A majority of the Supreme Court of Canada (SCC) recently clarified that any public “advantage” that government obtains through land regulations that deprives a property owner of all reasonable or economic uses of their property is sufficient to establish a de facto expropriation claim. Annapolis Group Inc v. Halifax Regional Municipality, 2022 SCC 36 is a welcome development for land and resource developers.
The factual background of the case involved 965 acres of vacant lands acquired by Annapolis Group Inc. (Annapolis) between the 1950s and 2014 for the purposes of development or resale after acquiring development rights. Starting in 2007, Annapolis made several attempts to obtain Halifax's authorization to develop the lands. However, Halifax adopted a resolution refusing Annapolis' request in 2016. Annapolis sued Halifax for $120 million, alleging that its refusal to authorize development of the lands constituted a de facto expropriation, depriving it of all reasonable or economic use of the lands. Annapolis alleged that Halifax effectively acquired a beneficial interest in the lands by creating a public park at Annapolis's expense.
Halifax brought an application for summary dismissal of Annapolis’ de facto expropriation claim, which was dismissed on the basis that the claim raised genuine issues of material fact requiring a trial. On appeal, the Nova Scotia Court of Appeal (NSCA) held that Annapolis did not have a reasonable chance of establishing that a constructive taking had occurred in accordance with the test established in Canadian Pacific Railway Co. v Vancouver (City), 2006 SCC 5 (CPR). The NSCA determined that limiting the use of lands or reducing its value through regulation was insufficient to establish a constructive taking, and that lands "must actually be taken" and acquired by the government. The NSCA also held that evidence of Halifax's intended use for the lands was not relevant to the constructive taking analysis.
Annapolis appealed. At the SCC, a 5:4 majority allowed the appeal, holding that NSCA had erred in finding that the CPR test requires an actual taking of the lands. The SCC reaffirmed and clarified the two-part test in CPR for constructive takings which focuses on (1) whether the public authority has acquired a beneficial interest (i.e. an advantage), and (2) whether the state has removed all reasonable uses of the property. The majority interpreted this test as primarily focusing on (1) the advantages acquired by the state through regulation, and (2) the effects of such regulation on the property owner's reasonable use of that property.
The majority of the SCC preferred the term "constructive taking" rather than "de facto taking" or "regulatory taking" because the word "constructive" more accurately captures the nature of the state action. An "acquisition of a beneficial interest" under the CPR test does not require an actual taking of property but may consist of an advantage accruing to the state where the regulation of private property permits its enjoyment as a public resource. Whether such an advantage has been acquired should be realistically assessed, looking at factors including:
An "indefinite” denial of access may be sufficient. That may occur where regulations would leave a rights holder with only "notional use" of the land and deprived of all economic value, or where the uses of private land were confined to public purposes, such as conservation, recreation or institutional uses.
The majority of the SCC also found that the NSCA erred in failing to consider evidence of the government's intention. While evidence of the government's ultimate intended use for land is not an element of the CPR test, it may be relevant to the effects of government regulation on private property owners.
The majority decision of the SCC provides clarity on the test for constructive takings or de facto expropriations and indicates that courts must undertake a broader contextual analysis to assess both the potential advantages to the government and the effects on the landowner. The case also confirms that the government's motive may be a relevant consideration in assessing whether a constructive taking has occurred.
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