Through a new municipal law case, St John's (City of) v Lynch, 2024 SCC 17 [Lynch], a unanimous Supreme Court of Canada clarified how fair market value is to be assessed in situations where a municipality constructively expropriates land. Moving forward, municipalities should take note of the principles set out in Lynch to help ensure they fairly compensate landowners in situations of constructive expropriation.
The facts in Lynch are as follows. The landowners owned land within the City of St. John (the "City") that was on the Broad Cove River watershed (the "Land"). The Land was used for the City's local water supply, making it subject to The City of St. John's Act (the "Act") and the City's Development Regulations.
Since the 1990s, the landowners made numerous attempts to develop the property. The City, however, refused to allow the developments proposed by the landowners. In 2013, the landowners made an application to develop a residential subdivision on the Land. However, the City rejected that application too because the Development Regulations limited the uses of the Land to discretionary agriculture, forestry, and public utility.
Following the 2013 rejection, the landowners applied to the courts for relief. The landowners argued the City constructively expropriated the Land by, amongst other things, not allowing them to develop the Land. The Newfoundland and Labrador Court of Appeal agreed and declared the City constructively expropriated the Land. With this declaration in hand, the landowners filed a claim for compensation.
By the time the matter reached the Supreme Court of Canada, the overarching issue was how compensation for the constructive expropriation should be assessed. This included consideration of whether the fair market value of the Land should be determined based on how the landowners wanted to develop the Land (as a residential development), or based on the legislated restrictions that applied to the Land (uses being limited to discretionary agriculture, forestry, and public utility).
In determining this issue, the Supreme Court noted that a key factor was whether the legislated restrictions were made with a view to towards expropriation or whether they were an independent enactment. In assessing the purpose behind the legislated restrictions at issue, the Supreme Court said the purpose was to prevent the pollution of the City's water supply, not to directly target the Land. The Supreme Court also said the legislated restrictions were an independent enactment not passed with a view towards expropriation. As such, the Supreme Court held the fair market value assessment for the Land needed to account for the fact that development of the Land was limited to discretionary agriculture, forestry, and public utility uses.
Key takeaways for municipalities
- A municipality can expropriate land intentionally through a legislative scheme, or constructively. Constructive expropriation can occur.
- When an expropriation occurs, including a constructive expropriation, the landowner is entitled to fair compensation.
- Land use and zoning restrictions that impact market value are normally accounted for when determining the fair market value, unless the change in market value results from the expropriation scheme itself.
- Zoning designations that exist independently of an expropriation scheme should be considered when determining the fair market value of land.
- A municipality cannot use its zoning regulations to decrease the value of land before expropriation. A municipality cannot receive a premium for acquiring land in the public interest.
- When land use restrictions are enacted as part of a municipality-wide policy, such that they do not target specific properties, this can signal that the restriction is an independent enactment that was not made with a view to expropriation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.