Determining compensation for constructive expropriation

A Torys bulletin was quoted in an article by ConstructConnect’s Journal of Commerce which discusses a May 2024 Supreme Court of Canada (SCC) ruling regarding constructive expropriation.

Authored by senior associates Shalom Cumbo-Steinmetz and Alexandra Shelley, and associate Alina Butt, the Torys bulletin provides analysis of St. John’s (City) v. Lynch, in which the SCC addressed how compensation is calculated when a constructive expropriation occurs.

The Journal of Commerce piece outlines that in 1917, the Lynch family acquired a plot of land outside of the City of St. John’s, Newfoundland, where it remained in a mostly natural state. Between 1959 and 1994, several new legislative changes brought the property within the City’s pollution control and expropriation powers and limited development of the land.

The Lynch family obtained a declaration that the property had been constructively expropriated and applied for compensation, though the parties disagreed on how to value the property. The City valued the property at $105,000 based on its location in a watershed zone, while the Lynch family valued it at $875,000 based on a proposed 10-lot residential development they planned to build.

The article directly quotes Torys’ piece on the matter, which says that ultimately, a unanimous SCC ruling confirmed that compensation for expropriation is based on the “economic restatement” principle. It also ruled that market value can reflect a property’s development potential but must recognize existing zoning restrictions.

“Property owners should be put back in the same economic position they were in before the expropriation: “no better and no worse”, it says.

The bulletin emphasizes that this decision underscores the highly contextual analysis that authorities and property owners face when determining compensation in situations of constructive expropriation—and presents strategic lessons for both parties.

“Where the two parties want to engage in an efficient process, it may be desirable to seek to deal with both the question of entitlement and compensation together,” it says. 

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