Expropriation – What Compensation is an Owner Entitled to?

In Ontario there are various public authorities commonly looking to expand it infrastructure on lands owned by private entities. Unless a property owner is prepared to convey those lands, steps can be taken to expropriate those required lands. One of the key questions for a property owner or the expropriating authority is to determine what type of compensation might be determined in a hearing before the Ontario Land Tribunal (“OLT”) or in a negotiated settlement. While an expansive topic, this article is intended to provide a general overview on what compensation might look like. 

The governing legislation in Ontario, the Expropriations Act, R.S.O. 1990, c. E.26, (“Act”), is sympathetic to a claimant and provides various forms of compensation. The principles of compensation within the Act are that a land owner should be fully compensated for the taking and made entirely whole.

Section 13 of the Act states that where land is expropriated, the expropriating authority shall pay the owner such compensation as is determined in accordance with the Act. Compensation is based upon the market value of the land, disturbance damages, damages for injurious affection, and damages for any special difficulties in relocation.

The market value of land expropriated is the amount that the land might be expected to realize if sold in the open market by a willing seller to a willing buyer. This is typically determined by a qualified appraiser who objectively reviews comparable sales in the market as of the effective date (i.e. the date of valuation) and a determination is made as to what those lands would be worth in the open market. As the lands are being expropriated, this is a hypothetical exercise where opinions of appraisers will sometimes differ. As there is rarely a set of perfect comparables, appraisers are commonly required to compare “apples” to “oranges” and use the adjustment process to treat the two properties as close to “apples” as possible. 

Disturbance damages are those reasonable costs as are the “natural and reasonable consequences of the expropriation” for the owner, or a tenant. This would include out of pocket expenses for things such as business loss, moving costs or replacement costs (i.e. replacing signs or irrigation works).

Injurious affection comes in a few forms. In situations when an expropriating authority acquires part of the land of an owner, the claimant is entitled to the reduction in market value caused to the remaining land of the owner by the acquisition or by the construction or use of the works thereon, as well as such personal and business damages resulting from the construction/use of the works as the statutory authority would be liable for if the construction or use were not under the authority of a statute. An example would be if part of a property is expropriated which then interferes with the owner’s ability to access the remaining portion of its land. The devaluation of the remnant parcel would be compensable.

Under the Act, there are also situations where the expropriating authority does not acquire part of the land of an owner, but the activities of the expropriating authority reduce the market value of the land or creates a personal and business damages resulting from the construction (and not the use) of the works by the statutory authority. An example could be if an authority constructed works on a highway resulting in closures which impacted an adjacent owner’s ability to run its business. In such case, the business loss experienced during the construction could be considered injurious affection where no land is taken.

Injurious affection is not available if an entire parcel is expropriated.

An expropriated authority is also able to claim expenses for any special difficulties in relocation. While not frequent, there are situations where a property has a special characteristic or zoning or there are challenging market conditions that make the cost of relocation to a replacement property particularly more difficult. 

In terms of costs, if no agreement on compensation is made, the expropriating authority is required to submit an offer under section 25 of the Act for what it feels is full compensation for the owner’s interest in the property (except business loss). As noted above, a claimant is also entitled to recover its reasonable legal, appraisal and other costs actually incurred by the owner for the purposes of determining the compensation payable. In most cases, where an agreement is reached, an expropriating authority will agree to pay all of the claimant’s reasonable costs. If the matter proceeds to a hearing before the OLT, and the owner is able to establish that the compensation is 85% or more of what was offered by the expropriating authority, then the owner is certainly entitled to those reasonable costs. There is no set rule in the Act as to what is reasonable, but costs may be disallowed if they are not deemed to be for the purposes of determining compensation payable (i.e. for a hearing of necessity) or if they are excessive.

Finally, an owner is entitled to be paid interest on the portion of the market value or injurious affection to which the owner is entitled, currently at the rate of 6 per cent a year and calculated from the date the owner stops living or making productive use of the land. There are opportunities for the OLT to impose a greater interest rate if the expropriating authority delays payment of compensation. The interest rate will soon change to a prescribed annual rate.

Taking this all into consideration, it is wise for a public authority to be aware of its exposure to compensation at an early stage of an expropriation process. On the other side, if a landowner becomes aware that a public authority requires their property, they should fully appreciate the availability of all forms of compensation before they agree to sell those lands. The lawyers within the Municipal and Land Use Planning Law Group at Sullivan Mahoney LLP represent both claimants and expropriating authorities on matters of expropriation throughout the Province of Ontario and would be happy to discuss matters of compensation or other issues related to expropriation.

Disclaimer: Information made available in this article is provided for general information purposes only and is provided without representation for its accuracy or completeness. It is not legal advice and should not be relied upon. You should not take any action or fail to take any action based on the information set out in this article or on this website. Consult a lawyer at Sullivan Mahoney LLP and seek professional legal advice tailored to your unique situation.