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Why do I Need a Valuation – Expropriation

August 13, 2019


Why do I Need a Valuation? Expropriation

Expropriation is generally recognized as a necessary part of modern government, however the exercise of that power almost always results in a distressing experience for the affected property owner. Learn how you can manage an expropriation process in the latest Davis Martindale blog.

What is Expropriation?

Expropriation occurs when an authorized public authority takes private property for public purpose without consent of the owner. In Canada, public authorities have the right to take private property, as long as the appropriate government body approves the acquisition.

The government cannot take land as a punishment to the owner, for political or other unreasonable purposes. The property must be needed for a clear public purpose, such as expanding public roads, or creating utility systems such as pipelines and sewers.

Given the imbalance of power between the landowner and the government, legislation provides numerous safeguards that favor the property owner in the expropriation process. One of these safeguards ensures the property owner is entitled to “be made whole” for any property taken. This may include:

  • The fair market value of the expropriated property at the date of expropriation;
  • Losses attributable to the adjoining land;
  • Compensation for reasonable legal or accounting fees associated with the expropriation;
  • Relocation costs for a business, or if a business cannot be relocated, the value of the goodwill of the business;
  • Reasonable business losses attributable to downtime; and/or
  • Interest for unpaid parts of the claim at a prescribed rate

As a practical matter, Chartered Business Valuators (“CBV”) and other professionals are usually retained by the city or local government body directly, so the business owners do not have to incur these costs themselves.

Why do I need a Valuation?

Generally, a CBV becomes involved in expropriation matters when the taking of real property adversely affects a business. Examples include:

  • Business Closure: When a business’s property is taken and the business is unable to relocate and must close;
  • Business Relocation: When a business’s property is taken and the business is forced to relocate;
  • Business Disruption: When part of the business’s property is taken and the reduced utility of the remaining property results in extra costs for the business; or
  • Construction Loss: When no property is taken, but a business is impacted by construction-related activities that occur in close proximity to its property.

In general, these losses exist in one of two categories: past losses and future losses.

Past losses occur between the date of the expropriation and the date of the valuation. Past losses are calculated by assuming that, had the expropriation not occurred, the business would have continued as normal. The CBV will use the historical profitability of the business as the basis of the quantification, adjusted for any industry trends, market trends, and other factors deemed appropriate.

Future losses occur after the date of the valuation. Unlike past losses, future losses are, by their very nature, speculative and involve many assumptions. If the business is unable to continue operating, the CBV may quantify the businesses goodwill [hyperlink to goodwill blog] as the future loss. If the business is able to relocate and continue operations, the CBV may need to estimate how profitable the business will be at the new location, and estimate how far in the future the losses attributable to the expropriation will continue.

If your business is involved in an Expropriation matter, give the experts at Davis Martindale a call. We’d love to work with you.