Ontario Divisional Court reminds expropriated owners: evidence is key to productive use

When does an owner cease to make productive use of land so as to attract interest prior to expropriation?

Under the Ontario Expropriations Act landowners are entitled to six per cent interest on the unpaid market value of expropriated (or injuriously affected) land. This can be a silver lining given the disruption caused by an unwanted land taking (although it provided for a more significant impact prior to the recent increase in interest rates). There is potential for interest to run prior to the expropriation provided the owner can satisfy the test of showing that productive use of the land ceased prior to the taking.

The key to obtaining this interest is proving both:

1. The productive use of the land.
2. When this productive use has actually ceased.

The Divisional Court in Eric Levin Holdings Inc. v Ministry of Transportation^[1] has reminded commercial property owners that productive use can be at a loss when owners begin to lose tenants, and that claiming an alternative use (such as re-development potential) requires credible evidence of steps taken to achieve that use.

Background

The owner's property, which was improved with a one-storey multi-tenanted commercial building, was wholly expropriated on February 1, 2018 and then demolished. The primary use of the property, according to the owner, was to hold, improve, and enlarge the gross leasable area (GLA).

While the owner and the expropriating authority reached a settlement at the commencement of the hearing on the market value of the property ($3,200,000.00) with interest starting as of February 1, 2018, and on the owner's business loss, the owner brought a claim before the Ontario Land Tribunal that it was also owed interest on the market value (pre-February 1, 2018) from one of the following dates:

• November 2013, being when the owner first met with the expropriating authority.
• May 1, 2015, being when the owner's largest tenant vacated the property due to the expropriation.

Section 33(1) of the Ontario Expropriations Act provides that:

Subject to subsection 25(4), the owner of lands expropriated is entitled to be paid interest on the portion of the market value of the owner's interest in the land …to which the owner is entitled outstanding from time to time, at the rate of 6 per cent a year calculated from the date the owner ceases to reside on or make productive use of the land.

The expropriating authority contended that the property remained partially tenanted with rents being paid until the final tenants left the building on February 28, 2018, and that no interest should be awarded as there had been a settlement on the market value with interest from February 1, 2018.

Tribunal decision

While the owner testified that there were opportunities to expand the GLA, the Tribunal failed to find evidence that such opportunities were ever commenced; further, the Tribunal noted that any expansion would have required planning approvals — of which there was no proof that any applications were ever filed.

The Tribunal agreed with the finding in West Hill Redevelopment Co. v Ontario, where it was determined that the date upon which an owner ceases to make productive use of the land is a question of fact and it was held that, in reviewing the case law, productive use is unaffected by loss of profit. After canvassing the authorities the Tribunal noted that it was not provided with one that directly addressed the situation of termination of productive use from a multi-tenanted building.

The Tribunal concluded that "[f]rom these cases it appears to the Tribunal that productive use is a question of fact unaffected by loss of profit, and that in these circumstances where there was the staggered departure of the tenants, that until the last tenants left, there remained the productive use of the Subject Lands."

Accordingly, the Tribunal in what may be seen as a case of first instance dismissed the owner's claim for interest by concluding that the productive use of the property — as a rental building — continued until February 28, 2018, when the last tenants vacated.

Divisional Court decision

The owner appealed to Divisional Court, arguing that the Tribunal failed to recognize that the land had two productive uses – a rental building and re-development potential, which use had ceased on the date it first became clear that the expropriating authority was going to expropriate the land.

The Divisional Court rejected the owner's argument finding that there was no evidentiary basis for the Tribunal to have concluded that the productive use was a redevelopment property. The evidence provided by the owner was in sharp contrast to a Nova Scotia decision relied on, where the landowner had extensive corroborating evidence in addition to his own evidence about future business development plans for property.^[2]

The Divisional Court further held that Tribunal made no error in determining that the owner made productive use of the property until the formal date of expropriation — this finding was supported by the evidentiary record. The Divisional Court noted that the Tribunal decision was supported by case law stating that "profit or degrees of profit are not the test in determining productive use…If rental is at a loss, that does not constitute cessation of productive use."^[3]

Key takeaways

This case serves as a helpful example of what landowners subject to expropriation can expect with respect to a claim for pre-expropriation interest payments. Importantly:

1. Evidence that the expropriation has caused a commercial landowner to operate at a business loss is not sufficient to evidence a loss of productive use. 
2. Since determination of the productive use of land is a question of fact, landowners must be able to demonstrate the productive use with a clear evidential record. This includes, for example, business plans, development applications, meeting minutes, financial records and witness testimony.