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Turner Drake & Partners Ltd.
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Tel.: (902) 429-1811
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# Wednesday, September 18, 2019

Photo Credit: iStock Photo AntonioGuillem

It comes like a bolt out of the blue; the municipality wants to purchase your property so that they can widen the highway. Often times they intend to seize just part of your property: that front yard you so carefully nurtured to provide a fragile barrier between your home and the busy street is destined to become another traffic lane. Many owners have received this type of letter, more will receive similar letters in the future (if not from the municipality then the province, federal government or any organisation with expropriation powers such as a water authority, power utility, Crown Corporation). Sometimes the purpose of the exercise may not be clear, other than the fact that your property, or part of it, is required for the public good. During our early days in business in the 1970s some provinces, such as Nova Scotia, did not always inform owners that they had taken title to their property… the unfortunate owner only discovered such was the case when they enquired why they were no longer getting a property tax bill! Often times, municipalities such as the City of Halifax, did not advise the owner that they required the property, or part of it, content to leave it to the appraisal firm to break the news when they arrived on site to conduct their inspection. (We fired the City of Halifax as a client after arriving on site to find the property owner had not been informed about the expropriation; his wife was dying of cancer in the bedroom). Legally this is still the case in many provinces in Atlantic Canada; the acquiring authority does not have to inform you that you no longer own your property for several months after they have filed the expropriation document (Nova Scotia 90 days, Prince Edward Island 60 days). Thankfully in practice, that at least has changed, but the unfortunate reality is that property owners rarely have legal grounds to prevent the authority from purchasing their property. In other countries, property owners have to be notified that their property is to be expropriated and have the right to object that the acquisition is not really required for the road widening, or other scheme that is its raison d’etre, or that the scheme itself is not required to serve the public good. But this avenue is rarely available in Canada, or indeed in North America. (In this Region, proposed expropriations under the Federal and New Brunswick Expropriation Acts are the exception that prove the rule. Each require the acquiring authority to notify the property owner before they expropriate and provide a public enquiry to hear objections. However the Federal Act is really window dressing, the public hearing a mechanism to “vent”; the New Brunswick Act however does require the Expropriation Advisory Officer to issue a decision as to the necessity for the expropriation and whether the scheme is consistent with the public interest. If your property is located in Nova Scotia, Newfoundland or Prince Edward Island you have no say in the matter at all!. Even if subsequent events disprove the “valid public use” test, owners have no right to recover their property (the ill-fated Mirabel Airport in Quebec is an example… the original owners, or their descendants, were eventually offered 300 hectares of the 38,800 hectares originally expropriated, but only after a long, bitter and very public fight). So what do you do when you receive “the letter”, particularly if it does not mention “expropriation” and is instead a civilised attempt to negotiate compensation before the municipality seizes your property by force?

 

We live in an age when most of us have lost faith in our institutions, the civil service, politicians and the private sector. That trust has been eroded over the past two decades by greed, politicians who no longer adhere to acceptable forms of behaviour, the shrill cacophony of social media seamlessly blending fact with fiction, and an emancipated Fourth Estate no longer able to defend the “little guy”. The adage “you can’t fight city hall” too often engenders a feeling of helplessness, particularly if the acquisition involves your family home, the sanctuary you hold inviolate; or your business, a livelihood born of blood, sweat and tears. Cheer up, not all is bad, the press and electronic media may no longer have the heft they once did, but you do have the protection of an excellent and independent judicial system. Why is that important? The letter you received from the acquiring authority may not have mentioned “expropriation”, and the words “judicial system” may raise the spectre of long and expensive litigation in which you, the little guy, are pitted against an acquiring authority with much deeper pockets. But bear with us. Even if your property has not yet been expropriated the negotiations will be framed by the Expropriation Act because the acquiring authority has to rely on it if they cannot reach a settlement with you by negotiation. Now, it has to be said, the Expropriation Acts do not represent the legal community’s finest hour. The Nova Scotia and New Brunswick Expropriation Acts, each appear to have been written in a hurry by somebody suffering from a hangover. The Newfoundland and Prince Edward Island Expropriation Acts have a distinct feudal flavour, drafted in the days when peasants lived in huts of mud and wattle, addressed their betters with a touch of forelock, eyes downcast and a mumbled “zur” (or that, at least, appears to have been the assumption of the persons drafting them). In fact the PEI Act doesn’t even attempt to lay out the framework for compensation, happily delegating it to the court system, undoubtedly in the pious hope that the judge would have a clue what it was all about, because the person drafting the legislation sure as hell didn’t! Only the Federal Expropriation Act can claim lucidity, and even it overlooks the fact that businesses occasionally occupy real estate and are adversely impacted if it is whipped away from under their feet. But, and this is the good news, none of this really matters very much because there are some good Expropriation Acts elsewhere and a body of case law and appraisal practice that have established well proven methodologies for identifying and calculating compensation. The courts have embraced the principle that, since expropriation is the exercise of police power by the state (or its surrogate), the benefit of the doubt lies with the unfortunate property owner and they have not been shy in ensuring that the latter does not suffer financial loss as a result.

 

Expropriation

 

So what is “Expropriation” and why should you care? Expropriation is the seizure of your property, or a part of it, by the government, or a body authorised by them, for public use or benefit. The bad news, as we have already mentioned, is that you cannot object to it unless you live in New Brunswick or the property is being acquired under the Federal Expropriation Act… the good news is that you are entitled to be fairly compensated for your loss. The initial approach from the acquiring authority advising you that they want to purchase part or all of your property will rarely mention the word “expropriation”. Whilst this may be an attempt to spare your feelings by appearing to be non-threatening you should be cautious. We no longer have a strong media but, as mentioned, we do have an excellent court system… and they are on your side. While you will probably never need to go to court you should avail yourself of the protection afforded by our judicial system. Your rights to fair and proper compensation are codified in the relevant Expropriation Act (sort of) but you will not be so protected unless (1) your property has been officially expropriated or (2) the acquiring authority has agreed in writing to proceed as though you had been expropriated i.e. that they will afford you all of the compensation you would have been entitled to under the Expropriation Act had your property been expropriated. So this is Step One, make sure that the acquiring authority is prepared to offer you all of the rights and privileges afforded by the Expropriation Act and get that commitment in writing. If they will not provide it, refuse to negotiate until they expropriate your property.

 

Compensation

 

It is a fundamental principle of Expropriation that the acquiring authority is required, as far as monetarily possible, to put you in the same position after the acquisition as you were before it. Most court decisions have interpreted that principle as giving you the benefit of the doubt, short of plundering the public purse. The federal and some provincial Expropriation Acts acknowledge that the negotiations are unevenly balanced in that the property owner faces an acquiring authority with much deeper pockets and resources. Some Expropriation Acts attempt to level that playing field by requiring that the acquiring authority be transparent in their calculations of compensation, and some give the property owner access to their own professional advice if they desire it, at the acquiring authority’s cost. The Federal Act unambiguously provides that the property owner is entitled to professional advice at the Fed’s cost, the Atlantic provinces are more parsimonious, sometimes offering it if the property owner wins in court (Nova Scotia, New Brunswick, Newfoundland), or not considering it worthy of mention (Prince Edward Island). Nova Scotia limits the amount they will pay in legal costs and appraisal fees, something they are now allowed to do in their Act, so the unfortunate property owner has to pick up the rest of the cost, or find a cheap lawyer or appraiser. A word of caution: the devil is in the details and some acquiring authorities do not play by the rules established by the relevant Expropriation Act, case law or appraisal practice. It is essential to have an understanding of your rights under the Act, the type of compensation and how it is calculated. Each province in Atlantic Canada has its own Expropriation Act and each municipality, or other body with expropriation powers, is governed by that Act. The federal government also has its own Expropriation Act. Broadly speaking the Acts are similar, in practice if not content, and the methodology for calculating compensation is identical even when it is not specified in the legislation.

 

Negotiations

 

The acquiring authority may employ their own staff to negotiate, or will contract it out to a firm such as ourselves (we also negotiate on behalf of property owners). Our article “Land Agency… a respectable profession” elsewhere in this Blog details our approach when we are representing the acquiring authority: you should expect nothing less. The act of expropriation, or its anticipation, obligates the acquiring authority to fairly compensate you for your loss and that means they must engage in “principled negotiation” rather than attempt to settle the compensation claim for the lowest amount. If you find that you are not comfortable negotiating, insist that the acquiring authority pay for your professional representation. Whether the Act specifically allows for it or not, it has been our experience that acquiring authorities want to reach agreement without the adverse publicity of a formal expropriation, much less the agony and expense of a court action. They recognise that some property owners need professional assistance and that this may facilitate an agreement. If the acquiring authority is attempting to negotiate compensation before they formally expropriate, particularly if your property comprises woodland or agricultural land, the acquiring authority may attempt to negotiate without commissioning an appraisal, using instead their knowledge of property values. There is nothing wrong with them so doing provided they are open and transparent about their compensation calculations and are able to validate them by reference to other property sales. However you can require that the acquiring authority provide you with a formal appraisal (they have to anyway if they formally expropriate) and you should insist on this if your property has buildings on it, is in an urban area, or if only part of your property is being acquired and the remainder is likely to be adversely impacted. Many Expropriation Acts (Federal, Nova Scotia, New Brunswick) require that the formal offer after expropriation has to be accompanied by an appraisal. The formal appraisal should meet, at a minimum, the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) www.aicanada.ca/about-aic/cuspap/ . Frankly CUSPAP is not the most rigorous standard in the world, it is not specifically directed at expropriation, and most appraisers (like most lawyers) are not sufficiently familiar or skilled in recognising and computing the various Heads of Claim. Do not accept any appraisal tendered by the acquiring authority at face value. Research the author of the appraisal report on the internet and check his/her reputation with a trusted professional advisor to verify that they are experienced in expropriation work. At a minimum they should be an Accredited Appraiser of the Appraisal Institute of Canada or a Member of the Royal Institution of Chartered Surveyors (Valuation) but neither qualification guarantees that they are experienced and knowledgeable in expropriation. Do not assume that the acquiring authority has already done the research and has chosen their appraiser on the basis of merit; the Federal Government and some provinces do so, but other provinces and many municipalities, Halifax Regional Municipality for example, simply select an accredited appraiser on the basis of cheapest cost. Some acquiring authorities will instruct the appraiser to limit the types of compensation (Heads of Claim) they consider in the appraisal and although the omissions may be listed in the appraisal report their significance can easily be overlooked. The Province of New Brunswick Department of Transportation and Infrastructure, for example, instruct their appraisers to ignore Injurious Affection and Special Economic Advantage, items which often constitute the bulk of the loss suffered by the property owner.

 

Heads of Claim – A Hitch Hiker’s Guide

 

A governing spirit of expropriation, or the negotiations which preclude it, should be that the property owner (and tenant if the property is rented) will not suffer financial loss as the result of losing all, or part, of their property. You will not be compensated for emotional loss arising, for example, from the upheaval in your life. If you are a property owner the types of loss and accompanying compensation will fall under some, or all, of the following Heads of Claim:

 

(1) Market Value of the interest acquired in the property.

(a) “Market Value” is defined differently in the various Expropriation Acts but essentially is the amount of money you would get for your interest in the property if it was sold on the open market. For example, if you occupy and own the freehold (fee simple) interest in a residence which is acquired in its entirety by the municipality, your compensation will equal the sale price you would have achieved had you sold the property of your own free will through a real estate agent. This can cause a problem if the Market Value of your property is lower than that of other properties in the neighbourhood since the cash you receive will not be adequate to purchase a similar home. In that instance you are entitled to additional compensation under the “Home for a Home” head of claim (see below). Unfortunately you will not be compensated for any “special” value your property may have to the acquiring authority over and above its Market Value.

(b) If the municipality only takes part of your property (typically part of your front yard in the case of a road widening), you are entitled to the Market Value of that portion of your property. Obviously calculating Market Value is somewhat problematic since bits of front yards are not typically sold on the open market. Its value will therefore be based on the sale prices of comparable vacant lots expressed on a square foot or other unit basis. You are also entitled to the value of any improvements such as lawns, flower beds, bushes, etc. … but not the emotional value you may have invested in nurturing them. If fences and steps have to be demolished the acquiring authority has to replace them. Sometimes the loss of a front yard is so extreme it renders the home unsuitable for continued owner occupation; it may be uninhabitable or suitable only as transient accommodation such as short term rental. In that event the owner should be able to substantiate the acquiring authority purchasing the entire property. The “Home for a Home” provision may then be relevant.

 

(2) Home for a Home

(a) If the property is occupied by the owner, as opposed to being rented, as a family home, you will be entitled to additional compensation if the Market Value of the property is inadequate to purchase a similar home in the neighbourhood. In this event your compensation will be based on the Market Value of similar homes for sale in the neighbourhood. What happens if there are none for sale? Whilst the compensation does not require that you remain in the neighbourhood it does get a little tricky if you do not have that choice. In the unhappy event that substitutes are not available you would be entitled to be compensated for the Market Value of the next best alternative.

(b) If the property is rented, a cottage, or anything other than an owner occupied family home, your compensation is restricted to Market Value even if you cannot purchase a similar property with it. The acquisition will also trigger tax liabilities which you did not contemplate until you intended to sell the property. It is our view that the impact of paying those taxes now, rather than deferring them for the future, is a valid compensable item.

 

(3) Disturbance

(a) When a property owner is forced to move out of their home there will be moving expenses, as well as items such as drapes for the new home. The acquiring authority is required to compensate the owner for these items. If it is not practical to estimate these costs some Expropriation Acts (Federal and Nova Scotia) provide an allowance instead of up to 15% of the Market Value. The New Brunswick Expropriation Act allows, in addition to moving expenses, 5% of the market value of the residential portion expropriated, to compensate for the cost and inconvenience of finding another residence. The other Acts do not place any value on the unfortunate property owner’s time.

(b) If the property contains a business the occupant will suffer a variety of losses. If the business has to relocate it will incur a number of costs: new stationery, informing customers, staff overtime packing and unpacking, new signage, etc. as well as the cost of the move itself. Whether the business moves or not, profits will usually be adversely impacted by the road widening scheme and/or the relocation. Trade once lost to competitors may takes years to recapture, may even be lost forever. Whilst all of the foregoing is compensable some Acts provide that compensation for loss of goodwill, where the business has relocated, can be deferred for the earlier of a year (Nova Scotia) or nine months (New Brunswick) after the relocation, or for three years (Nova Scotia) or two years (New Brunswick) after the expropriation. It is not clear when the business can expect to be paid if it does not relocate, but given that it has to prove its loss one imagines that this would be twelve months (Nova Scotia), or nine months (New Brunswick) after the road widening scheme is complete. Thus a business can struggle to survive during and after the road widening but cannot claim for its loss until later. Whilst the acquiring authority can agree with the business owner to waive the deferment it is our experience that such is not normally the practice. Business loss (goodwill) is not specifically mentioned in the Federal, Newfoundland or Prince Edward Island Acts but is a compensable item.

 

(4) Injurious Affection

(a) Where only a portion of the property is acquired, a common situation with road widening schemes, the balance of the land may be reduced in value because (1) the remaining property is less useful since it is smaller, a more awkward shape, or is severed from the main parcel and/or (2) the construction or use of the road on the land acquired adversely impacts the value of the remaining property. For example, it may no longer be possible to park a vehicle on the land remaining because it is now too small or of the wrong configuration. A residential property without parking is less valuable than a house with a driveway. The construction of the widened highway may render access to the property more difficult if traffic increases. The increased noise and loss of privacy in the home which results from it being closer to the highway will reduce its value. Or take a farm cut in two by a new highway. The farmland on the other side of the new road, particularly if it is limited access highway, will be considerably less valuable because it is no longer as accessible from the farm buildings. Farm fields impacted by the new highway may no longer be of optimum size and shape; drainage may be adversely affected too. In our experience Injurious Affection usually represents the vast majority of the loss sustained by the property owner, especially in residential properties impacted by road widening. The accepted method of calculating Injurious Affection is the “Before and After” method. This methodology is codified in the Federal and Nova Scotia Expropriation Acts. The property is valued as it existed prior to the acquisition and commencement of the road widening (Before Value); and then valued again on the assumption that the road scheme is complete (After Value). The difference between the Before and After values, minus the Market Value of the land acquired, is the Injurious Affection. The New Brunswick Expropriation Act provides that a claim for Injurious Affection has to be made within one year after the damage was sustained, otherwise it is barred.

(b) For housekeeping purposes some Expropriation Acts include Disturbance under Injurious Affection. This has no impact, other than to confuse matters, unless the acquiring authority has directed their appraiser to ignore Injurious Affection (a common practice with the New Brunswick Department of Transportation and Infrastructure).

 

(5) Special Economic Advantage

(a) If the property is owner occupied i.e. not rented, the owner may be able to claim for any special economic advantage arising out of, or incidental to, their occupation of the property to the extent that they have not been compensated under the other Heads of Claim. For example, if you or a member of your family is disabled, and the home has been adapted to meet their requirements with ramps, grab bars, wider doorways and hallways, stair lifts etc. you will be able to claim for the cost of these improvements.

(b) The same conditions apply with commercial property that has been adapted to suite the unique requirements of the business. It applies as well to property that has additional value because of its location, such as a woodlot proximate to the owner’s mill.

(c) Special Economic Advantage is specifically mentioned in the Federal, Nova Scotia and New Brunswick Act.

 

(6) Special Purpose Properties

(a) Some properties do not normally sell on the open market; churches, schools, hospitals, religious and charitable institutions are examples. If the property being acquired falls into this category and the owner has to relocate, they can base their compensation claim on the reasonable cost of creating a similar property (technically known as “the cost of equivalent reinstatement”). Even though the buildings on the property they are vacating may be old, the claim for compensation can be based on the cost of building a new, otherwise identical structure, plus the cost of acquiring a replacement site…. though some Acts (Federal, New Brunswick) attempt to claw back some of the compensation if the owner has improved their position.

(b) The Federal Act, cognisant no doubt that we are meant to be a secular society and less fearful for their immortal soul than the Provinces, do not restrict the qualifying properties to religious institutions and instead embrace all properties that do not normally sell on the open market.

 

(7) Professional Fees

(a) The Federal Act provides that the acquiring authority pay the legal, appraisal and other costs reasonably incurred in ascertaining a claim for compensation. The onus is on the property owner to ensure that the costs are reasonably incurred, not that they are reasonable.

(b) The Nova Scotia Act provides that the owner is entitled to be paid the reasonable costs necessarily incurred in ascertaining a claim for compensation but this is only triggered by an application to the Nova Scotia Utility and Review Board after negotiations have failed. However in practice they are compensable up to the date the acquiring authority makes their Offer to Settle (just before the start of the Board hearing) and are not conditional on the property owner winning their case. Reimbursement of costs incurred after the Offer to Settle are conditional on the outcome of the hearing. The province has recently placed a limit on the fees it will reimburse for legal and appraisal advice. The property owner will now have to fund the difference, or find a cheap lawyer and appraiser.

(c) The New Brunswick Act makes no provision for the reimbursement of professional fees unless the matter proceeds to Court. Reimbursement may be dependent on the compensation award.

(d) The Newfoundland Act provides that professional fees are only paid for proceedings before the Board and they are conditional on the outcome of the hearing.

(e) The Prince Edward Island Act has yet to acknowledge the necessity for professional advice or its role in protecting property owners.

 

(8) Betterment

(a) Where only part of the property is being acquired, the remaining property may increase in value as a result of the scheme for which the property was purchased. For example, land may be purchased for a highway intersection, with the result that the land remaining after the acquisition increases in value because it has development potential for a service station, hotel, shopping centre or other commercial use. This increase in value, known as “Betterment”, has to be offset against the compensation. Depending on the Expropriation Act, Betterment may be offset against the (1) total compensation [Newfoundland and Prince Edward Island] or (2) the land remaining after the expropriation [Federal, Nova Scotia, New Brunswick].

 

(9) Factors Not To Be Taken Into Account

(a) Anticipated use by the scheme for which the property was expropriated.

(b) A value established by reference to a transaction which occurred after publication of the intention to expropriate, or the actual expropriation if there was no published intention to expropriate.

(c) Any increase or decrease in value resulting from anticipation of the expropriation.

(d) Any increase in value resulting from the property being utilised for an illegal use.

 

(10) Heads of Claim Have To Be Consistent

(a) The Market Value of the land acquired has to be based on its existing use value if the costs of relocating are to be allowed. For example, a property owner cannot claim for removal costs if he/she is basing the value of their property on the assumption that it could be redeveloped.

 

(11)  Payment of Compensation

(a)  Federal, Nova Scotia, New Brunswick, Acts - A “without prejudice” offer has to be made by the acquiring authority within 90 days of registration of the Notice of Expropriation. If the parties do not agree the compensation the Federal Act provides for payment of 100% of the offer of compensation; the Nova Scotia Act for 75% of the compensation (excluding business disturbance) and the New Brunswick Act 100% of the “Market Value” (other Heads of Claim such as Injurious Affection are excluded). This payment is “without prejudice” and the property owner is free to pursue his/her claim for additional compensation.

(b) Newfoundland – the property owner has to file a claim for compensation within the time limit specified in the Notice of Expropriation and where the parties do not agree on the amount the matter is sent to the Board to be “fixed”. Compensation is paid out within six months of the Board’s decision.

(c) Prince Edward Island – the property owner has to file a claim for compensation within six months of registration of the Notice of Expropriation “or in the case of land injuriously affected within six months of the injury”. Payment is only made after the parties agree on the amount.


Mike Turner is Chairman of Turner Drake & Partners Ltd. A fifty year veteran of expropriation on two continents he is still shocked at the cavalier attitude some acquiring authorities adopt when dealing with property owners. If you'd like more information about our expropriation services, feel free to contact Mike at (902) 429-1811 Ext. 312 or mturner@turnerdrake.com


Wednesday, September 18, 2019 1:47:53 PM (Atlantic Daylight Time, UTC-03:00)  #    -
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