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Expropriation of Security Interests
J. Bruce Melville

The following paper was originally written for presentation at a meeting of the British Columbia Expropriation Association in Vancouver, British Columbia on September 17, 1998. It was substantially rewritten and expanded in scope for presentation to the Annual Fall Seminar of the Alberta Expropriation Association held in Canmore, Alberta on September 20-21, 2002. The author is a lawyer who practises regularly in expropriation law.

1. BACKGROUND

Land is often encumbered by financial charges. Typically these will be mortgages. However, they also include floating charges, assignments of rent, judgments, builders liens and other charges. Encumbrances of this nature are referred to in this paper as "security interests".

When expropriation takes place, the presence of a security interest adds a legal interest that may require compensation. The presence of the security interest will also affect compensation payable to the party that granted the security interest. This paper examines the effect of a security interest on the expropriation process and the determination of compensation arising therefrom.

Expropriation is a statutory process. Careful review of the statute applicable to each case is required to understand exactly how a particular security interest should be handled. All references in this paper to the "Act" are references to the modern expropriation statutes listed in the table found in Part 3 below unless otherwise noted.

2. DISCUSSION

2.1 Definition

In general, a security interest refers to an interest in land held to secure the payment of money.

The term is expressly defined in some statutes. For example, the British Columbia Act defines it as "a charge on land ... owned or held by a person as security for the payment of money" (s. 1). The Canada Act defines it as "an interest in land that was held by the owner thereof as security only" (s. 26(10)). The Manitoba Act defines it as "an interest in or charge on land that is held as security for the payment of money and includes the interest of a vendor under an agreement of sale" (s. 1(1)).

Other statutes use the term but do not expressly define it. For example, the Alberta Act uses the phrase "security interest" in ss. 49 & 52 and the Ontario Act uses it in s. 17. However, the Ontario Act also uses the phrase "security holder" which is expressly defined (s. 1) to mean "a person who has an interest in land as security for the payment of money".

Although the phrase is not consistently defined, the concept is not difficult to understand in practice and there are few cases which consider it. Kliman is an example which considers the interest of a vendor under a land purchase contract. The most obvious example of a security interest is a mortgage but the concept also includes floating charges, assignments of rent, judgments, builders liens and other types of financial charges.

2.2 Procedure

Expropriation procedures vary from statute to statute. However, under the modern expropriation statutes (see Part 3), the process usually begins with the filing and service of a document giving notice of the intended expropriation. The expropriating authority is required to serve the notice on all persons having a legal interest affected by the intended expropriation. This would include the holders of security interests.

At this stage, the expropriating authority should determine what interests exist in the land sought to be acquired and decide precisely which of those interests it must acquire to achieve its objectives. The authority must also decide whether it requires the entire legal parcel or only a portion of it.

Most expropriating authorities have the ability to expropriate lesser interests in land than the fee simple. For example a utility company often needs only an easement or statutory right of way and will have the power to expropriate this type of limited interest. Where the authority has the power to expropriate lesser interests, it could expropriate a security interest only or all interests in the land except for a security interest. In any case, the precise nature of the interests intended to be acquired must be set out in the notice of the intended expropriation.

At some point in the procedure, the authority will be required to file and serve a document that effectively vests title to the expropriated interests in the authority. At that point the expropriation takes effect. Any security interests included in the expropriation are extinguished and replaced by the right to receive compensation under the applicable statute.

Another feature of all of the modern expropriation statutes is the requirement for an advance payment. Under one statute, the advance payment is made before title vests (ie. British Columbia) while in the others the advance payment occurs after vesting.

Under most statutes, the authority must make separate advance payments to each owner, including the holders of security interests. This requires the Authority to estimate both the aggregate compensation payable and the allocation to each owner whenever there are multiple ownership interests. See Dyakowski, Hawk, Hollis and Vision. Unfortunately, particularly where security interests exist, there is often room for dispute over the nature and extent of a security holder's interest. This can make it difficult for an authority to comply with the advance payment requirement.

Three of the Acts anticipate this problem. Firstly, the Alberta Act does not require the authority to determine how to allocate the advance payment between multiple owners. If the owners affected are unable to agree amongst themselves, the authority can apply to the Board for assistance (s. 31(3)). The Board has jurisdiction to make the allocation and to require that the payment be paid to the Board. Upon payment the authority is deemed to have complied with the Act. However, there is no time limit or specific procedure by which applications for payment out are to be made. In practice, this can lead to a situation in which all owners of the land in question are deprived of their advance payments, often until all compensation issues are determined.

Secondly, the British Columbia Act gives the Board jurisdiction (s. 20(6)) to resolve questions about the nature and extent of various interests in the land and to order that the advance payment be paid into court. See Northwest Langley. However, if funds are paid into court a similar problem arises because, like the Alberta Act, no express jurisdiction or guidelines are given to the court to determine how to allocate the advance payment.

Finally, the Canada Act (s. 18) provides for an application to the Federal Court to resolve questions about the nature and extent of various interests in the land. However, this provision is not specifically tied in to the advance payment procedure.

After the acquistion is complete, all of the modern expropriation statutes provide a process for determination of fair compensation should an owner not be satisfied with the advance payment. This includes the holder of a security interest. See Coltman, Spruceside and Torvalley.

2.3 Valuation of the security interest

There are two different methods for valuing a security interest: the outstanding balance method and the market value method. The market value method is used under the Alberta and British Columbia Acts. The outstanding balance method is used everywhere else.

The advantage of the outstanding balance method is simplicity. The security interest is valued by determining the outstanding balance at the date of expropriation and adding interest to the date of payment. If the unencumbered market value of the land is insufficient to pay the outstanding balance, the grantor remains liable for the shortfall.

In jurisdictions where the outstanding balance method is used, few valuation problems are presented. However, the outstanding balance method does not always produce a fair result for the holder of the security interest. The market value method attempts to recognize some of the factors not considered by the outstanding balance method.

The market value of a security interest depends on several factors, including the outstanding balance, the current market interest rates, the length of term left to maturity, whether the loan is open or closed, the loan to value ratio and the credit worthiness of the borrower. In most cases, expert evidence will be required to establish market value.

Of course, the outstanding balance on the loan is the primary factor affecting the market value of the security interest. Market value will be determined by adjusting the outstanding balance to reflect the other factors.

Where current market interest rates are higher than the contract interest rate, a downwards adjustment is indicated to ensure that a hypothetical purchaser of the security interest receives a current market return. Conversely, where current market rates are lower than the contract rate, an upwards adjustment is required.

The unexpired term is a factor because market interest rates vary with the term of any investment. Closely related to this is whether the loan is open or closed. This is relevant because if the borrower is free to pay out the loan before maturity, the lender will be forced to reinvest at current rates without any compensation for early pay out. A closed term loan provides an assurance to the lender that the contract rates will be achieved.

The market value of the land securing a loan is relevant to the market value of the security interest because there must be sufficient value in the land to ensure full recovery of the loan should it go into default. It is worth noting that many lenders regard a loan to value ratio of 85% as the upper limit for a safe investment. So long as the market value of the land is high enough to ensure a reasonable loan to value ratio, it has no relationship to the market value of the security interest. However, if the market value of the land is too low to produce a satisfactory ratio, the market value of the security interest will likely be reduced to that level where a desirable ratio can be achieved.

The creditworthiness of the borrower is also a relevant factor. All else being equal, a lender will require a higher rate of return on a loan to a borrower with a history of payment problems.

Another significant feature of the Alberta and British Columbia Acts applies where the outstanding balance exceeds the market value of the security interest and there is no collateral security for the debt. Under the Alberta Act (s. 49) the borrower's liability for the shortfall is extinguished. The General Regulation (s. 4) to the British Columbia Act purports to do the same thing.

Under the Alberta and British Columbia Acts, where the market value method is used, an authority should obtain an expert report estimating the market value of the security interest. This report may require expertise not normally held by real estate appraisers. However, in practice, many authorities do not bother with a separate expert report. Instead they ask the appraiser to comment on the value of the security interest in the appraisal report. Other authorities ignore the requirement altogether and make the advance payment for the security interest based on a mortgage payout statement obtained from the security holder. Of course, the payout statement reflects only the outstanding balance which will not necessarily be market value. Although this method does not comply with the legislation, many lenders are more comfortable with it because it fits into their normal mortgage administration procedure. The advantage to the authority is that it avoids the possible need for an extra expert report. The further advantage is that a security interest owner who receives an advance payment based on a payout statement supplied by that owner is unlikely to make a claim for additional compensation. In practice, few claims have been brought by lenders for additional compensation.

Aside from the fact that it does not comply with the legislation, basing an advance payment on a mortgage payout statement poses a significant risk to the authority where the market value is significantly different than the outstanding balance. In these cases, the authority really cannot avoid seeking expert advice on the market value of the security interest.

Where market value is less than the outstanding balance but the authority has made an advance payment based on the outstanding balance, the authority will not likely face a claim for additional compensation because it will have paid too much for the interest. Where market value is more than the outstanding balance and the authority has made an advance payment based on the outstanding balance, the authority may be faced with a claim for additional compensation.

Under the Alberta Act (s. 52) and British Columbia Act (General Regulation, s. 5), a security holder is also entitled to three months' interest at the contract rate as disturbance damages without proof of loss. Similar provisions are found in many of the other Acts.

2.4 Valuation of the grantor's interest

Most security interests are granted by the fee simple owner. Where this is the case, the fee simple owner's claim should be determined, firstly, by determining the market value of the land as if unencumbered and then deducting the outstanding balance under the security interest. The outstanding balance should be determined for this purpose as at the date of expropriation. It does not make sense to deduct the market value of the security interest even in jurisdictions where this method is used to value the security interest. This is because the market value of the security interest has no direct relationship to the value of the fee simple interest whereas the amount payable to clear title is directly related. The author notes that this point is not entirely free from doubt and further case law is required to clear it up. See Hawk.

If the expropriation results in a prepayment penalty, the penalty is usually treated as disturbance damages and should not affect the market value of the fee simple owner's interest.

In cases where an owner has the benefit of below-market interest rates on a mortgage, under several Acts the owner is entitled to recover disturbance damages for the higher borrowing cost caused by the taking. Whether this is also the case in the market value jurisdictions is not specifically addressed in the legislation and does not appear to have been decided in the case law.

Under a market value system for valuing security interests, the value of the security interest will often differ from the outstanding balance. This can lead to some interesting situations. For example, where the outstanding balance is less than the market value of the security interest, the aggregate compensation will exceed the market value of the land. Conversely, where the outstanding balance is more than the market value, the authority will end up paying out less than the market value of the land.

The lender may also be caught by surprise because where the outstanding balance exceeds the market value of the mortgage the lender will be facing a shortfall and in many cases will not be able to recover that shortfall from the fee simple owner or from the authority. The only compensation which the lender is entitled to from the authority is three months interest paid as disturbance damages.

One situation which authorities would want to avoid if possible is where the outstanding balance is greater than the market value of the land. In that situation, the fee simple owner may not receive any compensation other than disturbance damages. If the authority has correctly estimated the market value of the land at the time of the advance payment, this outcome is supportable. However, if the authority has "lowballed" its estimate of market value where there is in fact adequate security for the debt, the owner may suffer extreme hardship through lack of funds to purchase a replacement property. This could prove to be embarrassing for the authority.

Security interests can also be granted by the holders of other charges such as leases or easements. In these cases, the fee simple owner's compensation is not affected. However, compensation for the grantor's interest should be adjusted to reflect the security interest encumbering it by deducting the outstanding balance at the date of expropriation.

2.5 Statutory agreements

Expropriating authorities are free to negotiate land sale/purchase contracts outside of the expropriation process. In this context, expropriation law is not directly applicable and security interests can be dealt with in the same fashion as in a land sale/purchase agreement between private parties.

However, many property owners are unwilling to sign a voluntary land sale/purchase contract with an expropriating authority because the authority's offer of compensation is perceived by the owner to be unsatisfactory or because the owner does not wish to give up the benefits of the applicable Act. Where available, a statutory agreement may be appropriate for use in this situation.

Statutory agreements are recognized under the Alberta, British Columbia and Ontario Acts. A statutory agreement contemplates a voluntary transfer of title to the authority but reserves the owner's right to have compensation determined as if there had been a formal expropriation. Statutory agreements are more commonly known by the applicable section numbers of the respective Acts in each province. In Alberta and Ontario they are known as Section 30 Agreements and in British Columbia, Section 3 Agreements.

A statutory agreement can be used to acquire the same types of interests in land that can be acquired by the formal expropriation process. The only limitation is that all owners affected by the agreement must be parties to it. Where the authority proposes to acquire a security interest the owner of the security interest will necessarily be one of the parties. If the owner of the security interest is not co-operative, a statutory agreement cannot be used.

The presence of security interests increases the complexity of all land acquisitions including those by expropriation. Where the fee simple owner is co-operative some authorities attempt to shift the burden of clearing title of a security interest by insisting on language in a purchase agreement under which the fee simple owner promises to deliver title free and clear of the security interest. The security interest holder is not a party to these agreements. As a result, they will not qualify as statutory agreements.

In summary, while a statutory agreement can be used to acquire a security interest, the existence of a security interest means there is another party whose co-operation is required. This places a limitation on the usefulness of statutory agreements.

2.6 Partial takings

Partial takings introduce additional complexity. The phrase "partial taking" can be used to describe two different situations. The first is where part only of the geographic area of the parent parcel is taken. The second is where part only of the bundle of property rights held by the fee simple owner is taken. Both situations can exist in the same taking. In both cases, if there is a security interest encumbering the parent parcel an allocation may be required.

In practice, an allocation is not always necessary. A security interest is often granted to secure repayment of a real estate investment. In cases where the partial taking does not significantly diminish the value of the remaining land and the investment is otherwise in good standing, the holder of the security interest may be quite happy to waive any entitlement to compensation or to direct that compensation otherwise payable to the security interest holder be paid to the fee simple owner.

Some statutes (eg. New Brunswick, s. 42(7), Nova Scotia, s. 27(13), and Ontario, s. 17(6)) provide a formula to allocate compensation between the fee simple owner and the holder of a security interest. The formula used in these provinces allocates a sum equal to the ratio of the outstanding balance to the total market value of the parent parcel (as if unencumbered) multiplied by the aggregate compensation payable for market value of the land taken and injurious affection. These formulas were applied in Arsco Investments and Park Projects.

In British Columbia and Alberta, there is no prescribed formula. Allocation is left to the discretion of the respective Boards but no guidance is offered to assist the Boards in exercising the discretion. There have been no compensation decisions under the Alberta or British Columbia Acts on this point to date. However, the formulas used in Nova Scotia and Ontario may be helpful.

The New Brunswick Act also provides a "contracting out" feature. The Act contains a provision, in s. 42(8), that allows security agreements to specify how compensation funds are to be applied in the event of a partial taking.

2.7 Reconciliation of the separate interests

Should the aggregate compensation paid by an authority be affected by the number of separate ownership interests in a parcel of land? This issue is often a concern to authorities who attempt to achieve fairness as between all owners affected by the same project.

One theory holds that aggregate compensation should equal the market value of the land as if unencumbered and held by a single party. This is sometimes referred to as the "pie theory" because total available compensation is fixed by the unencumbered market value and each owner gets a portion of it. Any gain by one owner necessarily comes at the expense of another. The value of each interest is clearly dependent upon the value of the other interests so reconciliation of the separate interests can be achieved. This approach to valuation forces owners into an adversarial relationship between themselves in addition to the adversarial relationship each has with the authority. However, the pie theory has no support in Canadian common law although it is used elsewhere.

The other approach is to value each ownership interest separately. The B.C. Law Reform Commission had this to say in its 1971 Report on Expropriation:

The reason for separate valuations is that separate interests may have different standards of value. This has been long-recognized in expropriation law. Thus, the totality of the values of the various separate interests in a parcel of land may exceed, or be less than, the market value of the land, as an undivided fee.

Under this approach the value of separate interests cannot be reconciled with the unencumbered fee simple value.

Two Acts contain express provisions dealing with this. The provision in the Alberta Act is s. 49(1) which requires that Security interests must be established separately. In British Columbia (s. 31(3)) security interests are to be established separately if practical.

3. STATUTE LAW

The following table lists the comprehensive modern expropriation statutes currently in effect in Canada, all of which contain provisions dealing with security interests:

Alberta Expropriation Act, R.S.A. 2000, c. E-13
British Columbia Expropriation Act, R.S.B.C. 1996, c. 125
Canada Expropriation Act, R.S.C. 1985, c. E-21
Manitoba Expropriation Act, C.C.S.M., c. E190
New Brunswick Expropriation Act, R.S.N.B. 1973, c. E-14
Nova Scotia Expropriation Act, R.S.N.S. 1989, c. 156
Ontario Expropriations Act, R.S.O. 1990, c. E.26

4. CASE LAW

The following expropriation cases deal with a variety of issues involving compensation for security interests.

Arsco Investments Ltd. v. Toronto (Metropolitan Municipality)
(1971), 1 L.C.R. 360 (ONT. H.C.)

Partial taking of land, encumbered by a mortgage, pursuant to the Expropriations Act, R.S.O. 1970, c. 154, s. 17(6). This Act provided that where land is held as security and it is expropriated in part, the holder of a security interest is entitled to be paid out of the combined award for market value of land taken and injurious affection a sum that is proportionate to the ratio of the outstanding balance at the date of expropriation to the unencumbered market value of the land. The Act further provided that the amount payable should be reduced by the amount of any payments made by the owner after the date of expropriation. In this case, by the time the Court had determined the amount of compensation otherwise payable to the owner of the security interest, the owner had made payments in excess of that amount so no further compensation was payable.

The court was also required to consider the effect on compensation of an acceleration clause in the mortgage giving the mortgagee an option to demand payment in full if the borrower committed or permitted any act of waste on the land. The court held that this clause was not triggered by the expropriation.

Bank of Nova Scotia v. The Queen
(1977), 13 L.C.R. 221 (N.S.C.A.)

Full taking of a large acreage, subject to multiple security interests, pursuant to the Expropriation Act, S.N.S. 1973, c. 7. The market value of the land was not sufficient to cover the outstanding balance owed to the lenders. Under the legislation, interest on the compensation to the security interest owner was to be determined pursuant to the interest provisions of the legislation and not pursuant to the mortgage contract. In addition, some of the security interests were fully extinguished by the taking and others were not. The owner remained liable for the shortfall on those mortgages which were not and was not entitled to be compensated by the authority for the shortfall.

Canada v. Pickleman
[1932] Ex. C.R. 202 (Ex. Ct.)

Full taking of land, encumbered by a mortgage, pursuant to the Expropriation Act, R.S.C. 1906, c. 143. The owner sought compensation for a prepayment penalty that became payable by reason of the expropriation. Compensation was awarded. The owner advanced a further claim for the difference between the contract interest rate and the statutory interest rate but this claim was denied

Coltman v. Metropolitan Separate School Board
(1975), 9 L.C.R. 197 (ONT. L.C.B.)

Full taking of land, subject to a mortgage, pursuant to the Expropriations Act, R.S.O. 1970, c. 154. The Board held that the amount payable to the mortgagees was the outstanding balance, not market value, of the mortgages. It also held that the amount payable to the fee simple owner was the amount otherwise payable less the outstanding balance of the mortgages.

The Board also determined that it had jurisdiction under s. 16 of the Act to determine claims for compensation brought by security holders.

Credit Foncier Franco-Canadien v. Edmonton (City)
(1982), 26 L.C.R. 63 (ALTA. L.C.B.)

Full taking of land subject to a mortgage. The mortgagee applied for an order fixing compensation under the Expropriation Act, R.S.A. 1980, c. E-16, for loss of its security interest. Under this Act a security interest is to be valued on the market value basis. The Board considered several factors which affected the market value of the security interest and awarded compensation in an amount that was less than the outstanding balance.

Daflos v. School District No. 42 (Maple Ridge-Pitt Meadows)
[1999] BCEA 316, 68 L.C.R. 167 (B.C.E.C.B.)

Full taking of a fee simple interest, encumbered by several mortgages, pursuant to the Expropriation Act, R.S.B.C. 1996, c. 125. One of the mortgagees advanced a claim for disturbance damages. The Board awarded three months' interest to the mortgagee.

Dyakowski v. British Columbia (Minister of Transportation and Highways)
[1995] BCEA 99, 57 L.C.R. 301 (B.C.E.C.B.)

Partial taking of a large undeveloped acreage, subject to multiple security interests, pursuant to the Expropriation Act, S.B.C. 1987, c. 23. The authority's estimate of the unencumbered fee simple market value on the parent parcel was less than the outstanding balance owed on the mortgages. It applied to the Board prior to making the advance payment, hoping to obtain an order directing how the payment should be applied. However, the Board found that it did not have jurisdiction to do so.

Forster Mah Enterprises Ltd. v. Calgary (City)
(1980), 20 L.C.R. 262 (ALTA L.C.B.)

Full taking of land, encumbered by a mortage, pursuant to the Expropriation Act, S.A. 1974, c. 27. The Board heard expert evidence from a mortgage broker as to the market value of the mortgage and determined a value accordingly. The Board then deducted the market value of the security interest from the unencumbered fee simple interest to determine the compensation payable to the fee simple owners. This is the opposite approach to valuation of the fee simple owner's interest from that taken in Sankey. In the author's opinion, the Sankey approach is preferred.

Hawk Investors Ltd. v. British Columbia (Minister of Transportation and Highways)
[1999] BCEA 292, 66 L.C.R. 94 (B.C.E.C.B.)

Full taking of land encumbered by a mortgage. Compensation was determined pursuant to the Expropriation Act, R.S.B.C. 1996, c. 125. The authority had issued separate advance payment cheques to the fee simple owner and the mortgagee. The payment to the mortgagee was sufficient to fully pay the outstanding balance at the date of expropriation, a prepayment penalty, daily interest to the date of payment and a bonus. The mortgagee was not a party in the proceedings before the Board so the Board was only required to value the fee simple owner's interest.

The Board refused to treat the interest of the fee simple owner separately from the security interest. It determined the market value as if unencumbered and gave the fee simple owner partial credit for the advance payment paid to the mortgagee. In doing so, the Board excluded the portion of the payment that was intended to cover prepayment penalties and interest after the date of expropriation. This produced the same result as in Sankey.

The Board also commented that it was not possible to determine the value of the security interest separately in this case because the owner did not lead any evidence of the market value of the mortgage. However, this appears to be incorrect. Since the mortgagee was not a party and had not advanced a claim for compensation, there was no need to determine the market value of the mortgage. The fee simple owner's interest was determined (correctly) by the Board by deducting the outstanding balance rather than the market value of the mortgage.

Hollis v. British Columbia (Minister of Forests)
[1998] BCEA 255, 64 L.C.R. 45 (B.C.E.C.B.)

Partial taking of land, encumbered by a mortgage, pursuant to the Expropriation Act, R.S.B.C. 1996, c. 125. The authority had issued the advance payment as a joint payment (a single cheque made payable to all of the owners) and did not allocate the amount between the fee simple owner and the mortgagee. The fee simple owner brought an application before the Board for a determination that the authority had not complied with the advance payment requirement. Although the authority conceded that the payment did not comply, the Board declined to answer the question because the cheque had been cashed before the application was made.

Kliman v. School District No. 63 (Saanich)
[1994] BCEA 81, 54 L.C.R. 242 (B.C.E.C.B.)

Full taking of a fee simple interest pursuant to the Expropriation Act, S.B.C. 1987, c. 23. The property was the subject of an unregistered binding agreement of purchase and sale that had not completed at the date of expropriation. One of the issues before the Board was the nature of the interest held by the vendor at the date of expropriation. The Board determined that the vendor did not have a security interest for purposes of the Act.

Northwest Langley Arenas Ltd. v. Langley (Township)
[1999] BCEA 288 (B.C.E.C.B.)

Partial taking of land, encumbered by a mortgage, builders liens and notices of pending litigation, pursuant to the Expropriation Act, R.S.B.C. 1996, c. 125. Application to the Board by the authority for an order authorizing it to pay an advance payment into court pending resolution of the nature and extent of the interests of each party. The order was granted.

Park Projects Ltd. v. Halifax (City)
(1981), 22 L.C.R. 244 (N.S.E.C.B.)

Partial taking of land, subject to a mortgage, pursuant to the Expropriation Act, S.N.S. 1973, c. 7 which provided a formula for compensating security interests that required a pro rata sharing between security holder and fee simple owner of the total amount of compensation payable for market value and injurious affection. The ratio was obtained by comparing the outstanding balance to the total market value of the parent parcel. This approach is similar to that in Ontario. See Arsco Investments.

Pultke v. Metropolitan Toronto (Municipality)
(1957), 8 D.L.R. (2d) 474 (ONT. C.A.)

Full taking of land, encumbered by two mortgages, pursuant to the Municipal Act, R.S.O. 1950, c. 243. The court held that expropriation did not take away the lender's contractual rights under the mortgage. However other expropriation statutes expressly take away contractual rights so this case must be used with caution.

Sankey v. King (Township)
(1973), 4 L.C.R. 277 (ONT. H.C.)

Full taking of land, subject to a mortgage, pursuant to the Expropriations Act, R.S.O. 1970, c. 154. The authority settled the mortgagee's claim by paying the outstanding balance plus an amount for the disturbance damages caused by early payment. The authority then deducted the full amount paid to the mortgagee from the compensation otherwise payable to the fee simple owner. The court held that the amount actually paid to the mortgagee is not relevant to determination of the fee simple owner's compensation. The authority should only have deducted the outstanding balance on the mortgage at the valuation date.

Spruceside Construction Ltd. v. Hamilton (City)
(1975), 9 L.C.R. 128 (ONT. L.C.B.)

Full taking of land subject to a mortgage. The mortgagee appeared at the compensation hearing as a claimant seeking entitlement to compensation pursuant to s. 17 of the Expropriations Act, R.S.O. 1970, c. 154. However, the Board pointed out that the mortgagee's interest in the proceeding was the same as the interest of the fee simple owner.

The Board expressed concern as to whether it had jurisdiction to determine the mortgagee's entitlement but granted leave to the mortgagee to argue this issue later after market value had been determined. See Coltman where the Board found that it did have this jurisdiction.

Torvalley Development Ltd. v. M.T.R.C.A.
(1988), 40 L.C.R. 81 (ONT. M.B.)

Full taking of land subject to a mortgage. The mortgagee made a claim for compensation pursuant to s. 17(3) of the Expropriations Act, R.S.O. 1980, c. 148. The Board awarded the outstanding balance at the date of expropriation, less advance payments, plus interest at the contract rate to the date of payment.

Vision Homes Ltd. v. Nanaimo (City)
[1994] BCEA 76, 54 L.C.R. 103 (B.C.E.C.B.)

Partial taking of a fee simple interest, encumbered by a mortgage, pursuant to the Expropriation Act, S.B.C. 1987, c. 23. The authority made separate advance payments to the fee simple owner and to the mortgagee. The authority's appraiser calculated the ratio of the secured interest to equity based upon the appraised value. The authority used this advice to determine the advance payment amounts. This appears to be the approach used in Arsco and Park Projects.

The Board awarded additional compensation for the market value of the land taken. The owner sought interest on the difference between the advance payment that it had received and the market value of the unencumbered fee simple title as determined by the Board. However, the Board noted that the fee simple owner had received a benefit from the advance payment to the mortgagee through reduction of the debt secured by the mortgage. Interest was therefore awarded to the fee simple owner on the difference between the aggregate amount of the advance payments and the market value as determined. In effect the Board determined the fee simple owner's compensation by deducting the total amount paid to the mortgagee.

During argument on the interest calculation issue, the fee simple owner pointed out that the authority had not obtained an order from the Board allocating the proposed advance payment between the fee simple owner and the mortgagee. The regulations to the Act provide that the Board must distribute compensation "as it considers just in the circumstances" in partial taking cases where the land is subject to a security interest but there is no provision for the Board to allocate the authority's proposed advance payments (see Dyakowski). The Board did not find it necessary to consider this issue and the compensation award was not distributed.

West Canadian Hydro Electric Corp. Ltd., Re
[1950] 3 D.L.R. 321 (B.C.S.C.)

Full taking of a business enterprise pursuant to the Electric Power Act, R.S.B.C. 1948, c. 108. Compensation was awarded to the owner for a premium that became payable to bondholders for early redemption where the early redemption was triggered by the expropriation.

Woodbine Realty Ltd. v. Toronto (Metropolitan Municipality)
(1994), 53 L.C.R. 255 (ONT. M.B.)

Full taking of a fee simple interest, encumbered by several mortgages, pursuant to the Expropriations Act, R.S.O. 1980, c. 148. The Board determined that the mortgages were security interests. An issue arose as to whether an assignment of one of the mortgages after the date of expropriation should have an effect on the compensation awarded. The Board concluded that the mortgage should be valued as of the date of expropriation and the subsequent assignment was ignored.


J. Bruce Melville
Peterson Stark Scott
Barristers & Solicitors
300 - 10366 - 136A St.
Surrey, B.C. V3T 5R3
Tel: 604-588-9321
Fax: 604-589-5391
E-mail: jbm@psslaw.ca
Web Page: www.psslaw.ca

 

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