Facts
The Claimants were real estate developers. In 1988 they purchased acreage in Guelph, Ontario.
Their objective was to develop a multi-phase residential subdivision. However, in 1996 the
Wellington County Board of Education (later known as the Upper Grand District School Board)
expropriated a 7.86 acre parcel for a school site out of the Claimants' land. The expropriation
was carried out pursuant to procedures found in the Ontario
Expropriations Act, R.S.O. 1990, c. E.26.
The claim for compensation was first considered by the Ontario Municipal Board. The O.M.B.
awarded $2,478,000 compensation for market value and dismissed claims for injurious affection and
lost developer's profit. This decision is reported as
[1999] EXLAW 18.
The Claimants appealed the O.M.B. decision to the Divisional Court. This court maintained the
award for market value and awarded an additional $437,000 as disturbance damages for lost
developer's profit. This decision is reported as
[2000] EXLAW 20.
The School Board appealed the Divisional Court award to the Ontario Court of Appeal. This
decision, reported as [2001] EXLAW 24, set aside the
disturbance damages award and restored the original O.M.B. decision. The Claimants were
represented in the Court of Appeal by Marc J. Somerville, Q.C. and John S. Doherty of the law
firm, Gowlings. The School Board was represented by Stephen F. Waque and Gabrielle K. Kramer
of Borden Ladner Gervais.
Issues
The primary issue on the appeal was whether lost developer's profit was compensable under
the Ontario Expropriations Act
Comment
The subject of developer's profit frequently arises in cases where expropriated land is ripe
for development at the moment of taking. Whether compensation should be paid to an owner for the
profit that would have been earned in such cases has always been controversial and this case was
no exception judging by the different treatment at each level. However, until recently, most such
claims were dismissed.
In this case, the O.M.B. was satisfied from the evidence that the land was in fact ripe for
development. The market value claim was supported by appraisal evidence utilizing the development
approach which the O.M.B. accepted. In this approach, the anticipated developer's profit is
properly deducted from projected revenues in determining the residual value of the land. However,
the claimant also sought to recover that same estimate of profit under the head of disturbance
damages.
The appeal court concluded that compensation for market value took into account development
efforts expended up to the moment of taking such that awarding the developer's profit as disturbance
damages would produce a windfall. In applying this reasoning the court adopted a widely held view
that developer's profit should not be compensated in addition to market value because the profit
has not yet been earned at the moment of taking. On this theory, a developer claimant should be
able to take the market value compensation and purchase a replacement property having similar
attributes to which the developer's skills can be applied.
In awarding developer's profit on the first appeal, the Superior Court relied largely on the
1997 Supreme Court of Canada decision in Toronto Area Transit Operating Authority v. Dell
Holdings, [1997] EXLAW 217. Dell was an
Ontario case which awarded disturbance damages consisting of lost profits incurred pre-taking
through delays caused by the expropriation. Dell appeared to expand the availability of
disturbance damage awards for business losses in Ontario. However in the present case, the court
concluded that Dell had no application. Whether Dell will continue to be
distinguished in Ontario remains to be seen.
Whether this case will be applied in other provinces also remains to be seen. It is worth
noting that the disturbance damage provisions in the Ontario Expropriations Act are not
the same throughout Canada. In the Ontario Act, disturbance damages were defined at the time of
this case in s. 18(1) as:
"such reasonable costs as are the natural and reasonable consequences of the expropriation"
Similar language is found in the New Brunswick and Alberta statutes. However the Nova Scotia Act
provides in s. 26(b):
"the reasonable costs, expenses and losses arising out of or incidental to the owners disturbance"
and the British Columbia Act provides in s. 34(1)(a):
"reasonable costs, expenses and financial losses that are directly attributable to the
disturbance caused to the owner by the expropriation;"
The Nova Scotia and British Columbia definitions expressly provide compensation for financial
losses. In this respect they are clearly broader in scope than Ontario, New Brunswick and Alberta.
This could easily lead to significantly different outcomes on the same facts where land is ripe for
development.
For the moment, it looks like lost developer's profit will not be compensated under the Ontario
Act. However, it is unlikely that this decision will end the debate.
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