At a glance (5 minute read)

• The SCC clarified what is meant by a beneficial interest and expanded the test to be broadly interpreted to mean an advantage flowing to the government. 
• When a government enacts regulations that take away an owner’s ability to benefit from their property, it’s now presumed the government is getting some type of advantage. 
• This puts the emphasis on the effect of the government’s measures and not on what the government gets.

Government authorities have the power to restrict the rights of property owners and to expropriate property.

Now, an October 21, 2022 Supreme Court of Canada (SCC) decision in Annapolis Group Inc v. Halifax Regional Municipality has clarified the test for de facto expropriation, also known as constructive taking and expropriation by regulation.

The case began in 2006, when the Annapolis Group Inc. (Annapolis) which owns 965 acres in Halifax Regional Municipality (Halifax), proposed to develop its property located in a mixed zoning area that didn’t allow for development. 

In 2006, Halifax had adopted the Halifax Regional Municipal Planning Strategy to guide land development over a 25-year period. That strategy reserved a portion of Annapolis’ lands for possible future inclusion in a regional park and zoned the lands as urban settlement, allowing urban forms of development. It also designated it as urban reserve, which allowed the land to be developed beyond the 25-year period.

While the designations envisioned future service development, Halifax first had to adopt a secondary planning process authorizing it.

Beginning in 2007, Annapolis unsuccessfully attempted to develop its lands, held back by Halifax’s lack of a secondary planning process and an amendment to the land use bylaw. 

In 2014, Halifax adopted a revised planning strategy, which maintained the urban settlement and urban reserve designations. The Annapolis lands zoning didn’t change.

In a 2016 resolution, Halifax refused to initiate the secondary planning process or to up-zone the Annapolis lands.

Annapolis sued Halifax for $120 million de facto expropriation, claiming the municipality:

• had acquired a beneficial interest in the 965 acres and had a motivating interest by encouraging and allowing the public to use the lands as a park for recreation and posting signs on the property with Halifax’s logo; and
• was depriving Annapolis of all reasonable or economic uses of its land.

Halifax went to court to get the claim dismissed. The motions judge, however, found Annapolis’ claim of constructive taking raised serious issues that required a trial.

The case went to the Nova Scotia Court of Appeal which overturned the motions judge and dismissed Annapolis’ constructive taking claim, finding Halifax hadn’t:

• removed all reasonable uses of the land; or
• taken an interest in the Annapolis lands for itself, noting that the motive of an expropriating authority isn’t a factor in the analysis of a de facto expropriation.

The Court of Appeal came to this decision by applying the two-step test described in Canadian Pacific Railway v Vancouver (City), 2006 SCC 5, known as the CPR test, which held that a de facto taking requires:

1. an acquisition of a beneficial interest in the property or flowing from it; and
2. removal of all reasonable uses of the property. 

The appeal court noted that Halifax’s intended use for the lands as a park wasn’t relevant to the constructive taking analysis and Annapolis’ case didn’t have a reasonable chance of successfully establishing, as required by the CPR test, that Halifax had a beneficial interest in the land.

Annapolis appealed to the SCC, which agreed to hear the case.

Annapolis’ core claim was that Halifax’s refusal to up-zone the Annapolis lands to permit residential development, along with Halifax acting deliberately to secure the advantage of using the lands as a public park, constituted a de facto taking.

The SCC revisited the CPR test for de facto expropriation or constructive taking, noting the Nova Scotia Court of Appeal had erred.

The SCC clarified that Annapolis wasn’t required to show Halifax had obtained a formal proprietary, beneficial interest in the property, and instead only demonstrate:

• Halifax obtained an advantage or beneficial interest in the lands; and
• Halifax’s land use bylaw eliminated all reasonable or economic uses of the property.

The SCC found the Nova Scotia Court of Appeal had erred by holding that Halifax’s intention is irrelevant to applying the second part of that analysis. 

As a result of the SCC decision:

• property owners can have a claim for de facto or constructive taking when government regulation and land use decisions deprive owners of reasonable uses of their property; and
• government authorities can’t argue the law requires a transfer of a formal property interest from the property owner to government to establish a constructive taking.

Compensation can be limited by statute.

There are two forms of expropriation:

1. de jure taking, when the government formally acquires title or possession of the property through legislation; and
2. constructive, or de facto, taking, where there is an effective appropriation by a government authority exercising regulatory powers that significantly impair an owner's use and enjoyment of property.

Read the Supreme Court decision.

Watch a Canadian Justice video on the Supreme Court decision (22-minute video).