This column was originally published by Daniel Waldman on the Real Estate News Exchange (Renx.ca).
In a recent and long-awaited ruling, the Supreme Court of Canada has delivered an important decision on the de facto expropriation of land. In Annapolis Group Inc. v Halifax Regional Municipality, the Supreme Court opined on situations where the state basically takes away land rights from property owners without expropriating the lands in the formal sense.
Annapolis Group Inc. (“Annapolis”) is a Halifax-based land developer that has been accumulating vacant land since the 1950s. It had eventually amassed nearly 1000 acres intending to develop it (the “Lands”). The Halifax Regional Municipality (the “Municipality”) set out a new planning strategy in 2006 which identified part of the Lands for possible use for a park in the future and denoted them as “Urban Settlement” and “Urban Reserve.” Meaning that the Municipality may develop the Lands within or after 25 years. Also, as part of the strategy, Annapolis was prohibited from developing the Lands before the Municipality adopted a “secondary planning process.”
Annapolis began seeking approvals to start developing the Lands in 2007. In response, the Municipality passed a resolution stating that it refused to initiate the secondary planning process “at that time.” In the years that followed, the Municipality encouraged the public to use the Lands for outdoor activities such as hiking and camping. Ten years later, Annapolis commenced legal proceedings against the Municipality, seeking over $120 million in damages. Annapolis alleged that the Municipality had effectively turned parts of the Lands into a public park by encouraging the public to use them for outdoor purposes and therefore claimed damages based on de facto expropriation, unjust enrichment, and abuse of/misfeasance in public office.
The Municipality brought a summary judgment motion to dismiss Annapolis’ de facto expropriation claim, which was initially dismissed. The Nova Scotia Court of Appeal later sided with the Municipality and summarily dismissed Annapolis’ claim without allowing it to go to trial. The court ruled that the Municipality did not commit de facto expropriation of the Lands because no land was actually taken from Annapolis, and the Municipality, therefore, did not acquire a “beneficial interest” in the Lands. It was also ruled that encouraging the public to use the lands and failing to adopt a development plan did not mean that the Lands were expropriated on a de facto basis.
The Supreme Court of Canada, however, saw things differently. The Supreme Court referred to de facto expropriation as “constructive taking,” as it applies to situations where a landowner alleges that the state takes its land without formally expropriating it. In other words, the state does not exercise its statutory authority to acquire an interest in the land and compensate the owner, but it does take steps to claim the land by other means.
In its decision, the Supreme Court held that, for “constructive taking” to occur, it is necessary to look at the intention of the government in exercising its regulatory authority and the owner’s loss of the use of the property. As such, the courts must look at what advantage the state obtained by acquiring the land and its effect on the property owner. Therefore in order for an “acquisition” by the government to occur, the property does not actually have to be acquired. However, if the government takes steps to acquire a beneficial interest in the property and the owner loses its reasonable use of the land, the land can be deemed to be expropriated on a de facto basis (or “constructively taken”).
In applying the test in the Annapolis case, the Supreme Court held that there were more issues to unravel, and therefore, the Court of Appeal decision was overturned. The matter is to be determined by trial.
The law in this area is not yet settled. It should be kept in mind the test for constructive taking is still onerous. The court emphasized in this case that for it to occur, private property rights must be “virtually abolished.” And even where that is deemed to have occurred, it is not yet clear what it means for the government to gain a beneficial interest in the land. In the Annapolis case, the court accepted that the government essentially using the land as a public park could constitute such an interest. Therefore, if the public benefits from the land, that could also be deemed a benefit to the state for the purposes of the test.
It will be interesting to see what will become of this decision in the future. But developers and other landowners are hailing the Annapolis decision as a step in the right direction. This ruling does not affect the ability of the government to expropriate land if the proper channels are followed. However, we now know that courts may not have tolerance for the state using other creative means of depriving property owners of the benefits of their land.
About the Author:
Daniel Waldman is Of Counsel in the firm’s Toronto office. He has a broad commercial litigation practice with an emphasis on real property litigation, including commercial leasing, commercial real estate, construction law, and debt collection. Daniel can be reached at 416-644-2838 or firstname.lastname@example.org. To read his full bio, please click here.