AgriLaw: May 2011

Expropriation Power When There's No 'Willing Seller'

The obligation of an expropriating authority acquiring land is to pay to the expropriated landowner the “market value” of the land. This “market value” is the price which would be paid by a willing buyer to a willing seller in an open and competitive market. Where there is a dispute with respect to this “market value”, can the expropriating authority rely on the prices it has negotiated with other landowners to establish the value of the expropriated land?

In a recent decision of the Supreme Court of British Columbia, the Court was required to determine the “market value” of land in the resort community of Whistler. The expropriated land which had been acquired for the purpose of a public park consisted of approximately 108 acres of lakefront property which would have been appropriate for development as estate lots. At the time of the expropriation, the municipality paid to the expropriated landowner the sum of $367,000 which it asserted was the “market value” of the property. The expropriated landowner claimed a “market value” of between $1.7 and $2M.

In considering the respective appraisal evidence of the parties which identified comparable sales, the Court noted that the municipality’s appraisal relied on sales to the expropriating municipality itself. In commenting on this practice, the Court referenced a legal text, the New Law of Expropriation, concerning the caution required before relying on sales to public bodies having expropriation powers to establish market value:

“It is common practice of some expropriating authorities to acquire the land they require without resorting to formal expropriation … Because of the ever-present power of expropriation, in many cases the owner cannot fit within the statutory definition of “willing seller”, and the transaction fails as evidence of “market value” … While the owner under today’s legislation is closer to a position of equality than he or she was in the past, expropriation is still a harrowing experience. Many owners do not understand the advantages of the reform legislation and will settle for far less than what they might expect to receive after litigation before the tribunal and in the courts. Other owners cannot afford the delay caused by litigation, particularly in Ontario where interest paid on compensation is wholly inadequate. Some owners fear offending an authority which presently or in the future might exercise a discretionary administrative authority which affects or might affect their interests. Others are simply intimidated by the overwhelming power of the authority and its seemingly unlimited resources.”

In the case under consideration, the municipality’s appraisal report had failed to consider whether the fact the municipality was an expropriating authority may have influenced the allegedly comparable transactions. Again with reference to the legal text, the Court stated:

“The author’s comment further … that, in the absence of ‘convincing evidence’ that such transactions are at arm’s length and completely free from any threat of expropriation, it will be an uphill battle to convince the tribunal that the transaction meets the statutory definition of a sale from a ‘willing seller’ made in the ‘open market’. The party seeking to rely on such a sale has the burden to establish the sale as voluntary and unaffected by extraneous factors. However, the circumstances of these four transactions – where (the municipality) was the purchaser – have been left unexplained by [the appraiser]. Without evidence of the circumstances, I have no basis to conclude that the transactions in fact qualify as sales from a willing seller made in the open market.”

After rejecting other area purchases by the expropriating municipality on this basis, the court then concluded on the balance of the appraisal evidence that the “market value” of the expropriated land was $1.3M.

This decision recognizes that purchases by an expropriating authority, without investigation of the circumstances, should not be used to establish “market value”. The existence of the expropriation power itself is sufficient to raise concern that the landowner is not a “willing seller” in an open market.