prior to its acquisition by SBFD. Following the acquisition, SBFD applied to the Commission de la protection du territoire agricole du Québec (CPTAQ) for residential grandfathering and to the City for a building permit, both of which were granted. Once the administrative formalities were completed, SBFD had a period of time extending to November 30, 2019, in which to begin construction of a residence without losing its residential grandfather rights.
On July 24, 2019, believing that the decision to issue these authorizations was wrong and through a resolution, the City decided to apply to the Ministère de la Culture et des Communications (MCC) to issue an order under Section 76 of the CHA, so that the Minister could assess the appropriateness of protecting all or part of the Site. This application was denied by the Ministry on the grounds that the Site was not of national interest.
On August 1, 2019, the City issued a second resolution order under Section 148 of the CHA prohibiting any alterations to the premises within the Domaine des Pauvres until September 1, 2019.
On September 9, 2019, notwithstanding formal notice sent by SBFD on that same date requesting removal of the Lot from those subject to the proposed by-laws, the City Council adopted By-Laws 596, 597 and 598 creating a protected zone corresponding to the Site. In addition, on September 3, 2019, the City amended By-Law 597 to specify that "all new construction" on the Site would now be prohibited. At a subsequent public consultation, the City's Mayor confirmed that the City's intention was that nothing could be built on the Lot, stating: "You own a piece of land, but you can't build on it and you can't do anything on it... we don't owe you anything and that's the end of that... we can sit down with you at the appropriate time and try to see if there isn't something we could do to try to – I don't know what term to use here – try to minimize, mitigate, reduce your damage5"(sic).
Finally, on November 19, 2019, By-Law 595 was passed, which, among other things, cited the Lot as a heritage building as of November 22, 2019.
Bouffard then approached the Québec City appraiser to request a review of the real estate assessment roll. The appraiser told him that the land value would not be changed because it was still possible to build on the Lot, provided certain criteria were met. The criteria for building in compliance with the obligations imposed by By-Laws 595, 596 and 597 were then conveyed to Bouffard on August 19, 2020. SBFD therefore sent a new application for a building permit, which was denied on July 6, 2021.
Analysis
In this case, the Superior Court first had to determine whether the conditions for initiating an action for compensation for disguised expropriation had been met. To this question, the Court decided in the affirmative.
Indeed, even when a municipality claims to be acting in good faith, the fact remains that the restrictions it imposes may result in a disguised expropriation if such restrictions have the effect of preventing any reasonable use of a lot, of totally depriving the owner of the exercise of his or her right of ownership, or of amounting to a confiscation or appropriation of the property.6
However, by adopting By-Laws 595, 596, 597 and 598, the City was clearly attempting to protect the Domaine des Pauvres as a heritage site, and this is a public purpose. The evidence revealed, in particular, that the main recommendation of the architect mandated to express an opinion on the alignment of SBFD's construction project with the criteria established by the by-laws was to prohibit all construction on the Lot because that would be detrimental to the coherence of the whole and to the understanding of the heritage site.7 The effect of the by-laws was therefore to make the vacancy of the Lot its principal heritage feature.
Thus, the Court concluded that the by-laws ultimately protected the vacant character of the lot and thereby prevented any construction on it.8 The architect's recommendations ultimately allowing construction by the owners on the Lot were, in fact, so severe, particular, restricted and numerous as to deprive them of their property rights.9 This mere theoretical possibility of being able to build could not constitute a reasonable use of the Lot.
In addition, the Court emphasized that the City had not established any guidance or real criteria for granting or denying a building permit for a single-family residence on the Site.10 The imprecise criteria in the by-laws therefore granted arbitrary discretion to the City, prohibiting lot owners from understanding how their construction project would be analyzed and on what basis.11
The Court's analysis thus led it to the determination that, following the adoption of the By-Laws, reasonable use of the Lot through the construction of a single-family residence was not possible. The City's choice to include the Lot in the Site instead of exercising its statutory power of expropriation thereby constitutes a disguised expropriation, since the effect of the by-laws is to remove all use of the Lot, and even the exercise of the right of ownership. 12
Conclusions of the Supreme Court
The City was consequently ordered to pay the plaintiff $138,000 for the value of her property and reimbursement of the municipal taxes paid from the date the disguised expropriation took place, November 22, 2019. 13
Authors' Comments
This case, which has not been appealed, is another clear indication from the courts that municipalities cannot use their regulatory power to prevent the reasonable use of land without compensating the owners. The main interest in this case is that it is the first on record in which by-laws made under the CHA have been the source of disguised expropriation. Most of the decisions identified to date have related primarily to the exercise of a power under the Act respecting land use planning and development, such as zoning.
Moreover, although certain abstract and arbitrary criteria still theoretically allowed some use of the Lot, the Court did not hesitate to find disguised expropriation. This is another important lesson to be learned as some municipalities frequently use creative means to leave the impression that their by-laws do not impose a total prohibition on development of a property. As noted in our comments on Annapolis Group Inc. v. Halifax Regional Municipality, the reasonable use of land test under Quebec's disguised expropriation law allows owners to be fully compensated for their loss even if some use remains theoretically possible.
Footnotes
1. 2022 SCC 36.
2. See in particular: Lorraine (Ville) v. 2646-8926 Québec inc, 2018 SCC 35; Dupras v. Ville de Mascouche, 2022 QCCA 350 (application for leave to appeal to SCC dismissed, 2022 CanLII 88678) ("Dupras").
3. 2023 QCCS 107 (in French only).
4. SQ 2011, c 21.
5. Supra note 3, at para. 34
6. Supra 3, at paras. 42 and 46-47 citing Ville de Québec v. Rivard, 2020 QCCA 146, at paras. 63-65.
7. Id., at paras. 51-52.
8. Id., at paras. 60, 63 and 67.
9. Id., at paras. 71.
10. Id., at paras. 55 and 58.
11. Id., at paras. 59.
12. Id., at paras. 47 and 69.
13. Id., at paras. 100-105.
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