Recent SCC guidance on when regulation of land becomes taking of land: Annapolis Group Inc. v. Halifax Regional Municipality

“Constructive taking,” “regulatory taking” or “de facto expropriation” describes the situation where the regulation of land by a public authority (such as local governments) has effectively amounted to a taking of that land.

In Annapolis Group Inc. v. Halifax Regional Municipality, the Supreme Court of Canada considered the line between regulation that does not amount to a taking (where compensation is generally not payable) and regulation that amounts to a constructive taking (where compensation is generally payable, unless legislation expressly provides otherwise). The court split 5-4, with the majority adopting an approach that the minority characterized as a significant expansion of the potential liability of public authorities when regulating land.

Summary of facts

The 965 acres of land at issue in this case had been zoned since 2006 in such a way that serviced development was not permitted to occur unless the Halifax Regional Municipality authorized a secondary planning process and an amendment to the applicable land use by-law. By resolution dated September 6, 2016, Halifax refused to authorize the planning process. The owner of the land, Annapolis Group Inc., commenced this proceeding in response.

Annapolis alleges that Halifax’s refusal constituted a constructive taking, misfeasance in public office, and unjust enrichment. Most materially, Annapolis claims that by refusing to authorize the required planning process, Halifax had effectively acquired Annapolis’ land for use as a public park, without paying compensation.

Decision

Halifax brought pre-trial motion for a summary dismissal of Annapolis’ constructive taking claim, and this recent Supreme Court of Canada decision was the final decision in that pre-trial process. Ultimately, the majority of the court concluded that Annapolis’ constructive taking case should not be summarily dismissed.

The court confirmed that the two-part common law test for a constructive taking continues to require:

• that the public authority has acquired a beneficial interest from the property or flowing from it, and
• the public authority’s action has removed all reasonable uses of the property.

The main issue in this case was how “beneficial interest” from the first element should be interpreted. The Nova Scotia Court of Appeal had concluded that the first element required there be an acquisition of an interest in the land (a proprietary interest) by Halifax.

The majority of the court disagreed. It held all that is required to meet the first element of the test is there be an “advantage” flowing to the public authority. The majority directed that the existence of such an advantage should be assessed case-by-case, with a focus on effects. Case-specific factors courts should consider include, but are not limited to: (a) the nature of the government action; (b) the nature of the land and its historical or current uses; and (c) the substance of the alleged advantage. The majority also held that while it is not necessary or determinative, the public authority’s intention may be a material fact to be considered.

The four dissenting justices wrote that a departure from an approach where a proprietary acquisition is required “dramatically expands the potential liability of municipalities engaged in land use regulation in the public interest and throws into question the settled law that a refusal to up-zone is not a de facto taking” (at para. 115).

The majority responded to that concern by, among other things, noting that a refusal to up-zone would not provide an advantage to the public authority in most cases (thus failing to meet the first element) and would not generally remove all reasonable uses of the property (thus failing to meet the second element). The majority confirmed that under the second element of the test, a constructive taking claim can be defeated “by showing a single reasonable use of the property” (at para. 75).

The majority also confirmed it remains open to the provincial legislatures to expressly provide immunity from an obligation to pay compensation for constructive takings in the public interest. In some jurisdictions, this immunity does already exist for some types of regulatory activities that could constitute a constructive taking.

What comes next?

The merits of Annapolis’ claims, including its constructive taking claim, have not yet been determined by a court. As such, this will remain a case to watch as it proceeds to trial. In this case and in others, the issue of what will constitute an “advantage” sufficient to make out a constructive taking will need to be worked out by the courts as they apply the majority’s guidance from Annapolis to the particular facts before them.

It remains to be seen whether Annapolis will have the effect of increasing the number of successful constructive taking cases. While such claims may not ultimately be successful, this case arguably signals that the courts may be more receptive to claims arising from land owners due to regulatory action by public authorities.