In a long-awaited decision, the Supreme Court of Canada has ruled on de facto expropriation of land.
In Annapolis Group Inc. v Halifax Regional Municipality, the Supreme Court provided guidance for situations in which the government essentially takes away land rights from property owners without formally expropriating the lands.
Although there is still a ways to go before the law in this area is settled, this decision is definitely a positive decision for developers' and landowners' rights in general.
Background and facts
Annapolis Group Inc. is a Halifax-based land developer which has been accumulating vacant land since the 1950s.
It had eventually amassed nearly 1,000 acres with the intention of developing it.
The Halifax Regional 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 the lands may be developed by the municipality within, or after a 25-year period.
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 the municipality had effectively turned parts of the lands into a public park by encouraging members of 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 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 the lands were expropriated on a de facto basis.
The new test for “constructive taking” of land
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 land owner alleges 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, in order 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 the acquisition of 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. If the government takes steps to acquire a beneficial interest in the property and the owner loses its reasonable use of the land as a result, 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 and the matter is to be determined by trial.
What this means
Although the law in this area is not yet settled, the Annapolis decision is being hailed as great news for developers and property rights holders in general.
It should be kept in mind the test for constructive taking is still onerous.
The court emphasized in this case that in order 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 can constitute such an interest. Therefore if the public benefits from the land, that could be deemed to be a benefit to the state as well for the purposes of the test.
It will be interesting to see what will become of this decision going forward.
But for now developers should take note, as this case is definitely a step in the right direction.
To be clear, governments still have the power to expropriate land if the proper channels are followed. However, the Annapolis case shows courts may not have tolerance for the state using back-door means to deprive property owners of the benefits of their land.