OEA Legislative Reform Discussion: Fixed Interest Rate. Piper Morley, Associate

Transcription

1 OEA Legislative Reform Discussion: Fixed Interest Rate Piper Morley, Associate

2 The Question Should the current 6% fixed interest rate be replaced with a floating rate similar to in the Courts of Justice Act? % 2.0% 2.0% 2.0% % 3.0% 3.0% 3.0% % 3.0% 3.0% 3.0% % 3.0% 3.0% 3.0% % 3.0% 3.0% 3.0% % 2.0% 2.0% 2.0% % 2.0% 2.0% 2.0%

3 Section 33 [T]he owner of lands expropriated is entitled to be paid interest on the portion of the market value of the owner s interest in the land and on the portion of any allowance for injurious affection to which the owner is entitled, outstanding from time to time, at the rate of 6 per cent a year calculated from the date the owner ceases to reside on or make productive use of the lands.

4 History of Fixed Interest The 1967 Ontario Report suggested that 5% per annum was inadequate and ought to be brought closer to 8% The Report suggested 1-2% over the rate of ordinary home owner loans The British Columbia Report recommended a rate of 1% above prime Despite this recommendation, our Act set a fixed 6% rate Todd: such statutorily fixed rates are undesirable because of the unlikelihood that they will be amended with sufficient frequency, if at all, to keep them in line with current market rates

5 Purpose of Interest Fairness would seem to dictate that interest should be payable from that earlier date when the land could no longer be used productively. The owner has been deprived of a capital asset and should be compensated for that loss. Partition Holdings Ltd. v. Ontario (Minister of Transportation & Communications, (1986), 56 O.R. (2d) 738, ONCA Compensation for the interest an owner could otherwise earn on the capitalized value of the lost asset

6 Why is a Fixed Interest Rate a Concern? Currently s. 33 sets the interest rate at 6% and is limited to market value and injurious affection amounts outstanding The 6% rate which was once significantly below market is now a multiple of short-term market rates. Does not incentivize acceptance of s. 25 offers However, owners can be exposed to a denial of interest because they are responsible for delay, or at least, a reduced rate of interest. To the extent that the rate differs from market interest rates, there may be seen to be benefits to either claimants or authorities

7 Erbsville Road Development Inc. v. Waterloo Region District School Board It is true that the six per cent interest awardable under s. 33(1) is high compared to today's prevailing interest rates. However, the School Board has not provided any evidence or jurisprudence from which to conclude that the Legislature intended to set the interest at that rate for any purpose other than to compensate the land owner for the interest it could earn on the capitalized value of the lost asset from the date the owner lost the use of it.

8 What Do Other Provinces Do? Alberta: interest is payable at a rate which the Land Compensation Board or Surface Rights Board, as the case may be, considers just: Have found Bank of Canada prime rate is fair and equitable rate of interest Interest on compensation has been awarded at a blended Royal Bank rate compounded annually The Board follows the principles that the rate must be just and equitable to parties, reflect changes in economic conditions, be published on regular basis and be recognized by general public British Columbia: the annual rate of interest is set at the prime lending rate of the banker to the government (Expropriation Act, R.S.B.C. 1996, c. 125, s. 46(2))

9 What We Have Heard So Far Request a floating rate like other Provinces and the Federal Government Increase inducements to accept s. 25 offers ex. after a certain length of time, deemed acceptance The problem with floating rates is that there is no inducement for the expropriating authority to make a reasonable offer if they are borrowing at a significantly higher rate than what the Act stipulates the statutory rate has to be higher to give authorities an incentive to settle

10 Thoughts/Comments? Piper Morley, Associate Phone: Fax: