A “taking” is a forcible acquisition by the state of privately-owned property for public purposes. A taking can either be de jure (i.e., a formal taking, by, for example, by taking title of the land) or de facto (i.e., effective appropriation by a public authority exercising its regulatory powers). Owners whose land has been subject to a taking are entitled to compensation. The Supreme Court of Canada (SCC) set out the test for a de facto taking in Canadian Pacific Railway v. Vancouver (City), 2006 SCC 5 (CPR). A de facto taking occurs where there has been: (1) acquisition of a beneficial interest in the property or flowing from it, and (2) removal of all reasonable uses of the property (CPR at para 30).
In Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36 (Annapolis v Halifax), a 5-4 majority of the Supreme Court clarified that a de facto taking — or, as the majority preferred to call it, a “constructive taking” — of private property by the state does not require actual acquisition of a proprietary interest. Instead, the inquiry focuses on whether the state has, in effect, obtained an “advantage” from the property.
The appellant, Annapolis Group Inc., owns 965 acres of forested land in the Halifax area, which it hopes to eventually develop and sell. In 2006, the respondent, Halifax Regional Municipality, adopted a 25-year “Regional Municipal Planning Strategy” for land development. This municipal strategy reserved the Annapolis Lands for possible future serviced development, subject to Halifax approving a “secondary planning process.” Some of the Annapolis Lands were also reserved for potential inclusion in a regional park. Starting in 2007, Annapolis made attempts to develop the Lands; however, in 2016 Halifax adopted a resolution refusing to initiate the secondary planning process.
Annapolis Group Inc. (Annapolis) sued Halifax, claiming a constructive taking, misfeasance in public office, and unjust enrichment. According to Annapolis, Halifax was promoting the Annapolis Lands as a public park. Annapolis argued that Halifax had improperly used its regulatory powers to effectively seize the Lands for use as a public park, while avoiding having to acquire the Lands or pay Annapolis any compensation.
Halifax brought a motion for partial summary judgment, seeking dismissal of Annapolis’ constructive taking claim. The motion judge dismissed the motion and held that Annapolis had raised genuine issues of material fact. On appeal, the Nova Scotia Court of Appeal set aside the motion judge’s order, concluding that Annapolis’ claim had no reasonable chance of establishing a constructive taking, because it required the Annapolis Lands to “actually be taken” from Annapolis. Annapolis was granted leave to appeal to the Supreme Court of Canada.
The majority SCC decision
The majority (Côté and Brown JJ. (Wagner C.J.C. and Moldaver and Rowe JJ. concurring)) held that the Court of Appeal erred in holding that constructive taking requires that land be actually taken from an owner and acquired by the state. According to the majority, a “beneficial interest in the property or flowing from it” (the first part of the CPR test) does not require the state to actually acquire a proprietary interest. Rather, it is enough if the state, in effect, obtains an advantage from the property (at para 38).
An “advantage” could be demonstrated by, for example, permanent or indefinite denial of access to the property; the government’s permanent or indefinite occupation of the property; regulations that leave a rights holder with only notional use of the land, deprived of all economic value; or confining the uses of private land to public purposes, such as conservation, recreation, or institutional uses such as parks, schools, or municipal buildings (at para 45). However, the majority cautioned that not every regulation over the use of property amounts to a constructive taking. Governments and municipalities can validly regulate land in the public interest without effecting “takings” (at para 19).
The second part of the CPR test requires the removal of all reasonable uses of the Lands. Halifax argued that Annapolis’ reasonable uses of its Lands had not changed as a result of the municipality’s refusal to up-zone them. The majority rejected this view, holding that “all reasonable uses of land may be shown to have been eliminated where a permit needed to make reasonable use of the land is refused, such that the state has effectively taken away all rights of ownership” (at para 72).
The majority also found that evidence of the state’s intention can support a constructive taking claim. According to the majority, while a public authority’s intention is not an element of the constructive taking test, the objectives pursued by the state may provide some evidence of constructive taking (at paras 52 and 53). Finally, the majority noted that it remains open to governments to immunize themselves from liability by enacting legislation that clearly expresses the intention to effect takings without paying compensation (at para 22).
The majority concluded that there were material facts to be determined in this case, such as whether Halifax was promoting the Annapolis Lands as a public park and whether Halifax had eliminated all reasonable uses of the lands (at para 64). Therefore, the appeal was allowed, and the decision of the motion judge was restored, allowing Annapolis’ constructive taking claim to proceed to trial.
The dissent (Kasirer and Jamal JJ. (Karakatsanis and Martin JJ. concurring)) was critical of the majority’s interpretation of “beneficial interest in the property or flowing from it” as encompassing any “advantage” accruing to the public authority. The dissent expressed concern that the much broader notion of an “advantage” will significantly expand the potential liability of public authorities when regulating land use in the public interest (at paras 85, 115). According to Kasirer and Jamal JJ., the majority’s reformulation of the acquisition requirement “throws into question” the settled law that a municipal authority’s refusal to up-zone land is not a de facto taking and “risks radically changing the complexion of municipal planning law by providing, in like up-zoning contexts, a windfall to developers who speculate at municipal taxpayers’ expense” (at paras 91 and 115).
The dissent also critiqued the majority’s view that a public authority’s “intention” is a material fact in a constructive taking claim. According to the dissent, the material facts should concern only the effects of the public authority’s regulatory activity, not its intention (at paras 86, 119).
Annapolis v Halifax is the most significant update to the law of expropriation since CPR. Some important takeaways from the decision include:
- Under the CPR test, “acquisition of a beneficial interest” does not require land to actually be taken from an owner by the state. Instead, “beneficial interest” is to be broadly understood as an “advantage.”
- In most cases, a public authority will not benefit from a refusal to up‑zone vacant land. To meet the first part of the CPR test, some “advantage” must flow to the state.
- On its own, a refusal to up-zone will not generally remove all reasonable uses of vacant land. However, all reasonable uses of land may be shown to have been eliminated where a permit needed to make reasonable use of the land is refused, such that the state has effectively taken away all rights of ownership.
While the majority in Annapolis was careful to emphasize that not every instance of land use regulation amounts to a constructive taking, the majority’s reasons have seemingly broadened the circumstances in which a constructive taking can be made out. It remains to be seen whether the dissent’s concerns about the effect of the majority’s decision on the ability of public authorities to regulate land in the public interest will materialize.
For more information, please reach out to the authors, Mélanie Power and Kathryn Gullason.
Special thanks to articling student Cindy Chen, who assisted in preparing this post.