Ephraim Stulberg
Matson Driscoll & Damico Ltd.
Introduction
When a business owner’s property is expropriated, there will often be an impact on the owner’s ability to earn economic returns from multiple sources:
- Most obviously, the owner will lose ownership of the real estate (land and building).
- The owner’s business will need to either shut down or relocate.
- If the owner worked in the business, he or she may not be able to find replacement work for a period of time.
Leaving aside any legal issues associated with claiming any of the above losses, from a purely financial point of view, it is important to ensure that each loss is measured once, and only once. While in principle the above statement is likely uncontroversial, in practice this requirement can be challenging to follow. To illustrate, consider the following examples, based (loosely) on cases the author has been involved in over the past few years:
Land Value and Lost Profit
The owner of a moving company was expropriated. The moving company reported net income of $200,000 per year; it did not deduct any rent expense, as the same company owned the real estate and the business.
The property was expropriated on April 1, 2025, and a mediation took place a year later. According to the real estate appraisers, market rent for the property was $250,000 to $300,000, and the property was worth $3.1M to $3.8M.
In this case, the owner has clearly lost the value of their real estate. But would they be right to claim a loss of profit of $200,000 per year as well, or a loss of goodwill? Arguably not: if they are being compensated for the market value of the real estate, then one would need to adjust the reported net income to consider the market value of rent. Once that is done, the business is no longer profitable.
Stated otherwise, the owner could not simultaneously earn full economic returns from both the real estate (by collecting market rents or selling the property to a third party) and from the business.
Business Value and Owner Labour
The owner of a small retail clothing store was expropriated. The store reported $50,000 in annual income, but did not pay the owner a salary, even though she worked in the store full-time.
Once one deducts the value of the store owner’s labour (assume it is $60,000 per year), the business really does not generate any excess profit.
This is not to say that such a business has no value; in many instances small businesses will sell for a multiple of their pre-owner salary income, or “Sellers Discretionary Earnings” (“SDE”); the business in question may therefore sell for, say, 2 times SDE, or $100,000. But in essence, the value of the business is in providing the owner with a secure source of income, rather than with a stream of profits above and beyond the value of the owner’s labour.
It follows that, if the owner is unable to work for a period of time following the closure of the business due to expropriation, it may not be appropriate to compensate them both for the loss of business value, as well as for the loss of employment income while they search for a new job.
This is in fact similar to the line of cases that follow the Land Compensation Board’s decision in Plouffe v. Ottawa (City) (1973), 4 L.C.R.37 (Ont.), where the claimant was awarded compensation for the various tangible components of his grocery business (equipment/fixtures, stock), as well as an amount for goodwill equal to around one to two years of annual SDE. The claim for lost goodwill was calculated based on the pre-owner salary income of the business.
In practice, these related claims – loss of goodwill, loss of owner income, overall loss of business value – may be allocated in different ways; there is no single “right” way to present the total loss. But consideration should be given to what each calculated loss amount means, and the extent to which the claims may or may not overlap with one another.
Conclusion
The expropriation of a property occupied by an owner-managed business can be an emotionally and financially draining process for the owner. When measuring the economic impacts of the expropriation, it is important to understand all the sources of value and to ensure that everything is measured once, and only once.