When Does Land Use Regulation by Government Become So Onerous That It Amounts to What Is, in Effect, a Taking of Land?

The Supreme Court of Canada has grappled with what constitutes “de facto expropriation” or “constructive taking” in a number of cases.

Most recently, on October 21, 2022, a 5-4 majority of the Supreme Court of Canada in Annapolis Group Inc. v Halifax Regional Municipality, 2022 SCC 36 (“Annapolis”), affirmed the two part test to establish a constructive taking set out by the court in Canadian Pacific Railway Co. v Vancouver (City), 2006 SCC 5 (“CPR”). However, the minority judgment in Annapolis disputes that the CPR test has been affirmed by the majority, arguing rather that it has been inappropriately broadened.

This test for constructive taking, as established in CPR and affirmed/modified in Annapolis, provides that for there to be a constructive taking, the reviewing court must decide: (1) whether public authority has acquired a beneficial interest in the property or flowing from it (i.e. an advantage); and (2) whether the state action has removed all reasonable uses of the property (the “CPR Test”). In affirming the CPR Test, the Supreme Court clarified that acquiring a “beneficial interest” does not require an actual acquisition, but can instead be understood more broadly as an advantage flowing to the state.

What is “constructive taking”?

Before summarizing Annapolis it is important to explain the difference between a “constructive taking” and a de jure taking. A de jure taking is where the government, often a municipality, takes land from a private owner for a public purpose without the owner’s consent, and provides them with compensation (also known as formal expropriation). “Constructive takings” (also called “de facto expropriations” or “regulatory takings”) are where the government does not directly acquire the property from the owner, but through regulation or other means, effectively deprives the owner of the benefit or use and enjoyment of its property in a substantial and unreasonable way.

Case Background and Facts

Over the course of several decades, the Annapolis Group acquired a large parcel of land in Halifax (“the Lands”), with the intention of obtaining development rights, and then re-selling the property at a future date. The City of Halifax (“Halifax”) adopted a planning and regulatory strategy that ultimately prevented Annapolis from proceeding with development. When Halifax refused to initiate a further planning process, Annapolis sued, claiming that Halifax had “constructively taken” the Lands without compensation.

Halifax sought summary dismissal of the portion of Annapolis’ claim related to constructive taking, which was denied by the motions judge. On appeal, the Nova Scotia Court of Appeal overturned the motion judge’s decision and granted Halifax partial summary dismissal on the basis that Annapolis had no realistic chance of meeting the CPR Test.

On appeal to the Supreme Court, the Majority held that Annapolis’ claim of constructive taking should be allowed to go to trial on the basis that the Court of Appeal misapplied the CPR Test. Specifically, the Supreme Court held the Court of Appeal was incorrect on two points: (1) in its interpretation of the first part of the CPR Test as requiring Annapolis to show that Halifax had actually taken ownership of the Lands; and (2) in holding that Halifax’s intention is irrelevant to applying the second part of the CPR Test. As noted above, the court split almost evenly, 5-4.

A “Beneficial Interest” in Land

The Nova Scotia Court of Appeal held that there could not have been a constructive taking because Halifax had not actually acquired a “beneficial interest” in the lands, in the technical legal sense. The Supreme Court disagreed and held that requiring a constructive taking to also involve the actual taking of the property “collapses the distinction between constructive (de facto) and de jure takings...” Instead, a “beneficial interest” is to be broadly understood as an “advantage”, and therefore the interest acquired by the state can fall short of an actual acquisition by the state to satisfy the first step in the CPR Test. In this way, the Court focuses on the effect of the state action, consistent with the greater arc of Supreme Court jurisprudence in other areas such as human rights law, where the adverse effects of impugned action are the focus, and not the party’s expressed intent. As the CPR Test focuses on effects and advantages, the Court notes, “substance and not form is to prevail.”

The Majority then goes on to instruct courts to conduct a “realistic appraisal” of the matters when assessing whether a constructive taking has occurred, including but not limited to:

1. The nature of the government action, notice to the owner of the restriction at the time the property was acquired, and whether the government measures restrict the uses of the property in a manner consistent with the owner’s reasonable expectations;
2. The nature of the land and its historical or current uses; and
3. The substance of the alleged advantage.

Intention

While the Court ruled that the intent of the parties is not an element of the CPR Test, intention is not entirely irrelevant either, and this will tend to favour property owners. Where proven, a public authority’s intent may still be material evidence that supports a finding that the private owner has lost all reasonable and economic uses of the property. At the same time, failure to establish that the municipality intended to constructively take the property will not detract from a claim. Evidence that a public authority did not intend to constructively take the lands will not shift the test in their favour if the effect and advantage show that there was a constructive taking.

Application in Annapolis

The Supreme Court concluded that “Annapolis is entitled to adduce evidence at trial to show that, by holding Annapolis’ land out as a public park, Halifax has acquired a beneficial interest therein; and that, because Halifax is unlikely to ever lift zoning restrictions constraining the development of Annapolis’ land, Annapolis has lost all reasonable uses of its property.”

Conclusion

In Annapolis, the Supreme Court was asked to clarify the circumstances in which state regulation of land use may constitute a “constructive taking” of private property. Notwithstanding its insistence that it has merely affirmed the CPR Test, the Majority decision has arguably made the task of satisfying the first part of the CPR Test less onerous for those claiming “constructive taking”. Whether or not this leads to an increase in successful claims of constructive taking will be clear in the years to come.