Governments, municipalities, public utilities, and transit authorities all have the power to expropriate private property for the construction and operation of projects that benefit the public.
The power of expropriation can be exercised over an entire property or a portion of a property. The interest expropriated can be the fee simple (or ownership) interest or only a statutory right of way.
When a property is expropriated in whole or in part, the owner and other parties with an interest in the property are entitled to compensation. In British Columbia, that compensation is determined by the Supreme Court of British Columbia in accordance with the Expropriation Act, RSBC 1996, c. 125.
This article discusses the compensation that is available in British Columbia when all or part of a commercial property is expropriated.
Overview of compensation available under the Expropriation Act
An owner of a property that is expropriated is entitled to compensation for the market value of the expropriated land plus disturbance damages.
The market value of the land (or portion of the land) expropriated is based on the highest and best use of the land. If the land has future development potential, that will be taken into account as part of the highest and best use.
Disturbance damages are the reasonable costs, expenses and financial losses caused by the expropriation, including the reasonable costs of relocating on other land.
If only a portion of a property is expropriated, the owner of the property is entitled to compensation for the market value of the expropriated portion, the reduction in the market value of the remainder of the land, and reasonable personal and business losses. Reasonable business losses in a partial expropriation may include relocation costs to the extent that relocation is reasonably necessary.
Commercial tenants who hold a leases for terms greater than one year are also entitled to compensation if the leased land is expropriated.
The compensation claimed must be objectively reasonable.
How is compensation for the market value of the expropriated land determined?
The market value of the expropriated land is determined by appraisal evidence. Typically the claimant and the expropriating authority will each retain their own real estate appraiser to prepare an appraisal report and the court will make the final determination. As part of the appraisal report, the appraiser will determine the highest and best use of the land and the most appropriate appraisal methodology to use in valuing the land.
In the case of a partial expropriation, the appraiser will also determine the reduction in market value to the remaining land.
How is compensation determined for a leasehold interest?
A commercial tenant who operates a business on the expropriated land under a lease with a term of greater than one year is entitled to compensation for the value of the lease and for any additional costs associated with relocating earlier than the tenant otherwise would have. The compensation available to a tenant is determined based on the length of the term of the lease, any rights or prospect of renewal, the nature of the business, and the tenant’s investment in the land.
Month-to-month or at-will tenants are typically not entitled to compensation.
Who is entitled to claim disturbance damages?
Disturbance damages can only be claimed by an owner or other interest holder who operates a business on the expropriated land.
An owner who leases out their land to a tenant or holds their land as an investment is only entitled to compensation for the market value of the land taken, not any additional disturbance damages or business losses. Any loss in relation to the future development potential of the land is already be taken into account in the market value of the land. Likewise, a loss of rental income from a tenant is also considered part of the market value of the land, not a separate business loss.
The amount of compensation available to an owner or other interest holder who operates a business on the expropriated land will depend on whether it is necessary for the business to relocate as a result of the expropriation.
What disturbance damages are available if a business must relocate because of an expropriation?
If the relocation of a business is reasonably necessary as a consequence of an expropriation of all or part of the property, the owner of the business is entitled to the reasonable costs of the relocation.
The reasonable costs of the relocation include the legal and advisory costs related to the purchase of a replacement property, taxes payable on the purchase of the replacement property, and the costs of moving the assets of the business.
The owner of a relocated business is not entitled to claim compensation for the purchase price of the replacement property or for the costs of building on the replacement property. That compensation is considered to be included in the compensation for the market value of the expropriated property.
If the cost of doing business at the new location is higher than it was at the expropriated property, the business owner can claim compensation for that additional cost. For example, if it is more expensive to bring materials to the new site, the business owner is entitled to compensation for that extra expense. Such compensation will not be awarded indefinitely but only for the anticipated lifetime of the business.
The disturbance damages to which a business owner is entitled are limited to the value of the business at the time of the expropriation. If the disturbance damages claimed exceed the value of the business, then it is more reasonable to wind up or sell the business than relocate it and compensation will be awarded on that basis.
What disturbance damages are available if a business does not relocate?
If it is not feasible to relocate a business that operated on the expropriated land, then the business owner is entitled to compensation for the value of the goodwill of the business.
The decision not to relocate the business must be objectively reasonable. If it is feasible to relocate business but the business owner chooses not to, the business owner’s compensation will be limited to the decrease in the value of the business as a result of the expropriation. The decrease in value is determined based on the difference between the value of the business if it had continued to operate on the expropriated property and the value of the business without a location.
When only part of a property is expropriated and the business owner remains at the same location, the business owner is still entitled to compensation for any business losses caused by the expropriation. For example, the business may have less space for its operations and may suffer losses as a result.
Legal and appraisal costs
A party whose interest in land is expropriated is entitled to their reasonable legal and appraisal costs necessarily incurred for the purpose of asserting the claim for compensation. The costs are calculated in accordance with a tariff. If the compensation awarded is less than 115% of an advance compensation payment made by the expropriating authority, the court has discretion to decline an award of costs.
Conclusion EKB’s business litigation team would be pleased to assist you with obtaining compensation for the expropriation of your property or business premises. Please contact Laura Morrison or Rod Urquhart to find out more about what compensation you may be entitled to under the Expropriation Act.