While most people are vaguely aware of the concept of expropriation, wherein a government authority comes in and displaces someone from their property in exchange for a fee, only some people ever experience having their land expropriated.
The entire process of expropriation is unique and gives rise to many questions, the most significant of which is: how is the value of the expropriated land determined? This comprises corollary questions such as: Does the government tell the landowner that they will give them X amount of money, and they have no choice but to accept the government’s offer? Or do the parties negotiate? Are appraisals undertaken in advance of expropriation? Are comparisons made to other properties sold around the same time as the expropriation was undertaken?
All of these questions (and a few more) are answered by the recent British Columbia Supreme Court decision in Chen v Langley (Township).
A Married Couple Purchases Home
In 1993, the plaintiffs in this action, the Chens, a married couple, purchased the property that is the subject of this dispute. In 2005, the Chens bought out their partner to become the sole registered owners of the property. The property comprises 32.18 acres and is located in Langley, British Columbia. Then, Chens and their guests and tenants used the property for agricultural purposes such as growing produce, horse breeding, boarding, and riding. The Chens resided on the property continuously from 2005 until 2017, when the Township of Langley expropriated the property.
The Township Expropriates the Land
In 2008, the Township of Langley identified Chen’s property “as one subject to market speculation and accelerating land prices.” In 2010, the Chens sought to have their property excluded from the Agricultural Land Commission (“ALC”), but because the Township opposed the application, the ALC rejected it. Then, in 2013, the Township created the “University District,” an area of the Township that was “identified for possible urban development designed to encourage residential and commercial development of lands surrounding” a local university. The Chens’ property is located within the University District.
In 2015, the Township and the ALC entered into a non-binding memorandum of understanding with respect to the University District, in which it was agreed that the Township and ALC would work together to accommodate the continuing economic development of the University District. Then, in 2016, the Township expropriated a parcel of property to expand a street and create University Drive. The newly expanded street and the newly built street border different sections of the Chens’ property. Shortly after the roads were developed, in April 2017, the Chens listed their property for sale for $27,000,000. Six days later, the Township attempted to negotiate the purchase of the Chens’ property for $6,275,000. The Chens declined the Township’s offer, although they did receive a better offer from a developer called Desert Properties, who offered to purchase the Chens’ property for $18,500,000. Following negotiations, the Chens entered into an agreement of purchase and sale to sell their property to Desert Properties for $20,000,000. The contract was signed on July 10, 2017. On July 12, 2017, the Township filed a notice to expropriate the Chens land for use as a community park and parking lot. The Township initially paid the Chens $6,275,000 for their property and, five years later, paid the Chens $1,370,000 in interest for a total payment of $7,645,000 for their expropriation.
The Property Owners Sue for Fair Market Value of Expropriated Property
The Chens commenced a lawsuit against the Township, alleging that the Township had not paid them the fair market value for the property they had expropriated. They asserted that the property would have been removed from the ALR and appraised, on that basis, as worth $26,550,000. They argued in the alternative that, even if the property were to have remained in the ALR, the property was certainly worth at least the $20,000,000 that Desert Properties had agreed to pay a few days before the Township expropriated the land. The Township maintained that it had paid the appropriate, fair price for the property at the time of expropriation.
The court quickly concluded that the Chens needed evidence that their property would have been removed from the ALR, which would have opened the property up for development. As such, the remaining issue to be determined was the property’s fair market value.
The Legal Principles of Expropriation
When a property is expropriated in British Columbia, the party from whom the land is expropriated must be compensated in accordance with section 30(1) of the Expropriation Act, and compensation is to be based on fair market value, in accordance with section 32. Section 31 of the Expropriation Act details the formula to be used in assessing the fair market value of a property to be expropriated:
31 (1)The court must award as compensation to an owner the market value of the owner’s estate or interest in the expropriated land plus reasonable damages for disturbance, but if the market value is based on a use of the land other than its use at the date of expropriation, the compensation payable is the greater of
(a)the market value of the land based on its use at the date of expropriation plus reasonable damages under sections 34 and
(b)The market value of the land is based on its highest and best use at the date of expropriation.
2)If not included in the market value of land determined in accordance with section 32, the following must be added to that market value:
(a)the value of a special economic advantage to the owner arising out of the owner’s occupation or use of the land;
(b)the value of improvements made by an owner occupying a residence located on the land.
(3)If there is more than one separate interest in the land expropriated, the value of each interest must, if practical, be established separately.”
Section 32 defines “fair market value” as “the amount that would have been paid for it if it had been sold at the date of expropriation in the open market by a willing seller to a willing buyer.” Moreover, the Expropriation Act is to be “interpreted and applied ‘in a broad and purposive manner to comply with the aim of the Act to compensate a landowner whose property has been taken fully”, and “because expropriating authorities wield significant powers, courts must strictly construe expropriation statues in favour of those whose rights have been affected.”
Finally, as stated by the court in this case, “an offer to purchase a property is the ‘best and most probative evidence of value’ that the Court ‘can and must’ consider in determining the fair value of a property.”
Application of the Legal Principles to This Case
Despite the principles stated above with respect to the evaluation of the fair market value of expropriated land, the Desert Properties contract had minimal impact on the outcome of the judge’s decision in this case. That is because the purchase and sale agreement entered into by the Chens and Desert Properties contained a unique clause for the benefit of Desert Properties only. This clause allowed Desert Properties 30 days to investigate and confirm whether the property would be eligible for removal from the ALR and thus ripe for development. In the event that Desert Properties discovered that the land would not be removable from the ALR, it would decline to complete the purchase, as it would not be able to develop the land. Given that the Chens’ property was not eligible for removal from the ALR, a fact that Desert Properties would quickly have discovered, it would not have completed the purchase of the Chens property. As such, the purchase and sale agreement had “minimal impact” on the judge’s assessment of the value of the Chens’ land.
The court reviewed appraisal reports undertaken by appraisers for the Township and the Chens and compared and contrasted the conclusions. The court next considered the property’s location, including that it was within the University District, an area under constant growth and development, and thus attractive to buyers. The court also reviewed other positive contingencies of the property and other sales in the vicinity in 2017. As a result, the court was satisfied that the per acre value of the Chens’ property in November of 2017 was $325,000 per acre, for a total sale price of $10,500,000. The Township was ordered to pay the Chens the difference between the fair market value of their land and the amount they had paid in 2017, plus interest.
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