Real Estate Litigation 2025 – Trends And Developments

The Erosion of the Right of Ownership in Environmental Matters in Quebec with the Adoption of New Acts

In recent years, the Quebec government has been eroding citizens' right of ownership under the pretext of serving the public interest. This phenomenon can be seen in the adoption of new laws that unjustifiably infringe on citizens' right of ownership by allowing expropriation while disregarding the essential conditions of expropriation – fair and prior compensation as provided for in Section 952 of the Civil Code of Québec ("the CCQ").

The right of ownership is a fundamental right protected by Section 6 of the Charter of Human Rights and Freedoms ("the Charter"), a Quebec law, which states that "[e]very person has a right to the peaceful enjoyment and free disposition of his property, except to the extent provided by law". As evidenced by the terms "except to the extent provided by law", such protection is not absolute. Therefore, if the infringement meets the conditions stipulated in the law, there will be no violation of the Charter. In matters of expropriation, this "extent provided by law" is set out in Section 952 of the CCQ, which requires the expropriating body abide by the essential conditions underlying the right of expropriation when it wishes to deprive someone of their property, namely, to do so for public utility and compensate with a just and prior indemnity. The essential conditions set out in Section 952 of the CCQ are intended to protect owners from arbitrary measures and ensure that they are equitably compensated for any deprivation of their property.

In other words, when the government infringes a person's right of ownership while respecting the conditions set out in Section 952 of the CCQ, the infringement of the expropriated landowner's right to ownership can be considered to be "to the extent provided by law", and therefore in compliance with Section 6 of the Charter.

If the State wants to override the framework outlined in Section 6 of the Charter by not providing fair and prior compensation, it must explicitly stipulate in its legislation that it is repealing this Section (Section 52 of the Charter).

However, certain laws recently passed by the legislature demonstrate the Québec government's intent to circumvent the protections guaranteed by the Québec Charter and the Civil Code of Québec by restricting expropriated landowners' right to receive just and prior indemnity as required under Section 952 of the CCQ.

Two recent acts illustrate this infringement on the right of ownership, as follows.

Act ending exploration for petroleum and underground reservoirs and production of petroleum and brine

In 2022, the Québec government put an end to the petroleum project introduced a few years earlier under the Petroleum Resources Actby adopting the Act ending exploration for petroleum and underground reservoirs and production of petroleum and brine ("the Act").

The Act revokes exploration licences granted to companies operating in the petroleum sector, even before these companies could begin production and generate revenue. These companies had nevertheless incurred significant expenses after the government encouraged them to invest locally rather than abroad.

Although the Act provides for a compensation programme, it falls way short of fully indemnifying licence holders.

As a result, several licence holders have taken legal action against the Québec government, seeking to have several provisions of the Act declared unconstitutional, invalid, or inoperative on the grounds that they infringe on, among other things, their right to peaceful enjoyment and free disposition of their property – specifically, the property rights granted by their licence. The licence holders argue that the revocation of their licence constitutes disguised expropriation, as it fails to respect the essential conditions of the right to expropriation set out in Section 952 of the CCQ, and therefore violates their right of ownership.

In addition, they claim that the compensation provided under the programme is neither just nor prior, and that they will never be able to access it because the conditions are impossible to meet. What is more, meeting them would require expenditures amounting to tens, if not hundreds, of millions of dollars, rendering the indemnification under Section 952 of the CCQ and the compensation programme purely theoretical.

The Québec government asserts that the parliamentary sovereignty justifies the enactment of the Act, arguing that by ending the petroleum programme through legislation, it can violate Section 6 of the Québec Charter, as this measure constitutes the "extent provided by law" mentioned in the provision. However, if the legislature intends to bypass the right protected by Section 6 of the Charter, it must invoke the notwithstanding clause provided for in Section 52 of the Charter and explicitly set aside this protection. It cannot simply disregard the rules it has imposed on itself when it comes to fundamental rights.

The Superior Court granted a motion for a stay of the application of certain provisions of the Act and, at this stage, found the government's argument to be based on circular reasoning. This decision is currently under appeal.

Act respecting land use planning and development

The Act respecting land use planning and development ("the ALUPD") – one of the enabling laws for municipalities to govern Québec's land use planning – was recently amended by the insertion of Sections 245 to 245.6, which limit the right of ownership for the benefit of the community and establish a system of "reasonable land use" for specific situations.

Paragraph 1 of Section 245 stipulates the principle established in case law according to which an act performed under the ALUPD, such as the adoption of a municipal by-law, creates no obligation to compensate, under Section 952 of the CCQ, a person whose right of ownership has been infringed, as long as it is possible to make reasonable use of the immovable.

However, paragraph 2 of Section 245 stipulates that the immovable is considered "susceptible of reasonable use" when the infringement of the right of ownership is justified in the circumstances, according to a proportionality test to be assessed by the courts by taking into consideration the elements and objectives that necessarily relate to the public body performing an act under the ALUPD. Such an analysis by the courts of the reasonableness of the remaining uses of a property in light of the municipality's characteristics diverges from established case law, which evaluates reasonable use from the perspective of the affected landowner.

Paragraph 3 of Section 245 creates an irrebuttable presumption of justified infringement of the right of ownership when such infringement results from one of three specific acts defined under this paragraph, that is: i) an act intended to protect wetlands and bodies of water; ii) an act intended to protect an environment of high ecological value; or iii) an act that is necessary to ensure human health or safety or the safety of property. When one of these acts is performed, the infringement is deemed to be justified, and therefore there would be reasonable use within the meaning of paragraph 2 of Section 245.

The legislature's inconsistent interpretation of the terms "reasonable use" and "justified infringement" places the fate of person's right of ownership at the discretion of public authorities, without having to consider whether the act in question actually allows the person to make reasonable use of his or her property.

Several lawsuits have been filed to challenge the constitutionality, validity, or effectiveness of these provisions, as they infringe on the right to peaceful enjoyment and free disposition of property, protected under Section 6 of the Québec Charter, by depriving property owners of any form of compensation, even when they can no longer reasonably use their property in practice. The lawsuits also argue that the law is unclear.

That said, it can be argued that both the Act ending exploration for petroleum and underground reservoirs and production of petroleum and brine and the new Sections of the Act respecting land use planning and development violate certain taxpayers' right of ownership, and should be declared unconstitutional, invalid, or inoperative. These infringements of the right to peaceful enjoyment and free disposal of property are not carried out "to the extent provided by law", as they violate the essential conditions of the right to expropriation set out in Section 952 of the CCQ.

Removing one of the essential conditions of expropriation – ie, just and prior indemnity – is equivalent to dispossessing an owner's most valuable and precious asset without paying any compensation. While the legislature can infringe on individuals' rights of ownership under certain conditions, it cannot do so by giving itself the power to expropriate and appropriate people's property without any compensation.

Changes in the Compensation Approach in Expropriation Matters in Québec

On 29 December 2023, the Act respecting expropriation (the "New Act") came into force, repealing and replacing the Expropriation Act (the "Old Act") that had been in place since 1986. Whereas this New Act modifies many elements, particularly in terms of procedure, it mainly introduces new approaches to compensation for expropriated property owners. This text will focus on these new approaches without addressing other changes introduced by the New Act. In summary, the New Act lays out the indemnities that can be granted and the way they are determined, and sometimes even imposes caps by setting out strict rules in areas where the Administrative Tribunal of Québec previously had discretion. However, the compensation provided by the New Act does not limit the possibility of a person to obtain just and prior compensation for their dispossession, as stipulated in Section 952 of the CCQ.

Final Indemnity

Section 82 of the New Act specifies what constitutes the final indemnity, namely: the immovable indemnity (Sections 84 to 95), the indemnity in reparation for injuries (Sections 96 to 102), the indemnity for loss of suitability value (Sections 103 and 104), and the indemnity for trouble, nuisance, and inconvenience (Sections 105 and 106).

Section 107 states that the amount of this indemnity must be the highest among the final indemnities established according to:

• a use other than the use on the date of expropriation, if this use is the highest and best use;
• the approach based on the re-establishment theory; and
• the compensation approach that grants the lowest indemnity among the following approaches: based on cost of acquisition of the expropriated right, based on redevelopment of an immovable, based on displacement of a structure, based on discontinuance of an enterprise, or based on relocation.

Therefore, the appraiser will now have to try several approaches to determine which one will constitute the final indemnity.

Immovable Indemnity

Under Section 84 of the New Act, the immovable indemnity is determined as follows:

• based on the market value of the expropriated right, plus, where applicable, the displacement indemnity, the redevelopment indemnity, the enterprise closure indemnity, or the equivalence indemnity (approach based on relocation);
• if the re-establishment approach is applied, the indemnity will be for the replacement of buildings and their improvements, plus the cost of acquiring new land (or the market value of the expropriated land if the expropriated party relocates to land they already own); and
• if the immovable indemnity is established based on a use other than the use on the date of expropriation, the indemnity corresponds only to the market value of the expropriated right and the expert fees (Section 82, paragraph 2).

Sections 76 to 81 of the New Act specify which approach applies in which circumstances.

Best and most profitable use

The notion of highest and best use is now laid out in Section 87 of the New Act whereas, previously, this concept was defined by the professional practice standards of the Ordre des évaluateurs agréés du Québec. The two concepts are not entirely identical – the New Act indicates that this use corresponds to the use of the right on the date of expropriation, or the use determined by considering, on the date of expropriation, the following criteria:

• that the use is feasible on this property due to its dimensions, shape, area, topography, and composition;
• that it is allowed by the laws of Québec and Canada and the regulations enacted under such laws, including municipal by-laws, or protected by acquired rights on the date of expropriation;
• that it can show a positive return in terms of net income;
• that it is probable, and not just possible, that the use will materialise within three years following the date of expropriation without considering a possible modification of applicable laws or regulations, including municipal by-laws;
• that there is a market demand for the right assessed for this use; and
• that the use is the one that brings the highest value to the property among all possible uses.

Market Value

It is important to note that the notion of market value is new in expropriation matters in Québec. In fact, the Old Act instead referred to the concept of value to the owner.

Market value is defined in Section 85 of the New Act as corresponding to the sum of the value of the expropriated right established in accordance with Section 86 and the surplus value added to this right by the land improvements and landscaping present on the date of expropriation but not considered in establishing the value of the expropriated right.

For its part, Section 86 provides a specific framework for establishing the value of the expropriated property. This corresponds to the selling price:

Indemnity in Reparation for Injuries

Again, the New Act lists the damages for which a property owner can be compensated during an expropriation, whereas the principle in the Old Act was to compensate the property owner for any damage directly caused by the expropriation. These damages are as follows.

Sections 101 and 102, on the other hand, list the damages that cannot be compensated, such as those suffered before the date of expropriation or associated with a use other than the use applied in determining the highest and best use.

Indemnity for Loss of Suitability Value

This indemnity, previously established jurisprudentially, is now codified and very limited. It will be granted for the loss suffered by a divested party due to the personal value they attribute to the immovable and that a buyer generally does not take into account (Section 103). Moving forward, this indemnity will only be granted when the residence of the divested party is part of the expropriated immovable (Section 103). It will also be limited to an amount of CAD31,524, indexed on 1 January of each year (Section 104).

Indemnity for Trouble, Nuisance, and Inconvenience

Finally, like the other indemnities, the indemnity for trouble, nuisance, and inconvenience – previously left to the discretion of the Administrative Tribunal of Québec – is now regulated by the New Act. This indemnity aims to compensate for direct, material and certain damages caused by the expropriation procedure, such as the loss of time attributable to preparing the case and participating in meetings (Section 105). This indemnity can only be granted when the residence of the divested party is part of the expropriated property, or when the divested party is a natural or legal person with a maximum of ten employees (Section 105), and it cannot exceed CAD10,508, indexed on 1 January of each year (Section 106).

Originally published by Chambers and Partners

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.