Acquiring Land for a Municipal Infrastructure Project

By Christopher J. Tzekas, Bradley N. McLellan, and Sean G. Foran
WeirFoulds LLP

Municipalities are responsible for the construction, operation and renewal of a wide spectrum of infrastructure projects. These projects include rapid transit and transit facilities, water and wastewater facilities, bridges, roads and port facilities. In undertaking these projects, municipalities often require land or interests in land in order to allow construction. A project such as a rapid transit line can involve the acquisition of interests in hundreds of properties along the proposed route.
Sometimes, the municipality already owns the required land or property interests, or is able to purchase property that has been listed for sale. However, municipalities often need to acquire land or interests in land from an owner or multiple owners who have not listed their property for sale, and do not want to dispose of their property or any interest in it. In these circumstances, municipalities can utilize their power to expropriate land or an interest in land. Expropriation is the compulsory acquisition of land: it is the taking of land or interests in land without the owner's consent.
The purpose of this article is to examine how municipalities can acquire land or an interest in land through the expropriation process as part of an infrastructure project. The article focuses on the procedures involved for the taking of land, with particular emphasis on the Expropriations Act (Ontario).
Power to ExpropriateThe Municipal Act, 2001 (Ontario), gives municipalities the power to expropriate land. When a municipality decides to expropriate land, it must do so in accordance with the Expropriations Act (Ontario). So long as the land or interest in land is being acquired for municipal purposes, the procedures and requirements set out in the Expropriations Act (Ontario) are followed and complied with, and the municipal council has approved the expropriation, a municipality can utilize the expropriation process to acquire the land interests it requires.
A municipality may determine that it requires ownership of a particular parcel of land, or numerous parcels of land, in order to develop the infrastructure project. However, in addition to having the power to expropriate a fee simple interest or a series of fee simple interests, a municipality may decide that it requires a lesser interest in the land, such as a permanent or a temporary easement. For instance, a “temporary limited interest” might suffice if the municipality only requires access to the land for several years for construction purposes.
Pre-Expropriation Negotiations
Many municipalities will approach landowners, either directly or through agents retained by the municipality, to try and obtain the required land or interest in land “voluntarily”, before the formal expropriation process is invoked by the municipality. There can be benefits to both the municipality and the landowner when a negotiated settlement at this stage can be arrived at. If the municipality and the landowner can arrive at an agreement as to what land or interest in land can be acquired, and for how much, then the transaction can proceed in a similar manner to that of a typical real estate transaction of purchase and sale.
Section 30 Agreements
Even if the municipality and an owner cannot agree on a price for the land or interest in the land being acquired, it is possible for them to enter into a “voluntary” agreement for the conveyance called a “Section 30 Agreement”. Such agreements are usually negotiated before the registration of a plan of expropriation.
Although Section 30 Agreements are not as extensive as typical agreements of purchase and sale for real estate, and do not contain some of the representations and warranties that a landowner might typically provide to the municipality where they have listed their property for sale, they do contain many provisions that are typical in standard agreements of purchase and sale for land.
Section 30 Agreements lead to the conveyance of the land or interest in land needed by the municipality. They are structured and concluded as would an agreement of purchase and sale. However, the purchase price established by the municipality is accepted by the owner on a “without prejudice” basis, entitling the owner to assert a claim for more compensation, as if the lands or the interests in lands had been expropriated.
For the municipality, this allows it to acquire the lands or interest in lands quickly and without the need to formally proceed with an expropriation. For the owner, a Section 30 Agreement may allow for some negotiation on issues such as interest, costs, the timing of the taking, etc., and it avoids the sometimes inevitable result of a formal taking, with significantly less acrimony.
Other Voluntary Agreements
In addition to, or sometimes in conjunction with, a Section 30 Agreement, a municipality and an owner can negotiate a number of other voluntary agreements.
Permissions to enter are commonly used in large projects. These sometimes allow a municipality to enter a property for a limited time and purpose, such as soil testing or to establish a baseline building condition, in advance of a formal expropriation or Section 30 Agreement. Sometimes, the municipality pays for this right to enter, but often it does not: it is simply an accommodation extended by the owner to allow a municipality to have a better sense of whether a taking is feasible or necessary.
A municipality can also undertake, as part of its expropriation process, to make “alterations or additions or to construct additional work or to grant other lands” to mitigate the anticipated impacts of its project. Such undertakings are sometimes given under a “Section 11 Agreement” and, when they are, the compensation paid to an owner is determined having regard to the undertaking. If an undertaking has been made, but not completed by the time of a hearing, the Ontario Municipal Board also has the power to order that the undertaking be completed, in addition to any award of compensation it may make.
This is often a very good way for a municipality and an owner to reach agreement on steps that might be undertaken to mitigate the impacts of a project or a taking. It is therefore in both of their interests. Often, these are simple measures, such as the reconstruction of a driveway entrance, the planting or replanting of vegetation, or the (re)construction of retaining walls. Sometimes, these measures are quite elaborate, such as the establishment of a new security system or perimeter, or the permission to access a new subway station directly, and they can have a significant impact on compensation.
Section 24 of the Expropriations Act (Ontario) gives a municipality an even broader right to make and perform an agreement with an owner in respect of any claim the owner may assert under the Act.
The Expropriation Process
If a municipality is not able to acquire land or the required interest in the land that it needs through pre-expropriation negotiations, or through some other Planning Act mechanism, such as dedications for road widenings, it will need to obtain the approval of its own council for the expropriation.
Assuming that the municipality has established the need for the taking through an approved environmental assessment report, a community plan or other internal approval process, the first step is for it to make a formal application (to its own council) for approval to expropriate.
The next step is for the municipality to serve a notice of its application for approval to expropriate upon each “registered owner” of the lands to be expropriated. “Registered owner” includes the person shown in the Land Registry Office as the owner of the land, and any mortgagees or others with an interest in the land, as shown in the Land Registry Office records. A tenant of the land as shown on the last revised assessment roll is also considered to be a “registered owner”, as is someone who has registered a claim in the sheriff's office. In addition to serving each “registered owner”, the notice of application for approval to expropriate must be published by the municipality in the local newspaper(s) for three consecutive weeks.
After the municipality has served the notice of intention for approval to expropriate, any person who claims to have an interest in the land, whether they are a “registered owner” or not, has the right to request an inquiry as to whether the proposed taking is “fair, sound and reasonably necessary” in the achievement of the municipality's objectives.
The Provincial cabinet can waive the need for a municipality to go through this inquiry process (as it did to facilitate the construction of the new Toyota plant in Woodstock, Ontario), but this is rare.
If no inquiry is sought, the municipality's council, acting as “approving authority”, can give the municipality approval to expropriate the lands or the interests in land that it needs to undertake the project.
If any inquiry is requested, an Inquiry Officer appointed by the Attorney General's office, conducts a hearing and issues a report. The municipality's council must consider the report of the Inquiry Officer, but it is not obligated to follow its recommendations. The council can decide to expropriate even if the Inquiry Officer has recommended against it. There is no appeal of a council's decision to approve an expropriation (although such decisions are sometimes challenged in court by way of judicial review). If the council approves the expropriation, either with or without an inquiry, it issues a certificate to confirm this.
The next step in the expropriation process is the registration of a plan of expropriation in the local Land Registry Office. The registration of a plan of expropriation vests in the municipality a good and valid title to the lands expropriated, or a good and valid easement interest, if only an easement interest has been taken. The title or interest acquired by the expropriation is generally structured to be free and clear of any encumbrances or other interests. In contrast to a typical real estate purchase and sale transaction, partial discharges from mortgagees are not required, nor are releases from agreements on title or postponements from parties having an easement over or under the property that is expropriated. The registration of the plan of expropriation removes these encumbrances from title to the expropriated property.
Compensation to the Owner Since an expropriation involves a taking of land or an interest in land without the owner's consent, the appropriate compensation to be paid by the municipality to the owner is often a difficult issue to resolve.
The Expropriations Act (Ontario) provides that, where the land of an owner is expropriated, the compensation payable to the owner shall be based upon:

  1. the “market value” of the land;
  2. the damages attributable to disturbance;
  3. damages for “injurious affection”; and,
  4. any special difficulties in relocation.
The “market value” of the land is the amount that the land would be expected to sell for in the open market, if sold by a willing seller to a willing buyer. Where only part of an owner's land is taken, and the part that is taken is of a size, shape or nature for which there is no general demand or market, the market value of the land taken and the injurious affection caused to the taking may be determined by calculating the market value of the whole of the owner's lands prior to the taking, and deducting therefrom the market value of the owner's lands after the taking.
Where a municipality expropriates part of an owner's land, “injurious affection” may result; this means the reduction in market value caused to the remaining lands of the owner by (1) the acquisition by the municipality; (2) the construction of works on the lands acquired by the municipality; or (3) the use of the works thereon, or any combination of (1), (2) and (3). Injurious affection can also include personal and business damages resulting from the construction or use, or both, of the works undertaken by the municipality as the municipality.
In some cases, it is also possible for owners to assert claims for injurious affection, even where no portion of their lands are taken. In such cases, though, the owner's claims are confined to those that arise from the construction of the project, not its use.
Sometimes there are a number of persons who have an interest in a single property (for example, an owner and a tenant). In such cases, each “owner's” claim is, in theory, separately assessed. In recent years, however, the Ontario courts have accepted the concept that the sum total of all of the “owner's” claims for market value cannot exceed the market value of the unencumbered property (that is, the amount paid to a landlord plus the amount paid to a tenant cannot exceed the total value of the land). This is colloquially referred to as the “pie theory”. The market value of any land is represented as a “pie” that may be shared among the various owners. This theory sometimes brings landlords, tenants, and other “owners” into conflict, as each tries to maximize the size of its “piece” of the “pie”. Special compensation rules apply to determining the compensation payable to a mortgagee.
Any owner is entitled to have his or her property valued at the “highest and best” use, that is, the highest and best use that knowledgeable buyers and sellers would reasonably anticipate for the property. For example, farm land with development potential may have a value far above agricultural land rates; urban land that is not fully developed may be more valuable than its existing use might suggest. In short, property is valued as it would be in the marketplace by the examination of its existing uses, its potential, and the risks involved in any development.
Where owners seek compensation for the market value of their property on the basis of some use other than its existing use, however, their claims for disturbance damages may be barred. For example, a farmer who seeks and obtains compensation based on speculative land values for his or her property may not be able to assert an additional claim for the expenses of moving the farming operation. Owners of such properties have the option of choosing to value the land on the basis of its existing use and assert a disturbance damage claim, or value the land on the basis of its higher and better use and abandon their disturbance damage claims. This is an important factor that must be kept in mind by all owners.
In determining the market value of land, no account is taken of: (a) the special use to which the expropriating authority will put the land; (b) any increase or decrease in the value of the land resulting from the expropriation or the development itself or the imminent prospect thereof; or (c) any increased value resulting from the illegal use of a property (for example, an increase in value for a building containing illegal apartment units).
When it comes to business losses and disturbance damages, though, each owner is entitled to assert their own claims for losses. No “pie” concept exists here. Sometimes, these claims are more substantial than those relating to the loss of market value. The Act does not specifically define the term “disturbance damages”. Case law has held, however, that claimants are entitled to be reimbursed for such damages that are the natural and reasonable consequence of the expropriation. Said another way, an owner is entitled to damages, costs, and expenses directly attributable to the expropriation, provided that the damages are not too remote and the owner has taken all reasonable action to ensure that the damages are mitigated.
The “onus of proof” in respect of a claim for disturbance damages is on the owner. This means that an owner must prove their claim for disturbance damages by the presentation of cogent evidence. It is vital, therefore, that owners maintain a detailed and accurate record of all costs incurred as a result of the expropriation; without this information, even a meritorious claim can be lost.
The Ontario Municipal Board may sometimes grant compensation on a basis other than a property's pure market value where the owner experiences “special difficulties” in relocation. This will normally be related to some particular or unusual feature of the property that cannot be adequately compensated for by the application of the Act's other provisions. This is an unusual provision not often used.
The fact that compensation for expropriations extends beyond the market value of land causes municipalities significant issues when trying to develop budgets for planned expropriations. The costs of a large scale taking often go well beyond the value of the land or interests in land being taken. This is particularly so because the municipality often bears the entire costs (both its own and the owners') of this process.
Environmental Contamination
Where land or an interest in land is acquired by a municipality through the expropriation process for use as part of an infrastructure project, the municipality will want to satisfy itself, prior to acquiring the land or the interest in land, that there is no environmental contamination on or under the subject property, including any contamination that may have migrated to the site from adjoining lands. Where the land or interest in land being taken by the municipality is through registration of a plan of expropriation, the municipality should undertake a Phase I Environmental Site Assessment, and perhaps a Phase II Environmental Site Assessment where necessary, to satisfy itself that there is not environmental contamination that the municipality would be responsible for, as the future owner of the property. Where the property to be taken is being acquired through a voluntary agreement with the property owner, the municipality will want to include the right under the agreement to undertake environmental and soil testing during a due diligence condition period, so that the municipality can satisfy itself that there is not any environmental contamination on or under the property.
Timing and Completion of Takings
The expropriation process can be very time consuming if a property owner is not willing to enter into a voluntary agreement or is not prepared to agree to compensation. Typically, a municipal taking may take nine to 12 months, or longer, to complete. Delays in acquiring property may result in delays for the municipality in the commencement and the completion of the infrastructure project. Additionally, the costs to a property owner and a municipality can become substantial where the parties do not come to a voluntary agreement on the taking and compensation to be paid by the municipality to the property owner.
Expropriating land can be a costly and time consuming process for a municipality. The necessary reports need to be prepared by staff at the municipality, so that the approval of the municipal council is obtained for the expropriation. Surveyors need to be retained to prepare draft plans to identify the location of the lands to be taken and also the legal description of the lands or interests to be taken. Appraisals of the property must be undertaken. Legal advisors need to be retained by the municipality at the inception of the expropriation process and continuing on through its completion. Environmental consultants will also need to be retained, in order to determine whether there is environmental contamination on the property to be taken. Business valuators and planners may also have to be retained in some cases. Where the infrastructure project involves multiple properties, such as for instance a rapid transit line, there will also need to be staff at the municipality and outside consultants to determine which portions of owners' properties need to be taken and whether interests to be taken are fee simple interests, permanent easements, or temporary easements.
Conclusion
The ability of a municipality to expropriate an ownership interest or an easement interest in a property or multiple properties is an extremely valuable power for a municipality as part of its planning, construction, development, and renewal of infrastructure projects. Expropriations, however, are not often well received by property owners because their land, a portion of their land, or an interest in their land is being taken without their consent. Good communication between the municipality and the affected property owners can reduce the acrimony that otherwise can ensue, but the expropriation process is hardly one that is “friendly”.
However, where an expropriation process is well organized and managed by a municipality, with assistance and cooperation from the professionals and consultants retained by it, the time period involved to acquire the necessary lands or interests can be reduced, as can the overall costs.