IS THERE A RECOURSE AGAINST A BAD FAITH SELLER WHEN A BUYER PURCHASES AT HIS OWN RISK AND PERIL?

This issue was recently discussed in De Niverville et al. vs. Blanchard, 2016 QCCS 4698.

In 2003, Plaintiff acquired a building and commerce from the estate of the late owner (the “Estate”) for the price of $115,000.00 ($74,000.00 for the property and $41,000.00 for equipment and inventory).

The contract provided that the sale was made without any legal or contractual warranty and at the sole risk and peril of the buyer. Plaintiff also renounced her right to visit and inspect the property prior to the sale.

Around 2010, Plaintiff accepted an offer to sell the property. The mortgage lender of the prospective buyer required an environmental inspection as a result of which, it was learned that the soil of the property was contaminated and that for part of the time that the previous owner held title to the property, it was occupied by a Texaco gas station.

The cost of the environmental assessment was $6,377.00 which Plaintiff paid and the estimated cost of the decontamination was $75,000.00, which was put on hold pending resolution of Plaintiff’s claim against the Estate.

The previous owner was aware of the existence of the Texaco gas station but according to the evidence, he was not aware of the existence of any contamination. He believed in good faith that Texaco had cleaned up the site prior to giving up possession.

Article 1733 of the Civil Code of Quebec stipulates that a seller cannot exclude or limit liability for latent defects when he is aware or should be aware of their existence. However, the second paragraph of the Article makes an exception when the buyer purchases at his risk and peril from a non-professional seller, i.e. a seller who is not in the real estate business.

This exception has given rise to much discussion in the legal community since some argue that the law has turned its back on fraud. How can the law, which reflects society’s moral values, allow a fraudulent seller to escape sanction? One can only imagine the discomfort of a judge who must dismiss a claim against a fraudulent seller because the buyer purchased without any warranty. Should a judge sanction immoral conduct if it is considered to be otherwise “legal”?

The good news is that justice will prevail thanks to creative lawyers who have been able to persuade judges that the exception to the legal principle may itself give rise to an exception. The solution to the dilemma is as follows.

The legal consequence of a buyer who agrees to purchase at his own risk and peril is to waive and renounce the advantages of any legal or contractual warranty, notwithstanding that the non-professional seller may be aware of defects. However, for a contract to be valid, both parties must enter into it with free and unfettered consent. A seller who has made false representations to the buyer or has failed to disclose material information of which he has knowledge could provide the buyer with grounds to argue that his consent to the contract was tainted and thereupon apply for the annulment of the contract and/or damages.

The case law has repeatedly recognized that a party to a contract has a duty to inform the other party of any material information that he is aware of. Any consequential breach of the obligation by the seller would enable the buyer to ask for the cancellation of the contract and/or damages even without the existence of any legal or conventional warranty as to quality of the property.

In the case at bar, because the Court found that the previous owner was in good faith; was not aware of the existence of any contamination; and believed (however wrongly) that Texaco had cleaned up the site prior to vacating it, the Court found that there were no grounds upon which Plaintiff could rely to question the validity of its consent to the transaction.

Plaintiff also claims that Estate made a false representation in the Offer to Purchase by declaring that the property was at the time of the sale, in conformity with the laws and regulations relating to the environment, which the Court agreed was untrue. The Court stated, however, that the representation, although false, was made in good faith by the Estate and could not be considered to have been made intentionally to mislead the Plaintiff. Moreover, the Court also stated that in the circumstances, the said representation could not be considered to be a warranty.

This latter conclusion by the Court arguably rests upon questionable ground. The Court’s reasoning was that although the representation was technically false, it was not made in bad faith and therefore, it did not give rise to any liability. But of what value is such a provision in the contract if to have legal effect, the seller must know or have reason to believe that it was false? The Court’s reasoning would be more convincing if the representation had been qualified in such a way as to state that “to the seller’s best knowledge, the property is in conformity with environmental laws and regulations” or “the seller is not aware that the property is not in conformity with ….” However, that is not what the representation states. It states categorically that the property is in conformity.

It is submitted that a party is entitled, if not expected, to rely upon representations made by a co-contracting party when entering into a contract. If evidence is brought that the false representation induced the party to enter into the contract, then there should be a recourse available to the party to seek the cancellation of the contract and/or damages. Such recourse could be based on contractual liability. For example, Article 1458 of the Quebec Civil Code states that “Every person has a duty to honour his contractual undertakings” e.g. a representation regarding the environmental condition of the property. Alternatively, such recourse could be based upon the general theory of civil liability (Article 1457 Quebec Civil Code). A co-contracting party who makes a false representation which is relied upon by the other party is arguably negligent by not verifying the accuracy of the representation and should be held responsible in law for the resulting prejudice.

IS THERE A DIFFERENCE BETWEEN NET; NET NET; AND NET NET NET, COMMERCIAL LEASES?

This issue as well as the definition of structural repairs or replacements were addressed in the case of 154640 Canada Inc. et al. vs. Garadex Inc. et al., 2011 QCCS 2968.

In the opinion of the Court, a net lease is meant to provide that all expenses are assumed by the tenant and that the net rent received by the landlord constitutes a 100% return on investment. Consequently, the terms net net and net net net are redundant.

In practice, many leases describe themselves as “net” although some expenses are expressly assumed by the landlord. Usually, such expenses relate to structural repairs or replacements. In the opinion of the Court, such leases should more accurately be described as “semi-net.”

In the case at bar, a partial replacement of the roof and repairs to cracks in the concrete slab were at issue. The Court had to decide whether such repairs were structural since if so, the cost would be the sole responsibility of the landlord. Although the parties are entitled to define the terms used in their lease as they see fit, in the absence of such contractual definitions, the Court will search for the usual meaning of the terms. Here, the Court determined that structural meant the constitution, disposition and assembly of elements that form the skeleton of the building and provide it with rigidity and stability.

Based on this definition, the Court found that the replacement of part of the roof with a membrane, flashing and insulation was not structural since these were not elements that assured the rigidity and solidity of the building. Based on the same reasoning, the Court found that the concrete slab was a part of the building structure.

It is incumbent upon the parties to ensure that the terms used in the lease are clearly defined in order to avoid unpleasant surprises such as: a tenant with a five-year lease being held responsible to pay the full cost of a new roof with an expected life of 20 years; a landlord who negotiated a rental rate with the expectation that the tenant would pay for absolutely all expenses ends up with a zero or negative return on investment.

Trial Judge: The Defect Was Apparent. Court Of Appeal: No, It Was Hidden

In Giagnotti et al. c. Anania et al., 2016 QCCA 914, the facts are interesting insofar as the Trial Judge dismissed the Buyers’ suit but was reversed by the Court of Appeal.

In 2011, the Buyers purchased from the Sellers a single-family home that was built in 1984 for the price of $375,000.

Prior to purchase, the Buyers visited the property three (3) times and obtained a positive inspection report. Six (6) weeks after the sale, there was water infiltration in the basement. The Buyers called an expert who, after partially dismantling the wall finishing, determined that the water infiltration was caused by cracks in the foundation. The expert also identified the presence of mold. The estimated cost of repair was $53,000.

The Trial Judge determined that the defect was apparent, i.e. that a prudent buyer should have discovered it without the assistance of a qualified inspector.

The Sellers purchased the property in 2004 after obtaining an inspection report that identified cracks in the foundation and the presence of mold. The Sellers never corrected the problems identified by their inspector.

Seven (7) years later, the Sellers listed the property for sale. They admitted that a copy of their inspector’s report was not provided to the Buyers, but they stated that the latter never requested it. The Buyers stated that they never requested it because they were informed by the Sellers that the report was unavailable.

The Trial Judge and the Court of Appeal resolved this contradiction differently and arrived at different outcomes.

The Sellers completed the prescribed form entitled “Declaration by Seller of an Immovable” and signed it on April 25, 2011. It was entered it into evidence as Exhibit D-1. In it, the Sellers declared that they were aware of the existence of the 7 year old inspection report and that the report was available upon request.

The Buyers entered into evidence a copy of Exhibit D-1 with some initialed changes, including a declaration that the Sellers’ inspection report was not available. The Sellers alleged that the Buyers had fraudulently falsified the report.

The Trial Judge did not believe the Buyers’ pretention that they never asked for a copy of the report because they were informed it was not available. Had they done so, they would have been made aware of the existence of water infiltration and mold in 2004 and could have taken steps to investigate more thoroughly.

The Court of Appeal found this conclusion on the part of the Trial Judge to be a reversible error. It concluded that the evidence, i.e. the modified Declaration, established that the Buyers had been informed that the report was not available and there was insufficient evidence to conclude that the modified Declaration was falsified by the Buyers. The Court of Appeal stated that the Trial Judge could not legally disregard the modified Declaration on the simple ground that he believed that the Buyers were being untruthful. Since the Sellers alleged that the modified Declaration had been falsified by the Buyers and the Buyers alleged that the modified Declaration emanated from the Sellers, the Trial Judge could not prefer one version over the other on the basis that the other party lacked credibility without sufficient evidence to support such a conclusion. In other words, there would have to be some additional corroborative evidence to substantiate Sellers’ claim that the modified Declaration was falsified, which was lacking in the present case.

It is very rare for the Court of Appeal to reverse a trial judge when the judgment is based on credibility since it is generally accepted that the trial judge, who heard the witnesses first hand, is usually best placed to decide who is telling the truth. However, the Court of Appeal will intervene if the trial judge’s conclusion is not supported by any evidence.

Was it significant that the Sellers’ inspection report identified the foundation cracks and mold but the Buyers’ inspection report did not?

The applicable legal standard is that the defect will be considered hidden if a prudent buyer cannot be expected to discover it without the assistance of a qualified inspector. As long as the buyer had the property inspected by someone he believed to be qualified, he could not be held responsible if the quality of the inspector’s work proves to be inadequate.

The Trial Judge criticized the Buyers’ inspector for conducting an inadequate inspection. The Court of Appeal confirmed that it is the conduct of the Buyers that is determinant and not the conduct of the inspector.

Finally, and what may be considered to be the final nail in the Sellers’ coffin, they affirmed that during the entire period that they were in possession of the property, they never had any problem with water infiltration or mold. For the Sellers who resided in the property for seven (7) years, the alleged defects did not exist and yet they argued that it should have been apparent to the Buyers who visited the property for a total of three (3) hours.

LANDLORD’S OBLIGATION TO PROVIDE PEACEABLE ENJOYMENT OF THE PREMISES

The landlord’s obligation to provide the tenant with peaceable enjoyment of the leased premises goes to the very essence of a commercial lease, as was illustrated in 9185-4000 Québec Inc. v. Centre Commercial Innovation Inc., 2016 QCCA 538.

On February 24, 2010, the Tenant, Restaurant Amir (“Amir”), signed a lease for ten years with the Landlord for space in a commercial centre. During the negotiations that led to the signature of the lease, Amir learned that the premises situated directly above it were occupied by a Metro grocery store. Amir subsequently learned that the Metro premises were used as a warehouse and not a retail grocery. Amir opened for business in May 2010. From September through November 2010, the Landlord undertook major renovations to the exterior of the building. During this time, Amir noticed that there was excessive noise that disturbed its customers.

After the Landlord’s work had ended, Amir noticed that the excessive noise persisted and appeared to emanate from the Metro premises. On November 24, 2010, Amir sent a formal notice of complaint to the Landlord.

In December 2010, the Landlord notified Metro of the situation and requested that the excessive noise issue be corrected. Despite numerous attempts on the part of the both the Landlord and Metro to significantly reduce or eliminate the noise, the problem persisted.

On February 23, 2011, Amir filed suit to cancel the lease and claim damages. On April 11, 2011, Amir vacated the leased premises without paying rent for November and December 2010 as well as for February, March and April 2011.

The Trial Judge concluded that:

1. Excessive noise emanating from the Metro warehouse was perceptible in the Amir restaurant;

2. However, Amir failed to prove that it lost any profits as a direct result of the excessive noise;

3. Amir should have known that the structure of the building consisting of cement and steel was particularly conducive to the transmission of noise.

The Trial Judge dismissed Amir’s application to cancel the lease and damages and condemned Amir to pay the sum of $106,961 as a penalty for abandoning the leased premises and $35,830 for unpaid rent.

The Court of Appeal was not in agreement with either the reasoning or the conclusions of the Trial Judge. In its view, before deciding whether there was a causal connection between the excessive noise and Amir’s lost profits, the Trial Judge should have determined whether the Landlord fulfilled its imperative obligation to the Tenant to provide peaceable enjoyment throughout the term of the lease. This obligation goes to the very essence of the contract of lease. The Landlord’s obligation is one of result and not means, the consequence of which is that the Landlord can only exonerate itself from a breach by proving force majeure or the fault of a third person for whom it is not responsible in law.

In addition, the law expressly provides that the landlord must guarantee the tenant against disturbances caused by other tenants.

With respect to the types of disturbances that a tenant would be expected to tolerate and which would therefore not be actionable, the Court drew an analogy from the obligation of neighbors to tolerate normal inconveniences that are not excessive. Peaceable enjoyment of leased premises is appreciated according to the particular circumstances of the premises and the objective perception of a reasonable person. Normal inconveniences that neighbors must tolerate are evaluated according to the nature, the situation of the disturbance and custom. From this the Court reasoned that the abnormal and persistent character of a disturbance could give rise, depending on the circumstances, to a reduction in rent or the cancellation of the lease, with or without damages.

In the present case, the evidence retained by the Trial Judge established that the Landlord was notified of the existence of excessive noise in November 2010 and, despite its efforts and that of Metro to reduce or eliminate it, the noise persisted. Regarding the concrete and steel elements of the structure of the building, the Court of Appeal found that this was not at all relevant for the reason that a landlord cannot exculpate itself from its essential obligation on the ground that the tenant should have discovered a defect in the building.

The Trial Judge should not have dismissed the Tenant’s application to cancel the lease on the ground that it could not demonstrate a causal link between the noise and the lost profits. The Court of Appeal stated that this was not the Tenant’s legal burden. The enjoyment of the premises occupied by a restaurant is not solely reflected in its balance sheet since many factors could influence the financial results of a new business. The conclusions of fact retained by the Trial Judge lead to the uncontestable conclusion that the Landlord was in breach of its fundamental obligation pursuant to the lease to provide peaceable enjoyment to its Tenant. The sanction for such breach gives rise to three possibilities: specific performance, cancellation of the lease or reduction of rent. In the present case, the Tenant’s application for cancellation of the lease was well-founded and should be granted effective April 11, 2011. The Court of Appeal also granted a 50% reduction of rent from November 24, 2010 until April 11, 2011.

In addition, the Tenant claimed damages from the Landlord representing its investment in leasehold improvements amounting to $211,345. However, Article 1861 of the Quebec Civil Code provides that a landlord can exculpate itself from a claim in damages resulting from a disturbance caused by another tenant if it shows that it acted with prudence and diligence. This is a notably different standard than what applies when the sanction is cancellation of the lease or reduction of rent resulting from the landlord’s breach of its essential obligation to provide peaceable enjoyment.



The Court of Appeal was of the opinion that the claim for damages should be dismissed because the evidence demonstrated that the Landlord made a reasonable effort to intervene with Metro in order to correct the noise problem, although without success.

It is common in standard commercial leases to have a clause that exculpates the landlord from any responsibility for disturbances caused by another tenant. Had such a clause been in the Amir lease, the judicial outcome would presumably have been quite different. In such circumstances, the tenant’s recourse would be limited to a claim against the tenant causing the disturbance, and not the landlord.

ACCELERATED RENT OR PENALTY CLAUSE?

The distinction could be important, as was illustrated in the Superior Court decision of Riocan Holdings (Québec) Inc. v. April Canada Inc., 2014 QCCS 3967.

The Landlord (“Riocan”) and the Tenant (“April”) entered into a commercial lease in 2010 for a term of 5 years. April, however, prematurely and unilaterally cancelled the lease in June 2012 and Riocan accepted the cancellation. The dispute centered on what indemnity Riocan could claim from April in the circumstances.

The lease included a clause that allowed Riocan, in the event of cancellation of the lease, to immediately claim the equivalent of the current month’s rent and that of the next 6 months, under reserve of all other rights of the landlord, including the right to claim additional damages (underlined by the author).

Riocan eventually found a new tenant with whom it negotiated a new lease commencing in March 2013 for less rent than what April paid and which also provided for a lease inducement of 4 months free rent.

Riocan claimed that its actual damages exceeded the equivalent of 6 months’ rent which only compensated it until the end of December 2012. It also claimed for lost rent from January 2013 to September 2013 (when the new tenant began paying the rent) as well as the shortfall between the lower amount of the new rent and the rent that April paid (a difference of $922.63 per month) until the end of the original lease in September 2015.

The Trial Judge found that April did not have to pay damages for Riocan’s lost rent over and above the 6-month period provided for in the lease. He reasoned was that the clause in question was a penalty clause as defined by Articles 1622 and 1623 of the Civil Code of Quebec. The purpose of such a clause is to evaluate in advance, the damages that the landlord would incur from the tenant’s default, thereby making it unnecessary to prove either the existence or the amount of actual damages. The downside for the landlord is that a penalty clause limits the landlord’s right to the amount established by the penalty clause, even if the actual damages incurred turn out to be much greater.

Instead of requiring the tenant the pay the equivalent of 6 months’ rent in the event of cancellation of the lease, the clause could have provided that in the event of tenant’s default, rent for the current month and the next six months would become immediately due and owing and, at the option of the landlord, it could cancel the lease under reserve of all other available remedies and recourses.

The dilemma for Riocan was that, in addition to the unfavourable drafting of the clause, Riocan asked for the cancellation of the lease as a remedy, which triggered the application of the penalty clause. Alternatively, Riocan could have asked the Court to order April to respect the lease, i.e. to pay the rent at least until another tenant could be found to occupy the premises. Claiming rent instead of its equivalent in damages could have avoided the application of the penalty clause. The remedy of specific performance in such circumstances however, would be subject to the discretion of the Court and not at all clear cut.

It is common for commercial leases to have an acceleration of rent clause in the event of tenant’s default. It is advisable to ensure that such clauses are not drafted so as to be interpreted as penalty clauses that preclude the landlord’s right to claim additional damages.

In the present case, the Court stated that the penalty clause would not necessarily preclude Riocan from claiming the shortfall of rent paid by the new tenant. However, the Court was of the opinion that Riocan was not diligent in deploying reasonable efforts to mitigate its damages by finding a new tenant to replace April. According to the evidence retained by the Court, Riocan was excessively passive for a period of 6 months after the cancellation of April’s lease when it should have made reasonable efforts to find a new tenant. Furthermore, the Court was of the opinion that, had Riocan been more proactive, it likely would have found a tenant sooner, who would not have paid less rent than April did. Moreover, had Riocan been more diligent, the Court found that Riocan likely could have avoided granting a rent inducement to a new tenant.

In conclusion, the Court only granted Riocan the unpaid balance of the 6-month indemnity provided for in the lease, plus interest, and an additional amount equivalent to 15% thereof as an indemnity for legal expenses which was provided for in the lease.

WHEN IS POSSESSION NINE-TENTHS OF THE LAW?

The Quebec Court of Appeal rendered an interesting decision in 2015 confirming the possessor of property to be the owner notwithstanding that title was registered in the name of another. (Ostiguy et al. –vs- Allie et al. 2015 QCCA 1368)

Appellants and Respondent were respective owners of two chalets that were built as part of a development near the Bromont ski resort.

Except for these two chalets, all of the others in the development had parking spaces situated in front of each lot that could accommodate two vehicles. Because of the unique configuration of the two chalets belonging to the Parties, parking for four vehicles was arranged adjacent to Appellants’ chalet. Ever since the chalets were built, the parking spaces were used by the respective owners of the two chalets or their predecessors in title.

A real and perpetual servitude of passage by foot was created on Appellants’ lot for the benefit of Respondent’s property, thereby permitting Respondent to access a parking space on Appellants’ lot. Some years later, Respondent’s predecessor in title added a parking space on his lot that was used principally for his visitors.

Appellants acquired their lot on July 26, 2011. The real estate listing referred to an existing parking space for two vehicles and the real servitude in favour of Respondent’s lot. However, the cadastral description at the land registry office clearly indicated that four parking spaces adjacent to Appellants’ chalet (not merely two) were part of Appellants’ lot.

Respondent’s spouse acquired her chalet in 1993 and inherited it when her spouse passed in 2001. Respondent had been using the parking space on Appellant’s property since 1993. Unlike all other owners in the development, the cadastral description of her property did not include any parking space.

Some months after acquiring their property in 2012, Appellants filed suit against Respondent to obtain a restraining order to prevent Respondent from trespassing on their property. In response, Respondent sought a declaratory judgment to recognize her title to part of Appellants’ property containing the parking space for two vehicles, which she alleged to have possessed as owner for more than ten years.

The Trial Judge rejected Appellants’ suit and their argument that Respondent’s access to the parking space on Appellants’ land was a result of simple tolerance on their part, and the Court also granted Respondent’s application. The Court of Appeal agreed with the Trial Judge.

The relevant legal principle that the Court of Appeal applied is that title to property can be acquired by possession that is peaceful, continuous, public and unequivocal during a period of ten years (Articles 922 and 2918 Civil Code of Quebec).

There didn’t seem to be any question that Respondent’s possession was peaceful, continuous and public. However, what is meant by unequivocal?

The legal authorities interpret this to mean that the pretended owner’s possession cannot be subject to different interpretations, but rather must necessarily imply the exercise of an exclusive right of ownership. This is a question of fact to be determined by the Trial Judge based on the evidence.

But what of the fact that Appellants’ title was registered at the land registry office and therefore was of public notoriety, at least in the legal sense?

After reviewing the case law, the Court recognized that the good faith of the possessor is not a relevant factor to consider when determining whether ownership has been acquired by possession. Otherwise, if registered title would be presumed to be public and everyone is presumed to know the law, then it would be impossible for anyone to acquire title to property that is registered in someone else’s name by possessing it over ten years. This would render Article 2918 of the Civil Code of Quebec superfluous. Consequently, the Court concluded that registration of title at the land registry office cannot protect an owner against the effects of useful possession by a third party.

The Court also commented on the legal consequences of registration of title to property. The purpose of registration of title is not to prove the existence of a right of property but rather to sort out the various claims that third parties could have against the same author and to establish the rank of security claims. It does not offer any guarantee concerning the quality of the title to the property. It only creates a rebuttable presumption of ownership.

Mr. Justice Denis Jacques, in his dissenting opinion, commented that the rules of acquisition of property by possession could occasionally give rise to surprising results when set up against a purported owner with a duly registered title. However, even though the majority of the Court agreed with Justice Jacques’ comment, they stated that it was not up to the courts to modify the choice of the legislature in this regard, who intentionally did not adopt proposed modifications to the law that would have made a registered title uncontestable.

An additional argument raised by Appellants’ was that to interpret the law as Respondent proposed would risk leaving registered owners of property in good faith at the risk and peril of unknown third parties who appear out of the blue. However, the majority in the Court of Appeal recognized that the facts in the present case could not fit such a description. More particularly, the real estate broker’s listing agreement, which was provided to Appellants at the time of their acquisition, clearly stated that they were acquiring parking for two and not four vehicles. Furthermore, the same listing agreement as well as the title search clearly indicated the existence of the real servitude of passage on Appellants’ lot to the parking spaces for the benefit of Respondent. If Respondent would not have the right to use the parking spaces on Appellants’ land, what then would the purpose be of the servitude of passage by foot?

In conclusion, property owners need to be vigilant regarding anyone in possession of even a part of their property. Any accommodation or tolerance of a possessor should be confirmed in writing to ensure that the possession does not become “unequivocal”.

DISGUISED EXPROPRIATION

In 2008, Québec City adopted a by-law requiring owners of waterfront properties to protect a strip of land adjacent to the shore measuring between 10 – 15 meters, depending on the configuration of the land, in order to protect the drinkable water supply and the lakeshore.

Some property owners applied to court to ask for the nullity of the by-law on the ground that it deprived them of the full use and enjoyment of a significant part of their property and was the equivalent of confiscation or a disguised expropriation without compensation. The trial judge dismissed the suit which ended up before the Quebec Court of Appeal, whose decision can be found at 2011 QCCA 1165 (Wallot v. Ville de Québec).

The stated objective of the by-law was to protect the shores of Lac Saint-Charles and to maintain the quality of its water. According to the Appellants, the primary effect of the by-law was to interfere with the enjoyment of their property without otherwise lessening their obligations relating to the exercise thereof i.e. their property taxes remained the same. The Appellants argued that the by-law amounted to a de facto expropriation of a substantial part of their property thereby depriving them of its reasonable use.

According to the Court of Appeal, the solution to the dispute required a determination as to whether there had in fact, been a suppression of all reasonable use of Appellants’ property. The Court of Appeal commenced its analysis by recalling that the right of ownership in Quebec is not absolute.

The principles established by jurisprudence that the Court of Appeal reviewed in its analysis included the following:

• Disguised expropriation requires the absolute negation of the owner’s right to access his property.

• Disguised expropriation requires interference with the exercise of the right of ownership to such extent that it renders the use of the property impossible.

• It is not because a law or zoning by-law tends to sterilize the right of ownership in whole or in part, or interferes with its exercise, even in a draconian fashion, for it to be considered to be abusive or unenforceable.

• Unless the by-law amounts to a veritable confiscation of private property, economic prejudice resulting from the imposition of restrictions on use and enjoyment cannot affect the validity of the by-law.

The Court of Appeal concluded that for such a by-law to be considered illegal, the restriction must be equivalent to an absolute negation of the right to exercise ownership of the property or a de facto confiscation of the property. Limitations on the right of ownership or its exercise that tend to only partially sterilize a right without depriving the owner of the reasonable use of his property will not be considered to be abusive.
Although the trial judge recognized that the by-law caused the Appellants certain inconvenience, he nevertheless considered that their property had not lost all of its value and that the by-law still allowed the reasonable use of and exercise of their right of ownership. Moreover, the trial judge concluded that the Appellants still retained a degree of use of the protected strip. He concluded that the effects of the by-law could not be interpreted as being a confiscation of the strip of the property adjacent to the lakeshore.

The Court of Appeal accepted the reasoning of the trial judge and added that it had not been demonstrated to the satisfaction of the Court that the by-law diminished the right of ownership and its fundamental attributes, including the exclusive use of the property. The Court could not conclude that the benefits that the Appellants derive from their ownership would, as a result of the by-law, transfer to Quebec City. Moreover, the consequence of the by-law was not to convert the Appellants’ ownership into public property. The by-law, despite certain restrictions, still allowed for the reasonable use of the part of the property adjacent to the lake, a view of the lake and even the possibility of using, in a restricted manner, the protected strip.

The Court noted that the municipality had not attempted to acquire waterfront property indirectly but rather through its zoning regulation, sought to control the use of such property in the collective interest of its residents.

In summary, the Court of Appeal concluded that the Appellants’ claim must fail and that any analysis of the evidence clearly demonstrated that the Appellants retained the substantial use of their entire property, including the strip adjacent to the lakeshore.