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Legal Notes: Expect no windfalls under ‘constructive expropriation’

John Bleasby
Legal Notes: Expect no windfalls under ‘constructive expropriation’

Back in 1917, the Lynch family acquired a plot of land in what was then a rural area outside of the City of St. John’s, N.L. For years it had remained in a natural state.

Over time, senior associates Shalom Cumbo-Steinmetz and Alexandra Shelley, and associate Alina Butt of Torys LLP explain, legislative changes in 1959 brought the property within the city’s pollution control and expropriation powers.

More restrictions concerning the property were established over the next decades, ultimately leading to a 1994 zoning and a 1996 management plan to protect the city’s water supply.

It was critical to the city that the land remain “as pristine as possible.” Only three uses could be considered: agriculture, forestry and public utility. Even then, such discretionary permissions would only be granted rarely.

However, the Lynch’s had other ideas. They initiated several attempts to extract greater value from the property. This ultimately led to a 2011 application to develop a 10-acre residential project. Like their previous applications, this too was denied. The city ruled the land must remain untouched.

“Following the 2013 rejection, the landowners applied to the courts for relief,” writes Milad Alishahi, partner with MLT Aikins LLP.

The Lynch family argued their land had been “constructively expropriated.” The Newfoundland and Labrador Court of Appeal agreed. From there, the family filed a claim for compensation. Those claims went to the Supreme Court of Canada.

The question it considered was, “How do zoning regulations and other land use restrictions affect the compensation due to owners of expropriated property?”

The Lynch family offered an appraisal of $875,000 based on their ambitions for a residential development. The city countered with $105,000, assuming the agriculture, forestry and public utility restrictions in place.

“The concept of a scheme of expropriation must not be taken too far,” the city argued. “If all actions by, say, a municipal expropriating authority using land use bylaws for general planning purposes, were to be regarded as part of the scheme that ultimately leads to an expropriation, it would lead to the absurd result that land use restrictions imposed for general planning purposes would always be disregarded.”

“The Supreme Court noted that a key factor was whether the legislated restrictions were made with a view towards expropriation or whether they were an independent enactment,” writes Alishahi. “In assessing the purpose behind the legislated restrictions at issue, the Supreme Court said the purpose was to prevent the pollution of the city’s water supply, not to directly target the land. The Supreme Court also said the legislated restrictions were an independent enactment not passed with a view towards expropriation.”

As a result, the Supreme Court returned to the restrictions set out by the City of St. John’s that permitted only discretionary agriculture, forestry and public utility, and used that as the basis for compensation.

“The respondents are entitled to ‘fair compensation but not more than fair compensation’ for the city’s constructive expropriation of their property,” the Supreme Court ruled.

“Given the application judge’s finding that the watershed zoning was an independent enactment and not made with a view to expropriation, the market value assessment for the Lynch property must take into account the fact that it is limited to discretionary agriculture, forestry and public utility uses,” it said. “To ignore the watershed zoning would be to award the respondents a significant windfall. It would compensate them for something they never would have had absent the expropriation: unencumbered land to develop residential housing.”

“Compensation for expropriation is based on the ‘economic restatement principle,’” write Cumbo-Steinmetz, Shelley and Butt. “Property owners should be put back in the same economic position they were in before the expropriation: no better and no worse.”

Of the many takeaways offered by legal experts across the country, one suggested by the Torys authors concerns the resolution process.

“Where the two parties want to engage in an efficient process, it may be desirable to seek to deal with both the question of entitlement and compensation together.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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