Screening out the Scheme: Potential lessons from the Paciorka re-hearing about the application of Expropriations Act S. 14(4)(b) in “mixed screening” scenarios
Introduction
When a landowner in Ontario is expropriated by an expropriating authority, such as by the Ministry of Transportation (MTO), Metrolinx or by a municipality, the expropriated owner is entitled to be paid sufficient financial compensation to make him or her economically whole.
However, certain preparatory actions that an authority might take before beginning the formal expropriation process sometimes have the unintended consequence of impacting the market value of the lands to be acquired. For example, a municipality could approve zoning by-laws, Official Plan Amendments or other planning documents that facilitate the future project for which the land is sought, but that otherwise limit the purposes for which the land can be used or developed. It would be unfair to the expropriated owners if their compensation entitlement was based on a calculation of market value that was impacted by steps taken by the authority in contemplation of the expropriation.
This article briefly outlines how Ontario’s expropriation law addresses this kind of situation by “screening out the scheme” of the expropriation, and analyzes Paciorka Leaseholds Limited v. Windsor (City), 2021 ONSC 2189 [Paciorka], a recent decision by the Ontario Superior Court of Justice (Divisional Court) on an appeal from a 2020 LPAT decision that engages with the atypical circumstance where some factors are screened out and others are not.
“Screening out the Scheme”: Expropriations Act S. 14(4)(b)
To promote the fair treatment of expropriated owners, subsection 14(4)(b) of the Expropriations Act codifies the common-law rule that the determination of the market value of land shall not take into account “any increase or decrease in the value of the land resulting from the development or the imminence of the development in respect of which the expropriation is made or from any expropriation or imminent prospect of expropriation.”
In situations where this rule is applied, the Tribunal is asked to carry out a hypothetical exercise that is generally known as “screening out the scheme.” In the typical case, as our firm has previously discussed, Into Out of the Shadows: Ignoring the Scheme in Expropriation Valuation it would be necessary to identify the potential time frame associated with the scheme, and then to adjust how real estate market data from this period is treated in such a way that counteracts the impact of the scheme on the market.
Paciorka Leaseholds and the mixed application of S. 14(4)(b)
The appropriate timeframe to screen out the scheme in a particular situation, and the resulting adjustments to apply to the data, are hotly debated by the parties in even the most straightforward cases. However, in Paciorka, both the LPAT and the Superior Court of Justice have recently been required to consider the rare example of a situation where it was appropriate to apply what could possibly be referred to as “mixed screening.” I suggest using this term to describe situations where certain external factors that impacted market value are not screened out despite arising during the timeframe of the scheme, for the reason that such factors are not scheme-related.
Paciorka concerned the acquisition of 187 lots held by an ownership group by the City of Windsor (the “City”) for the purpose of preserving a natural heritage area known as the Spring Garden Complex (the “SGC”). These lots were expropriated in three phases, in 2004, 2005 and 2008. All of the expropriated lands had been identified as part of an Area of Natural and Scientific Interest (“ANSI”) by the Ministry of Natural Resources and Forestry (“MNRF”).
The Paciorka matter was first heard by LPAT’s predecessor, the OMB, in 2009, in which the majority screened out the effect of a number of planning instruments on market value, as it was determined that all of these instruments were related to the scheme of the expropriation. It was subsequently appealed to the Divisional Court, which upheld the OMB’s decision, and then was appealed once more to the Ontario Court of Appeal. The Court of Appeal set aside the 2009 OMB decision and remitted the matter to the Board for re-hearing, as it found that the OMB had incorrectly screened out certain instruments that were not implemented with the SGC in mind, and were therefore not related to the scheme.
At the time of the expropriations, the use of the target lands was controlled by a number of planning documents. Provincial Policy Statements that were implemented in 1996 and 2005 (“PPS”) prohibited any development or site alteration on lands with ANSI identification, unless an applicant could provide a study that demonstrated the proposed development would create ”no negative impacts” on the natural features or ecological functions for which the lands were identified. These Statements were screened out by the Board in the original 2009 decision, but the Court of Appeal determined that their impact should have been considered as they were not scheme-related.
In the 2020 Paciorka rehearing, the Tribunal followed this decision, and considered the impact of the PPS on the determination of market value.
The City had also approved “Official Plan Amendment 5” (“OPA 5”) in 2002. OPA 5 set out the City’s acquisition strategy for the SGC and redesignated the target lands from “residential” to “environmental protection”, which prevented any development whatsoever of the target lands. In contrast to the PPS, the Tribunal found that OPA 5 was enacted for the explicit intention of setting out the City’s acquisition strategy.
The impact of OPA 5, which prevented any development on the lands, was therefore screened out from the calculation of market value for the expropriated lands.
The LPAT’s approach to determining the value of the lands was upheld in the 2021 appeal decision by the Ontario Superior Court of Justice.
In sum, the Tribunal determined, and the Courts have now further affirmed, that the correct approach to appraising the value of the lands was to consider the hypothetical situation where the PPS, which made development more challenging but not impossible, did apply to the lands, but OPA 5, which completely prevented development on the lands, did not. Going forward, counsel and expert appraisers tasked with valuing lands in analogous scenarios may therefore need to grapple with how to account for potential “mixed screening” effects.
Scargall Owen-King LLP is a boutique law firm focused on expropriation law and acts for both expropriated landowners and tenants, as well as expropriating authorities, such as municipalities and other public entities.