Constructive Expropriation

In the Supreme Court of Canada decision of Annapolis Group Inc. v Halifax Regional Municipality, 2022 SCC 36 [Annapolis], the Court clarified the test for a "constructive expropriation".
Canada Real Estate and Construction
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In the Supreme Court of Canada decision of Annapolis Group Inc. v Halifax Regional Municipality, 2022 SCC 36 [Annapolis], the Court clarified the test for a "constructive expropriation". A constructive expropriation occurs when a governmental authority acquires a "beneficial interest" in land. In Annapolis, "beneficial interest" was clarified to mean the acquisition of an "advantage", where state action has removed all reasonable uses of the property. Constructive expropriations occur within the regulatory context where the effect of a bylaw, regulation, or other enactment produces these results. Annapolis was widely seen as loosening the test for a constructive expropriation by characterizing the acquisition of a beneficial interest broadly as "any advantage," raising fears among municipalities and other government actors that the lines would be blurred between the permissible regulation of land and constructive takings.

On May 10, 2024, the SCC released a new decision on constructive takings that addresses how compensation should be calculated in constructive takings. In expropriations, the Pointe Gourde principle applies in determining the market value of the taken land: changes in value resulting from the expropriation "scheme" itself are to be ignored, whether those changes increase or decrease the market value. The Pointe Gourde principle applies in all expropriations and is enshrined in most Canadian expropriation statutes, but it is particularly important in constructive takings because there is usually a nexus of enactments over time that culminate in a taking. In brief, this case answers the question: How does the Pointe Gourde principle apply to those prior enactments that, by themselves, did not individually culminate in the taking?

Factual Background

This case concerned watershed land that was integral to the City of St. John's fresh water supply. The Lynch family acquired the property by Crown grant in 1917 and the property had largely stayed in its natural state since 1945. Afterwards, the following events unfolded:

  • In 1959, the land became subject to the City's pollution control and expropriation powers.
  • In 1964, the Province prohibited the construction of buildings (with some exceptions).
  • In 1978, this prohibition was amended to permit construction of buildings at the discretion of the City Manager.
  • In 1992, the City's boundaries extended to encompass the land. The Provincial prohibition on constructing buildings remained intact, but the land was now also subject to the City's zoning regulations.
  • In 1994, new City-wide zoning regulations were enacted which introduced a "Watershed" zone that applied to the land. The Watershed zone had no permitted uses, but three discretionary uses: agriculture, forestry, and public utility.
  • In 1996, the City adopted a "Watershed Management Plan" which recommended that the City Manager not use the discretion to permit buildings and stated that "[e]xisting sub-urban development . . . should not expand and the long term intention is to revert these areas back to natural, pristine conditions as opportunity and funding permit."

Since the 1990s, the Lynches had made inquiries with the City about using the land for residential development. When these inquiries did not meet with a favourable response, in 2011, they asked whether they could use the land for tree harvesting, farming, saw milling, and the construction of windmills and solar panels. The City said "no", and further that "the land must be kept unused in [its] natural state."

In 2013, the Lynches formally applied to develop a 10-lot residential subdivision, which was rejected under the City Manager's authority to refuse to allow building construction, in addition to the Watershed zoning regulation. In related proceedings, the Newfoundland Court of Appeal determined that this rejection constituted a constructive expropriation which had started in 1959 when the land became subject to the City's expropriation and pollution control powers.

The issue before the SCC was whether the Pointe Gourde principle should apply to require the Watershed zoning restrictions to be ignored in determining the market value? If "yes", the property could have been worth as much as $875,000. If "no", it was worth as little as $105,000.

The Decision

The SCC restored the application judge's decision which found that the Watershed zoning restrictions should be considered in determining the market value of the land. The main question was whether the zoning restrictions were an "independent enactment" from the constructive taking, or if the enactment was passed "with a view to expropriation". This was a factual determination that was open to interpretation. There were no "bright lines." However, factors such as whether the enactment targeted the land, whether it was passed by a different governmental body, the long-term planning goals of the body, the debates, deliberations and statements of policy that give rise to it, and any preamble will all be relevant. In this case, the key question is whether the enactment was passed "with the intention of never allowing any development on the Lynch Property."

The SCC also made clear that simple causation in the expropriation is not sufficient to attract the Pointe Gourde principle as the Court of Appeal had found. The mere fact that the zoning restriction was part of the nexus of regulatory restrictions that collectively caused the constructive expropriation did not mean that the zoning restrictions were passed as part of the "scheme" of the expropriation. That is, when the zoning restrictions were put in place, the intention was not to restrict all reasonable uses of the land. It was only those acts that played an active role in removing all reasonable uses of the land that are to be considered part of the "scheme" of the expropriation.

This decision is significant for at least two reasons. First, it will likely serve to limit the scope of liability of governmental authorities in constructive expropriations in most, if not all, cases. Second, this decision also applies to formal expropriations under the Expropriation Act as it is primarily about clarifying the Pointe Gourde principle, which is enshrined in s 45 of the Alberta Act. As a result, restrictions in land use preceding an expropriation will serve to depress the market value of expropriated land if those restrictions were not coloured by the intention to ultimately acquire the land.

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.

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