Expropriation Gone Awry: A Case Study

Elizabeth Brubaker, Executive Director, Environment Probe
Presentation to Exploring Rural Land Use Conference
Guelph, Ontario, May 14, 2013

This afternoon I’d like to talk about one particular aspect of property rights – namely expropriation, or the forced exchange of property rights. Ontario’s Expropriations Act defines expropriation as “the taking of land without the consent of the owner.” I’m going to stick with that definition – I won’t be addressing the de-facto takings that result from land-use regulations.

I realize that this conference is devoted to rural land use. But I’m going to present a very urban case study – the expropriation of land at the corner of Yonge Street and Dundas Street in downtown Toronto. I’m going to use this case because it epitomizes what’s wrong with the expropriation process. It provides a perfect opportunity to launch a discussion of general principles – principles that apply to rural and urban land use alike.

As I’m presenting the case study, I’d like you to keep three key questions in the back of your mind: Who should have the right to expropriate, and for what purposes? What should the process look like? What constitutes fair compensation?

Ontario has granted expropriation powers very liberally. Municipalities, of course, can expropriate, as can school boards, universities, public utilities, Ontario Power Generation, the Ontario Energy Board, conservation authorities, the Niagara Parks Commission – and that’s just a start. Land can be taken for highways, housing developments, hospitals, and public libraries. It can be taken to protect water sources. But it can also be taken for casinos … and parking lots. There are shockingly few restrictions. The Ministry of Infrastructure Act permits the minister to “expropriate any land or interest in land, that the Minister considers necessary for the use or purposes of the Government or [a] public sector organization.” In other words, if the government wants it, the government can take it.

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This opens up the process to serious abuse. I can’t think of a better example of abuse than Toronto’s expropriation of Yonge and Dundas.

Let me start by giving you a brief overview. In the mid-1990s, the intersection of Yonge and Dundas was looking pretty tacky. The Eaton Centre held down the southwest corner, but the other corners were occupied by discount stores, electronics shops, fast food restaurants, currency exchanges, and the like. There were panhandlers and drug dealers around. This wasn’t to the liking of the posher local businesses, who came up with a re-generation plan. Led by the Eaton Centre, they proposed putting an “urban entertainment centre” – with a multi-screen cinema – on the northeast corner, and a public square on the southeast corner.

The city signed on to the plan in 1996, and announced its intention to acquire ten properties, six of them on the northeast corner. But there was a problem – the owners weren’t interested in selling. So the city decided to take their land. There was a 38-day hearing into the proposed expropriation in 1998. It approved the plan. The city then expropriated the properties, and sold the assembled land on the northeast corner to a private developer. Ten years later, the new multiplex, shops, restaurants, and offices finally opened.

There were many things wrong with this process. First of all, the planning process was not transparent. A local business association and the ward councillor worked in secret for nine months on a redevelopment plan. They didn’t involve the owners whose property would be expropriated. Neither the collaboration nor the plan was publicly announced until city council had approved the plan in principle. Afterwards, the work continued on a largely confidential basis with little public oversight. In the words of urban planner Beth Milroy, “no one who worked outside of city hall could challenge the project because it was being planned behind a veil.”

Nor was the planning process competitive. The city implied it was competitive – it even issued an RFQ for the development. But in fact the proponents had settled on the cinema company AMC as the anchor tenant months before council had approved the plan. AMC wanted to work with a developer called PenEquity, so the city negotiated a deal with PenEquity while the RFQ was underway. In the absence of competition, the city could not ensure that it would get the best deal possible. And indeed, the deal was not favourable to the city. The city assumed many risks, capping the price PenEquity would have to pay for the land, and not requiring full payment until the project was complete.

Another problem: Once the plan was finalized, the city tried to dispense with a hearing into the expropriation. First it met with the province, but that attempt failed. Then it made a motion at the OMB to dispense with the hearing into the planning approval process. It lost there, too.

The hearing did go ahead. But the rules governing it were flawed. The “joint board” hearing the case had to determine whether the proposal represented good planning and was in the public interest. It also had to determine whether expropriation was fair, sound, and reasonably necessary. But there was a catch: Under the Expropriations Act, the taking had to be “fair, sound and reasonably necessary in the achievement of the objectives of the expropriating authority [emphasis added].” That means that the landowners were not allowed to question the city’s objectives.

The city had targeted the area for “community improvement.” The Planning Act allowed expropriation for this purpose. But community improvement could mean almost anything. Here’s how the Planning Act defined it: a “‘community improvement project area’ means an area within a municipality, the community improvement of which in the opinion of the Council is desirable because of age, dilapidation, overcrowding, faulty arrangement, unsuitability of buildings or for any other reason [emphasis added].” The board found that the city’s proposal fell within this “for any other reason” category.

The board admitted that the buildings the city wanted to take weren’t terribly dilapidated. They were not blighted – in fact, some were “well maintained and operated.” The board noted that it was impressed with the sincerity of the owners and with “their families’ hard work and enterprise in acquiring these properties after immigrating to Canada.” But sincerity, hard work, and enterprise aren’t enough to stave off governments that want your property. The board was persuaded that the economic and social benefits of redevelopment would be in the so-called “public interest” – and so it gave its blessing to the expropriation.

But let’s look more carefully at this question of the public interest. Did redevelopment serve the public interest, or a private interest? Redevelopment of the corner was clearly driven by the private sector. The effort was spearheaded by the Eaton Centre and other businesses in the area. They formed an association in 1995, approached the local councillor, got a $150,000 grant from the city, and used it to hire a consultant who dreamed up the plan. Public funds, and the public power of expropriation, were used to increase the value of private property.

The plan was also to be carried out by the private sector, for its own profit. The movie theatres, stores, and office space would be built, owned, and operated by the private sector. This is a long way from a traditional public use, such as a railroad, a highway, or a public utility corridor.

The board did consider whether it was appropriate to use expropriation for a private development. It found that, under the Planning Act, a city can co-venture with the private sector to promote economic activity. It also found no prohibition in the Expropriations Act against a city expropriating a property and then re-selling it to private interests. Indeed, it pointed to two precedents – one involving urban renewal in Toronto, and the other involving the expropriation of land for a casino in Windsor.

I find this very problematic – private interests should not be able to harness the machinery of government to achieve their own ends.

Another problem with the hearing process was that the board failed to adequately consider alternatives to the proposal. The owners of the buildings that were to be expropriated proposed redeveloping the corner themselves. Zoning rules – with their use restrictions and low densities – had discouraged the development of their properties in past. But if the city was going to change the height limits on the corner, the owners were happy to put forward proposals of their own. In fact, they presented to the board two options for high-density, mixed use developments. The board acknowledged that these plans would be appropriate land uses. But they weren’t the uses the city had envisioned – they didn’t include entertainment – and the required planning approvals and land assembly might take time.

The proponents stressed the importance of their exact development happening in that exact place. They also stressed the need to act at that exact time – there was, they said, “a unique window of opportunity.” Bizarrely, they succeeded in creating a sense of urgency by arguing that if they didn’t put up a multiplex right away, someone else would. That seems to be an argument against expropriation – they were acknowledging that cinemas would be built in the free market. But the board bought it. “This is Yonge Street’s opportunity to seize the moment,” it said. “What was essential was that the corner develop now.” And so, the alternative proposals put forward by the landowners were doomed.

Another serious flaw in the hearing process was that it didn’t adequately assess the merits of the proposal. Both the city and the board seriously misjudged the economic viability of the project. In fact, the project floundered for more than a decade. First, the developer had trouble finding tenants – Disney backed out, and Virgin Records backed out. Then there was a disagreement over who should pay for a subway station entrance. In the mean time, all of the buildings had been bulldozed, and Torontonians had grown tired of the ugly hoarding surrounding the site. The press wondered why the city hadn’t set out strict timetables for the development. One city planner explained that “such a high degree of optimism surrounded the project, it was felt that deadlines wouldn’t be necessary.”

The buildings were razed in 1999. Excavation didn’t begin until 2003, and then it stalled in 2004. Apparently the developer had run out of money. The corner remained dark until 2005, when the developer found financing from a US investor, and construction resumed. But even the eventual completion of the building in 2008 didn’t put an end to the bad news. In 2009, the property was placed in court-ordered receivership. The company’s debts had reached $280 million (almost $10 million of which was owed to the city). This persistently troubled history suggests that the project was an economic loser.

So those were some of the problems with the hearing process. Now, what about compensation? Was it fair? It’s hard to assess compensation, because the details are confidential. We know that the landowners thought the city’s initial offers were outrageously low. And we know that they argued about compensation for years. The problem was that they wanted to be compensated for the highest and best use of their land. The board explained, “The major issue to the landowners is full and fair compensation which includes the ability to develop the properties themselves…. In a perceived rising market, it is unfair, they suggest, to take and assemble land at current value and flip it over to a private developer without giving them the opportunity of benefiting in the development scheme.” And why shouldn’t they benefit? They may well have purchased their buildings with this in mind.

But that’s not the way expropriation law works in Ontario. Under the Expropriations Act,
compensation is supposedly based on market value. (That, along with some damages, special relocation costs, business losses, and good will.) Of course, market value is subjective. It’s the price that a willing buyer pays a willing seller. Here, we’re talking about unwilling sellers – or at least unwilling to sell to anyone but a developer. But under the Expropriations Act, market value reflects the land’s current use rather than its potential value to a developer: “In determining the market value of land, no account shall be taken of … 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.” Given this rule, it’s fair to assume that compensation was not adequate in this case.

It’s also worth noting that the landowners spent huge amounts on legal fees, first defending themselves in the joint board hearing, and then launching court appeals. In at least one case, the owner was out of pocket about a half million dollars. One consultant for some of the owners was quoted in the press as saying that “the fiasco was ‘just another case of the little guy getting screwed.’” That may be a good assessment of the case.

What I’ve been describing was an inappropriate expropriation, conducted through a lousy process, and resulting in inadequate compensation. In hindsight, was there anything to redeem it? Did it at least create public benefits? Not really.

One goal of the project was to make the neighbourhood safe. The project’s proponents had argued that the configuration and management of the small buildings that were to be expropriated promoted crime (seemingly ignoring the fact that criminal offences were considerably higher on the west side of Yonge Street – home to the Eaton Centre – than on the east side). But eliminating the hidden nooks and crannies of these buildings has not solved the problem of violence on Yonge Street. There have been a few fatal shootings, and the crime rates for the local police divisions are the highest in the city. The statistics suggest that razing buildings might not be the most effective way to fight crime.

Another goal of the project was to revitalize the area, to make it attractive. The planners spoke of creating “a renewed sense of place.” They promised “memorable architecture.” I’m afraid that what we ended up with is memorable mainly for its ugliness. Here’s how Christopher Hume, the Toronto Star’s architecture critic, described it: “a nasty dark grey bunker that … looms over one of the city’s most important intersections with all the charm of a high-security prison. Big, bulky, busy, and boring to the last rivet, it is a building untouched by architecture, or any other civic concern for that matter…. The developer … has committed not just an offence against good taste, but a crime against urbanity.” It’s hard to imagine that this is better than the development that would have happened on its own if the city hadn’t expropriated.

Of course it’s possible that one or more of the owners would have refused to participate in a new development. Holdouts are always a possibility – albeit not nearly as serious a threat as many suppose. In some cases, owners refuse to sell at any price. This happened just a few blocks south of Yonge and Dundas, when the Eaton Centre was being built. That shopping centre wrapped around an old Woolworth’s on the corner, and it wasn’t the worse for it.

What happened at Yonge and Dundas makes it clear that our expropriation process needs a good overhaul. It’s long past time to get control over who expropriates, and for what purpose. At the bare minimum, we need to restore a genuine public use requirement. It’s also past time to inject integrity into the process. We need to ensure that the planning process is transparent. We need to ensure that the expropriation process evaluates the objectives, merits, and economic viability of proposed projects, and that it considers viable alternatives to them. And finally, it’s time to rethink compensation – to ensure that those who do lose their land are left whole.

Later this afternoon, we’ll hear about some of the restrictions on expropriation that have recently been introduced across the US. Those new limits may well provide guidance and inspiration for reforms here in Ontario.

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