Pre-Expropriation Interest – “Productive Use”

AgriLaw – May 2016

The prospect of possible expropriation of land for public use may significantly interfere with the owner’s use of the land pending expropriation.  Where the expropriating authority eventually completes the expropriation, is the owner in such circumstances entitled to interest on the value of the land preceding its expropriation?

In a recent decision of the Ontario Divisional Court, a regional school board appealed a decision of the Ontario Municipal Board awarding a landowner pre-expropriation interest from the date the municipality approved a draft plan setting aside a portion of the lands for a possible school site.  The expropriation of this land was not in fact completed until six and a half years later resulting in an additional interest cost to the school board of between $600,000 and $700,000.  In the intervening period, the landowner had proceeded with residential development of the lands in four stages but none of this development included the lands eventually expropriated.  Under the Ontario Expropriations Act, a landowner is entitled to interest at a statutory rate “calculated from the date the owner ceases to reside on or make productive use of the lands.”

In considering the school board’s appeal, the appellate court commented:

“[The Expropriation Act] ties the commencement date for awarding interest … to a date related to the loss of the use of the asset …

“… the School Board has not provided any evidence or jurisprudence from which to conclude that the Legislature intended to set the interest at that rate for any purpose other than to compensate the landowner for the interest it could earn on the capitalized value of the lost asset from the date the owner lost the use of it …

“Implicit in [the Expropriation Act] is the notion that the loss of use that triggers the payment of interest must be caused by the eventual expropriation of the land in question”.

In dismissing the appeal, the appellate court rejected the school board’s positon that the relevant date for loss of use for the purpose of calculating interest is only where there is “loss of all hope for development”.  Referring to earlier case authority, the appellate court determined that the relevant date is when “no prudent owner of the Claimant’s lands would have counted on, planned or made preparations for re-development.”  The appellate court stated:

The ‘loss of all hope for development’ and ‘no prudent owner’ tests are not two sides of the same coin, in my opinion.  As counsel for the School Board conceded in argument, the point at which no prudent owner would spend time or money developing lands that might possibly be expropriated is not necessarily the same point at which all hope for development is lost.  There may be situations where no prudent owner would continue to try to develop the property because of the potential for expropriation, but where all hope for further development is not lost.  Because the test for commencement of interest under [the Expropriation Act] is based on causation, as I’ve explained, it is at this earlier point in time that interest begins to accrue.

“In my view, the board member applied the correct test by seeking to determine the earliest date at which the potential for expropriation prevented the use of the lands, either because the Municipality would not permit further development or because it would not have been for prudent for [the landowner] to spend money for that purpose.  In the present case, the distinction between these two potential triggering events is inconsequential.  The board member found that both events occurred on the date that [the development plan] received draft approval.  As I will explain, I believe that finding was reasonable.”

Expropriation interest may pre-date the date of eventual expropriation.  Interest will begin to accrue when it is no longer prudent for the landowner to pursue their intended use of the land because of the pending expropriation.