By: Ben Hanuka, Law Works PC/LC

The Supreme Court of Canada has released a ground breaking decision about the law of “constructive taking” in land rights disputes between owners and public authorities.  In Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36, released on October 21, 2022, the Supreme Court held by a majority of 5 to 4 judges that actions by a public authority (here, the Halifax Regional Municipality) can have the same effect as expropriation if the public authority takes an advantage of the land and by doing so deprives the owner of all reasonable use of the property.

Most importantly, the court held that land owners do not need to prove that the government de facto (legal word for ‘practically’ or ‘in essence’) took over the land in question.  Rather, the legal test is whether the public authority took advantage and caused total deprivation of the owner’s use of its rights to the property.

The decision of the court will have vast implications for disputes between land owners or other holders of rights to land resources, such as rights to water or minerals, against public authorities, including municipalities, provinces and the federal government.

 

Key Facts

The developer, Annapolis, acquired about 965 acres of land in Halifax in the 1950s.  The developer’s intentions were to eventually secure enhanced development rights and resell it.  Importantly, Annapolis did not acquire the land as a “speculative bet” because Halifax did not regulate land use in the relevant area before 1982; i.e., Annapolis could have developed the land at any point before 1982.

In 2006, Halifax adopted a formal land strategy as a guide for land development in the municipality, which also applied to Annapolis’s lands.  While the planning strategy reserved a portion of the Annapolis land for possible future inclusion in a regional park, it also zoned the land as “Urban Settlement” and “Urban Reserve”; meaning that a portion of the lands were suitable for urban development.  In 2007, Annapolis made several unsuccessful attempts to develop the land.

In 2016, Halifax passed a resolution refusing to initiate the secondary planning process.  Annapolis sued, alleging a constructive taking, misfeasance in public office, and unjust enrichment.  In the lawsuit, Annapolis alleged that members of the public hike, cycle, canoe, camp, and swim on the land.  It also alleged that Halifax has been encouraging them to do so and was financially supporting organizations that also encourage people to use the land as a park.  Moreover, signs posted on the land allegedly depict the municipality’s logo and phone number, and a media article quoted a municipal employee referred to as “the city staffer overseeing the park’s creation”.

Annapolis claims in its lawsuit that Halifax’s regulatory measures have deprived it of all reasonable or economic uses of its land, resulting in a constructive taking without compensation.  It claims that Halifax has acquired a beneficial interest in the land by exercising dominion over it so as to effectively create a public park at Annapolis’ expense.  It also alleges an ulterior motive on Halifax’s part, to reserve part of the Annapolis land for a public park.

 

Legal test for ‘constructive taking’ does not require taking over land – it can be taking an advantage

The majority of the court held that Annapolis does not need to show that Halifax actually acquired the land.  It held that actual acquisition is not necessary to prove its case.  Rather, it needs to show that Halifax obtained an advantage with respect to the land.  At the core of this reasoning, the majority stated that, if a constructive taking requires an actual taking, then it is no longer constructive.

A “beneficial interest” in the property or flowing from the property is to be more broadly understood as an “advantage”.  The court reasoned that this supports an understanding of the term “beneficial interest” as concerned with the effect of a regulatory measure on the landowner, not with whether a proprietary interest was actually acquired by the public authority.

 

Intention of the public authority may be relevant evidence

The majority held that the intention of the public authority can have a supporting role in assessing constructive taking claims.  But there is no requirement to prove that a public authority acted in bad faith or with an otherwise ulterior motive.

Moreover, even if there is no evidence of the intention of the public authority, that does not preclude a property holder’s claim.  Put another way, intention is neither necessary nor sufficient to prove a claim of constructive taking.  What ultimately matters, regardless of intent, is whether the restrictions imposed by the public authority conferred on it an advantage that effectively amounts to a taking.

Intent can be useful evidence to differentiate between mere regulations in the public interest and the taking that is required in the legal test to entitle a land owner for compensation.  Intent may constitute a “material fact” in the context of a constructive taking claim.  The majority gave a few examples of cases where intent was relevant to this assessment:

  • In one case, where the public authority established a public monopoly, its objective in doing so was relevant to distinguish between merely a regulatory prohibition and the constructive taking of a business.
  • As another example where intent can be relevant to this legal test, a city’s intentions, as implemented by its officials, can support a finding of disguised expropriation through a bylaw and the persistent use of the land in question.

 

Regulatory restriction alone does not equate to “constructive taking”: no valid claim for compensation if the owner has some reasonable use

The majority reiterated the critical legal point that not every instance of regulating or restricting the use of property amounts to a constructive taking.  Regulation alone will not satisfy the test for a constructive taking.  There must be something more beyond drastically limiting use or reducing the value of the owner’s property.

For example, a mere refusal by a municipality to “up-zone” the zoning of a property, in and of itself, will not generally qualify for “constructive taking” because it will not remove all reasonable uses of the vacant land.  Similarly, a mere reduction in land value due to land use regulation, on its own, would not suffice.

On the other hand, the court reaffirmed the well-established legal principle that zoning which effectively preserves private land as a public resource may constitute a “beneficial interest” flowing to the public authority, where it has the effect of removing all reasonable uses of that land.

It is not the regulation alone that effects a constructive taking.  Rather, it is the application of that regulation to the land, including the manner in which the public authority refuses to grant the permit, exemption, etc.  For example, a regulation does not eliminate all reasonable uses of property where it provides a mechanism for permits, exemptions, or licenses to allow activities that are otherwise prohibited.

The court emphasized that the line between a valid regulation and a constructive taking is crossed where the effect of the regulatory activity deprives a claimant of the use and enjoyment of its property in a way that is both substantial and unreasonable.  A land owner has to show indirect confiscation – the regulatory impact has to be tantamount to confiscating the property.  Private rights in the property must be virtually abolished, leaving the claimant with “no reasonable use” of the property.  For example, a claimant can show that all reasonable uses of land were eliminated if a permit needed to make reasonable use of the land is refused, such that the public authority has effectively taken away all rights of ownership.

In the instant case, even though the zoning rules had not changed, such that Annapolis’ land use rights remained the same after the release of the 2006 planning strategy, Halifax’s application of the regulatory scheme was at issue, including the manner in which it refused to grant the permit or exemption.

In an example that the majority of the court relied on from an earlier Quebec case that reached the Supreme Court in the 70s, the City of Montréal knowingly used private land as a public park, by installing lampposts, a fence, and signage indicating the location of the “park” that included the disputed lands — in conjunction with restrictive zoning.  This effectively constituted a “disguised expropriation”.  The city had effectively expropriated the claimant’s lands by subjecting them to “conservation” zoning and treating them as if they were part of a public park. The city had marked off trails, added signage with park maps covering the subject land, encouraged the public to use the lands on the park, and taken out insurance to cover public recreational activities on the land.

However, the court also emphasized that Halifax may defeat Annapolis’s constructive taking claim by showing a single reasonable use of the property.  If the owner has at least some reasonable use for the property, there will be no valid claim for compensation.  What is reasonable use is fact specific.  On this issue, the court held that it was not realistic for Halifax to allege that Annapolis could lease the land, since Halifax is allegedly already using the land as a public park.

 

Evidence that a land owner is allowed to adduce at trial

Since the legal test focuses on effects and advantages of the regulatory restrictions of the public authority and its actions, the test is focused on substance and not form.  That impacts the scope of evidence that a claimant has a right to bring to court to prove its case.

For example, the court held that a claimant has a right to adduce evidence at trial showing the following:

  • Whether the public authority targets a specific owner or more generally advances an important public policy objective.
  • Whether the public authority has given notice to the owner about the restrictions at the time the property was acquired.
  • Whether the government measures restrict the uses of the property in a manner consistent with the owner’s reasonable expectations.
  • The nature of the land and its historical or current uses. Where, for example, the land is undeveloped, the prohibition of all potential reasonable uses may amount to a constructive taking.
  • The substance of the alleged advantage. For example, permanent or indefinite denial of access to the property or the government’s permanent or indefinite occupation of the property would constitute a taking.  As another example, regulations that leave a rights holder with only notional use of the land, deprived of all economic value, would satisfy the test.  It could also include confining the uses of private land to public purposes, such as conservation, recreation, or institutional uses such as parks, schools, or municipal buildings.

In the instant case, the majority of the court held that Annapolis has a right to adduce evidence at trial to show that, by holding Annapolis’s land out as a public park, Halifax has acquired a beneficial interest in it.  Annapolis also has a right to adduce evidence showing that, because Halifax is unlikely to ever lift zoning restrictions constraining the development of the land, Annapolis has lost all reasonable uses of its property.

 

The end result

In the end result, the court allowed the lawsuit of the developer, Annapolis, to proceed to trial against Halifax in its entirety for compensation as a result of the burden of holding the land as a public park indefinitely, while Halifax enjoys the advantage of having the land reserved for its own purposes without having to pay compensation.

Ben Hanuka Principal of Law Works PC (Ontario)/Law Works LC (British Columbia)