Friday, June 12, 2015
CURRENT OVERVIEW OF ACQUIRED RIGHTS IN REAL ESTATE MATTERS
The Court of Appeal decision in Les Immeubles Desaubec (2002) s.e.n.c. v. Ville de Granby, 2014 QCCA 1768, provides an interesting and instructive overview and update of acquired rights law in real estate matters.
Originally, the notion of acquired rights was created by the Courts and based on the principle of the non-retroactivity of municipal by-laws. In particular, it was considered to be unjust to require a property owner to modify his building or change its use as a result of a modification to municipal by-laws. However, it is generally considered beneficial that such derogatory use cease with the passage of time since municipal regulation is presumed to be made to serve the public interest.
The Courts established a compromise between the objectives of new or modified by-laws and the protection of property owners who find themselves in non-compliance with the law as a result of the implementation of new standards.
Once acquired rights are lost, they cannot be resuscitated and there has been and continues to be much litigation on the subject. In some cases, the acquired rights represent significant value to the property owner the loss of which can be very onerous. It is generally recognized that there are three (3) ways to lose the benefit of acquired rights: destruction of the property; cessation of use; or change of use.
Voluntary demolition of a building (as opposed to destruction by fire for example) and the erection of a new construction entirely different from the original would entail a loss of acquired rights even if the material emanating from the old construction is recycled in the new one. The test consists of determining whether the new construction is a “new entity.”
Acquired rights in relation to a derogatory use can be lost by the abandonment or interruption of such use. They can also be lost by the change in use from one that is derogatory to one that is not. Quebec jurisprudence has been relatively severe with respect to the preservation of acquired rights since they derogate from standards that are generally considered to be in the public interest.
In the present case, Desaubec was the owner of a property in the City of Granby where it operated an alcoholic beverage business. It was a use that the zoning by-laws no longer permitted but was acknowledged to be protected by acquired rights.
In 2007, Desaubec leased the commercial establishment to a third party tenant who was required by the lease to continue to operate an alcoholic beverage business on the premises. In 2009, the tenant modified the use of the premises by transforming the business from an alcoholic beverage bar to a juice bar after applying for and obtaining from the City of Granby the appropriate permit to proceed with the leasehold modifications. This was presumably done without the owner’s knowledge or consent. After the work was completed, the juice bar operated for only a few weeks before it closed and the tenant abandoned the premises.
Desaubec retook possession of the premises with a view to once again, operate an alcoholic beverage business. It applied to the regulatory authority for such a permit which the City of Granby contested on the ground that the acquired rights to operate a bar with alcohol service had been lost due to the change of use, the whole in conformity with the by-laws then in effect and the terms of the permit issued for the operation of the juice bar. Desaubec applied to the Court for a declaratory judgment asking for judicial recognition of its acquired rights.
Desaubec argued that the passage of time was an essential condition for the extinction of acquired rights because Article 113 (2), paragraph 18A of the Land Use Planning Act required a minimum period of six (6) months for the extinction of acquired rights. The City of Granby argued that the time delay was not a relevant factor when the derogatory use was intentionally replaced and subsequently, there was no possibility of resuscitating the acquired right that had been voluntarily given up. The relevance of the six-month minimum delay in the Act applies to the abandonment, cessation or interruption of a derogatory use, in which event, the lapse of time would give rise to a legal presumption that the derogatory use had permanently ceased.
In the case of abandonment, cessation or interruption, the owner’s intention to abdicate acquired rights is not always evident hence, the utility of such a legal presumption. In contrast, where a derogatory use is intentionally replaced by a use that is in conformity with the new standards then in force, it is objectively clear that the owner intended to put an end to the derogatory use that was protected by acquired rights.
A person has an acquired right to a derogatory use when three (3) conditions are met: (1) the derogatory use commenced or the permit or the certificate required to commence was obtained before the modification of the by-law; (2) the derogatory use was legal immediately before the modification of the by-law; (3) the derogatory use continued thereafter. In the present case, the third condition has not been met. When the alcoholic beverage bar was intentionally replaced by a juice bar, there was an automatic loss of the acquired right.
To summarize, the derogatory use that was protected by acquired rights was replaced by a different use that was in conformity with the by-laws then in effect. The new use resulted from specific steps undertaken by the tenant with the City of Granby, which resulted in the issuance of a permit so that work could be undertaken to transform the premises to be used in conformity with the by-laws. The permit that was issued was accompanied with a letter that included a notice to the tenant that the issuance of the permit would entail the extinction of the acquired rights.
The work to transform the leased premises was carried out with full knowledge of the consequences by the tenant although it appears, not by the owner. The juice bar did in fact operate. The dispute arose a few months later as a result of the opposition by the City of Granby to the application for a liquor license by Desaubec. Granby never required Desaubec to cease the derogatory use that had been protected by acquired rights. The acquired rights were not lost as a result of any act on the part of Granby, but rather as a direct result of the voluntary change in the use of the property by the tenant against whom, Desaubec presumably had an illusory recourse in damages for breach of the lease.