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The Expanded Constructive Taking Action: Municipal Authority to Regulate Land in the Post Annapolis World

By: Marlena (Marny) S. Paul and Kara Shaw

Recently, the Supreme Court of Canada revisited the law of de facto expropriation (also known as “constructive takings” or “regulatory takings”) and expanded upon what will qualify as a “benefit” acquired by government in order to support claims for compensation by property owners.   This article provides a brief summary of the SCC’s decision in Annapolis Group Inc. v Halifax Regional Municipality[1] and discusses the impact the decision may have on municipal authority to regulate lands via the planning tools provided under the Municipal Government Act [MGA].

What is De Facto Expropriation?

Under the Expropriation Act, if a government authority wishes to acquire an interest in land for public purposes, whether it is a fee simple interest, an easement or a leasehold interest, the processes under the Act must be followed and compensation based on fair market value must be paid to the owner of the legal interest acquired.

What happens, however, when there is no formal transfer of a property interest from an owner to a government authority, but a government regulation affecting property is so restrictive that it is seen as depriving an owner of their property rights to the benefit of the government authority?  This is where you find the nebulous concept of de facto expropriation.

In assessing de facto expropriation claims, Canadian jurisprudence has established that one question generally always underlies the analysis: “at what point does regulation interfering with property ownership become a taking of property warranting compensation?”[2]

In response to this question, the following two-part test was set out by the SCC in Canadian Pacific Railway Co. v. Vancouver[3]:

• a government authority must acquire a beneficial interest in the owner’s property or flowing from it (the “Acquisition Branch“); and
• an owner must lose all reasonable uses of their property (the “Loss Branch“).[4]

It is the Acquisition Branch of the two-part CPR test that was recently considered by the SCC in Annapolis.  

The Annapolis Decision

Annapolis was a developer that owned approximately 956 acres of vacant land within Halifax Regional Municipality that it intended to eventually develop and resell (the “Lands”).  In 2006, the municipality adopted a Regional Municipal Planning Strategy which designated a portion of the Lands for future use as a regional park and required a council approved “secondary planning process” before the Lands could be developed.  Despite multiple attempts by the developer to obtain approval, ultimately, in 2016 the municipality refused to initiate the secondary planning process and the developer sued for constructive taking.

The municipality sought summary dismissal of the claim on the basis that neither branch of the two-part test established in CPR was satisfied.  The majority of the SCC sided with the developer and held that the developer’s claim should not be summarily dismissed as issues exist that genuinely require a trial to resolve.  As a result, the developer’s claim has been sent back to the Nova Scotia Supreme Court for adjudication.

In providing reasons for its decision, the majority in Annapolis confirmed that the two-part test established in CPR continues to be the test to apply; however because lower courts have not always applied the test correctly, the majority wished to further “illuminate” or “clarify” the test. In doing so, two key takeaways emerge from the majority’s decision.

The first key takeaway is that the term “beneficial interest” under the Acquisition Branch of the test should be interpreted broadly.  Specifically, the majority held that a beneficial interest can be understood to include not only actual acquisition of property rights by the government authority, but also advantages that “flow to the state.”  As an example, the majority noted that under certain circumstances, the preservation of lands for a public park may be a sufficient advantage to satisfy the Acquisition Branch of the test.

The second key takeaway is that intention of a public authority is not an element of the test in order to establish constructive taking, but may be relevant to consider.  This commentary further opens the door to landowners being able to introduce evidence to support claims that a government action has interfered with property rights to the point of requiring compensation.

As a result of the majority’s comments in Annapolis, we anticipate that de facto claims may increase as property owners try to test the limits of this newly articulated “advantage” threshold.

Municipal Regulation of Land Use

Given that municipal regulation of land has the potential to significantly impact the value of private land, some are also questioning the extent to which the majority’s comments in Annapolis may impact Alberta municipal planning decisions.

It is settled Canadian law that zoning changes, development freezes, and other regulatory action, even when they decrease the value of land, do not constitute de facto expropriation or give rise to a common law right to compensation.[5]

In Alberta, this common law concept has been codified in the Municipal Government Act at s. 621: 

Except as provided in this Part and in section 28 of the Historical Resources Act, nothing in this Part or the regulations or bylaws under this Part gives a person a right to compensation.

The public policy rationale for this principle is that the impact on private property rights is generally tolerated in order to accommodate the greater public interest.

Note, however, that in Alberta the legislature has already scaled back the above noted “no compensation” principle where private lands have been designated by a municipality for certain public purposes.  Specifically, where a municipality has designated private lands under a land use bylaw for use or intended use as a:

• municipal public building;
• school facility;
• park; or
• recreation facility;

the municipality is required, within 6 months of designating the lands, to either acquire the lands (arguably for market value) or amend the land use bylaw to re-designate the lands for another use (s. 644, MGA).

In the context of planning decisions, the point at which a zoning decision might trigger compensation as discussed and articulated by the majority in Annapolis is, to a certain extent, already codified in Alberta as a result of s. 644. While the impacts of zoning decisions that fall under s. 644 are not expressly referred to as constructive takings, the remedies that flow from these decisions are very similar to what a court might order in a successful de facto expropriation claim.  As a result, the expansion of the common law respecting constructive takings by the majority in Annapolis may have limited impact on municipal planning decisions in Alberta.

Only time will tell if, as a result of the majority’s comments in Annapolis, we will see an increase in litigation on this issue and if future judicial interpretation will push the pendulum further in the direction of ordering compensation for landowners in response to municipal planning decisions, or if the status quo will be maintained.

[1] 2022 SCC 36 [Annapolis]
[2] Alberta (Minister of Infrastructure) v. Nilsson, 2002 ABCA 283 [Nilsson] at para 49
[3] 2006 SCC 5 [CPR]
[4] CPR at para. 30
[5] Mariner Real Estate Ltd. v. Nova Scotia (Attorney General), [1999] N.S.J. No. 283 (NSCA) at paras. 42 and 105; Nilsson, at para. 61.