Newfoundland property owners argued zoning was enacted with a view to expropriation
The assessed value of a Newfoundland family's expropriated property must take into account the land’s watershed zoning that precludes residential development and reduces its value, the Supreme Court of Canada has found.
In a unanimous decision, the court found that the watershed zoning was an independent regulation and not part of the expropriation scheme. Compensating the family based on the value of their land without factoring in the land-use restrictions contained in these independent regulations would compensate them for something they would not have had if the land was not being expropriated, said the court.
“This is a really critical decision because it ensures that municipalities and other public authorities can enact regulations in the public interest without the risk of excessive compensation awards,” says Ian Kelly, counsel for the St. John’s.
While St. John’s (City) v. Lynch, 2024 SCC 17 dealt with watershed protection, he says, the principles could apply in other cases to the protection of environmentally sensitive areas, such as park lands, or to Indigenous peoples’ lands.
Ecojustice, an intervenor in the case, welcomed the decision. The legal advocacy organization, which focuses on environmental issues, said it intervened to argue that governments should be able to make land-planning decisions for the sake of environmental protection without fear that they will be on the hook for "windfall compensations to private landowners."
“This decision confirms property rights must be balanced with the government’s ability to make land use decisions in the public interest," said Ecojustice lawyer, Randy Christensen. "Private landowners and corporations should not reap windfall compensation because the government made a sound environmental decision that protects the environment and communities."
“We are hopeful that this decision will give governments across the country the power to put the interests of communities and environmental safety before private profits.”
The respondents in St. John’s (City) v. Lynch, 2024 SCC 17 own land in the Broad Cove River watershed, the groundwater from which drains into the river St. John’s uses for its local water supply. Within the watershed zone there are three discretionary uses: agriculture, forestry, and public utility. In 1996, the city and province adopted a watershed management plan that recommended the city continue to use its statutory powers to prohibit the erection of buildings within the watershed regions.
The Lynch family has sought to develop the land since the 1990s. In 2013, the city rejected a formal application to develop a residential subdivision on the property. The family applied to the Newfoundland and Labrador Court of Appeal for a declaration that the property had been constructively expropriated, and they could file for compensation, which was granted.
The city went to the Board of Commissioners of Public Utilities to determine the compensation amount, and the board sought the opinion of the Supreme Court of Newfoundland and Labrador on whether the compensation should reflect the existing zoning’s permitted uses or the value of the property if residential development were permissible. The application judge opted for the former, and the family successfully appealed. The appeal court ordered the board to assess compensation without reference to existing zoning.
Justice Sheilah Martin, who wrote the reasons, said the family is “entitled to fair compensation but not more than fair compensation.”
Where there is no clear statutory language indicating Parliament’s intention not to compensate, the taking of property involves a presumptive compensation entitlement. Compensation is based on market value, and zoning regulations and land-use restrictions impact market value, said Martin.
Under the “Pointe Gourde principle,” which has been incorporated into the expropriation statutes in various jurisdictions, including Newfoundland and Labrador’s, changes in value caused by the expropriation scheme do not factor into the compensation assessment. According to the Pointe Gourde principle, she said, “An authority cannot downzone or freeze a property’s development in anticipation of the need to acquire the property, thereby depreciating the value of the property in order to reduce the compensation payable.”
A central question in St. John’s (City) v. Lynch was whether the land-use restrictions were enacted with expropriation in mind. Martin said the inquiry into this question involves examining the enactment’s purposes and effects.
She concluded that there was no basis to interfere with the application judge’s conclusion that the watershed zoning was independent of the expropriation scheme. “To ignore the watershed zoning would compensate the family for something it never would have had absent the expropriation: unencumbered land to develop residential housing.”
“It is not right for the City to refuse to allow an owner of land to use their property in any reasonable manner,” says Michael Crosbie, a McInnes Cooper partner who acted for the Lynch family.
He says the city had a policy of refusing discretionary zoning of the watershed land for agriculture, and he would advise anyone with land in the watershed to apply for permission to farm their land. The city will then be required to pay land owners for the value of their land’s agricultural capacity.
“If the city will not allow use of a person’s watershed land for farming, then the city should be obliged to pay to rent for use of the land as a natural filter so that the City does not have to build its own filter facility,” says Crosbie. “The point is that the city is using watershed land for the public purpose of being a natural water filter and the city should not be using private land without paying for that public use.”
“The key point of the Lynch case is that, with regard to anyone who owns land in the watershed, the city is using that land as a natural filter and those land owners are entitled to be compensated concerning that use of private property by the city.”
