A decision at the crossroads of legislative reform and housing pressure
In Ville de Sept-Îles c. 9379-1242 Québec inc., one of the first substantive decisions under the Act respecting expropriation (the “ARE”), the Administrative Tribunal of Québec (the “ATQ”) clarified how compensation for expropriation is determined when a land parcel has distinct development potential and a developer has already spent years preparing it for development.
The decision arises against a backdrop of legislative reform. The ATQ noted that the dispute had to be decided under the ARE regime, which came into force in 2023, replacing the former Expropriation Act. The Tribunal also emphasized that, despite this new framework, the fundamental principles remain the same. First, expropriation is still an exceptional infringement of property rights. Second, the expropriated party should, to the extent possible, be restored to the same financial position as before the expropriation, without any enrichment or impoverishment.
A strategic site, all but shovel-ready
The case also unfolded against a backdrop of land scarcity and pressure on the housing supply. The Ville de Sept-Îles (the “City”) expropriated a parcel of land to create a land reserve and ensure the development of residential housing in the area to meet its current and future housing needs. The site in question was described as the last large parcel of land available for development within the City’s main urbanization perimeter.
The proposed subdivision of the expropriated land envisioned four phases of development, ultimately totalling 500 residential lots, in addition to certain institutional, recreational, industrial, and conservation components, distributed across the various parts of the site. The land is located within the urban perimeter, close to amenities, and represents one of the last sites available for large-scale residential development in this area.
What makes this case unique is that the expropriated party was not a passive owner. Over nearly 15 years, the developers took the necessary steps to acquire and rezone this land—previously designated for industrial use—for residential purposes. During this time, they produced around fifteen versions of subdivision plans, commissioned various technical, geotechnical, and environmental studies, and participated in consultations required by the City. In 2022, the zoning was changed to designate the site for residential use. In December 2023, the City adopted a special planning program confirming its priority status, for which a favourable opinion had already been issued during the first phase of the project. In the end, the City expropriated a property it already knew was development-ready and for which the developer had already done the lion’s share of the preparatory work.
First lesson: compensation assessed by component
One key takeaway from the decision is the method used to calculate compensation. The ATQ noted that the ARE distinguishes between several components of final compensation, including the market value of the land, compensation for injuries caused by the expropriation, and compensation for trouble, nuisance and inconvenience. Since the ARE came into force, the burden of proof varies depending on the component of compensation claimed.
Regarding the market value of the land, the debate centred on the highest and best use (the “HBU”), now codified in the ARE. The City argued that the site, with the exception of a small industrial section, should be treated as unserviced land intended for medium- or long-term residential development. The ATQ rejected this argument. Instead, the Tribunal adopted a more detailed assessment of the property, based on (i) the scarcity of available land, (ii) existing demand for residential projects, (iii) the actual progress of the project, and (iv) the likelihood of its completion in the short or medium term. The ATQ also emphasized that the property must be appraised independently of a market influenced by the expropriating authority, noting that the municipality’s dominant presence in the local market must not skew the analysis. Any other approach would risk distorting the property’s true value.
Specifically, the ATQ agreed with the approach taken by the expropriated party’s expert, who divided the land into several sections: an industrial section, a recreational and commercial section, a short-term residential section corresponding to Phase 1, a longer-term residential section corresponding to subsequent phases, and a section designated for conservation. The ATQ endorsed this section-by-section approach, finding it best suited to adequately compensate the expropriated party.
A practical approach to yield and market value
Another noteworthy aspect of the decision is the way the ATQ addressed the criterion of positive return set out in the ARE. The City’s expert argued that the project was not profitable, particularly due to infrastructure costs, and concluded that the HBU for the residual land should be that of land awaiting long-term development. The ATQ rejected this argument of insufficient profitability, noting that the assessment must reflect free-market conditions and the land’s actual economic potential.
The Tribunal found that the project meets HBU requirements: Phase 1 can be developed within three years, the land has high-quality soil, municipal services are nearby, the zoning change and the special planning program (SPP) are already in place, and, most importantly, the land is currently the only real site available for development in Sept-Îles. In this context, the ATQ concluded that a positive return remains likely, and the market value must be assessed accordingly.
Second lesson: the developer’s time and effort cannot be compensated twice
The second key takeaway from the decision relates to the expropriated party’s claim for the time and effort invested by its representatives in preparing the project. In addition to reimbursement of its out-of-pocket expenses, the expropriated party sought compensation for material damages, arguing that the City directly benefits from the work carried out over more than a decade to make the land suitable for residential development.
The ATQ recognized the value of this work. It granted reimbursement for studies, plans, and estimates, as well as expert fees, because these were actual, documented costs directly related to the expropriation or development of the site.
However, the Tribunal refused to award separate compensation for the developers’ time, energy, and entrepreneurial efforts, because the efforts to prepare the land for development were already reflected in the market value of the land. Further compensation would result in double compensation for the same economic substance.
Compensation for loss of appreciation on the expropriated property
The ATQ also addressed compensation for loss of appreciation on the expropriated property, which is intended to compensate for the difference between the value of the property on the date of expropriation and its value on the date of transfer. The Tribunal clarified that this compensation applies automatically when the transfer occurs more than six months after the expropriation. In such circumstances, the loss is presumed and no additional evidence is required.
Practical implications
The decision serves as a reminder for municipalities that intervention in the land market—particularly when it involves land already prepared for development—can result in significantly higher compensation than a simple assessment of “raw” land would suggest. A broad and simplistic approach may fail to meet the burden of proof set out in the ARE.
For developers and landowners, the decision underscores the importance of carefully documenting the expenses incurred in advancing a project. Studies, plans, expert reports, and other demonstrable costs remain recoverable. On the other hand, the time and effort invested will generally be factored into the market value analysis rather than compensated for separately.
Key takeaways
The decision in Ville de Sept-Îles c. 9379-1242 Québec inc. confirms that the new law does not break with the traditional principles of expropriation. It does, however, require a rigorous and realistic valuation process grounded in the specific characteristics of the expropriated property. Above all, the decision confirms that market value may need to be determined on a component-by-component basis, and that a developer cannot be compensated twice for efforts already reflected in the market value.
Against a backdrop of land scarcity and increased pressure on residential development, this decision reaffirms a core principle: compensation must reflect market realities, even when public authorities have helped shape those realities in an effort to improve access to housing.