Expropriation revisited: Supreme Court of Canada clarifies law in ‘constructive taking’ land claims

When a public authority expropriates land from a landowner, the landowner must be compensated. But what about when a public authority regulates private land for its own advantage, making the land unusable for the landowner? Is compensation owed in such cases, even if the owner still has title?

The Supreme Court of Canada released its decision in Annapolis Group Inc v Halifax Regional Municipality, 2022 SCC 36. The case helpfully clarifies the test for “constructive taking” of private property — where a municipality regulates land, for its own advantage, in a way that deprives the owner of all reasonable or economic uses of its land. The Supreme Court affirmed that in certain circumstances, landowners are entitled to compensation for “constructive taking” even if the state does not take title.

 The basic facts of the case are as follows. Annapolis, a development company, acquired 965 acres of land in the 1950s with the intention of securing development rights and re-selling the Land at a profit. In 2006, Halifax adopted a planning strategy to guide land development in the municipality, reserving a portion of Annapolis’ Land for possible future inclusion in a regional park and zoned the land as “Urban Settlement” and “Urban Reserve.” Halifax would have to adopt a resolution authorizing service development of the lands before they could be developed.

 Starting in 2007 Annapolis attempted to develop the land, but ultimately, by resolution in 2016, Halifax refused to initiate the secondary planning process required for such development. Annapolis sued, alleging the land had been “constructively taken” and other causes of action.

Halifax sought summary dismissal of the “constructive taking” claim. The motion judge dismissed the motion — in other words, the motion judge thought Annapolis had a chance at success and that a full trial was required to assess the claim.

 Halifax appealed. On appeal, the Nova Scotia Court of Appeal held that Annapolis’ constructive taking claim had no reasonable chance of success because Halifax did not “acquire” a beneficial interest in the lands — the lands were not actually taken from Annapolis and acquired by Halifax; Halifax just regulated them. The claim was dismissed by the Court of Appeal.

In a 5-4 split, the Supreme Court restored the motion judge’s decision that a trial was required to determine the issue. Five Supreme Court Justices found that the Court of Appeal had erred. The test for constructive taking did not require that title to the land actually be taken from an owner and acquired by the state. Rather, a “taking” is a forcible acquisition of privately owned property for public purposes, either in the form of “constructive taking” — effective expropriation or appropriation through regulation — or formal expropriation by acquiring title.

 To be clear, not every instance of regulating the use of private property will amount to constructive taking. Public authorities may validly regulate land for a variety of reasons, and regulation alone will not mean that a landowner is entitled to compensation. There must be “something more” beyond limiting use or reducing the value of the property.

 So where is the line? When does a public authority’s action cross from valid regulation into “constructive taking” that requires compensation? The Supreme Court clarified that the test is as follows:

1. Did the public authority acquire a beneficial interest in the property or flowing from it (i.e. an advantage)?
2. Did the public authority’s action remove all reasonable uses of the property?

 Again, the land owner does not have to show that the public authority actually acquired title or a proprietary interest in the land. This test focuses on effects and advantages. If the public body derived an advantage from the property while removing reasonable uses from the landowner, the landowner must be compensated.

 The Supreme Court, therefore, affirmed that landowners have a common law right to compensation when this two-part test is satisfied. Justice and fairness demand that where a public authority acquires an advantage from private land, removing reasonable uses of that land from the landowner, the landowner is entitled to compensation.