Background
In Alberta, it is common for mortgage agreements to include clauses waiving statutory protections under Sections 49 and 52 of the Expropriation Act. These waivers can have significant financial and legal consequences for borrowers, especially when land is expropriated for public purposes.
What Do Sections 49 and 52 Provide?
Section 49 ensures that compensation for security interests (like mortgages) is based on the market value of the land. If the debt owed exceeds the land's value, the lender is typically limited to the market value - unless there is additional collateral, in which case the Land and Property Rights Tribunal determines how any shortfall is handled.
Section 52 provides for "disturbance compensation" requiring the expropriating authority to pay three months' interest to the security holder, proportionate to the expropriated land's share of the total security interest.
What Happens When These Rights Are Waived?
Waiver clauses shift the risk from lender to borrower. Instead of limiting the lender's recovery to the land's market value, the lender may claim the full outstanding loan amount from expropriation proceeds even if the land is worth less than the debt. Borrowers may lose entitlement to any remaining compensation and must often confirm they have received independent legal advice before signing.
Is the Waiver Enforceable?
There is no statutory prohibition against waiving these rights, but enforceability may depend on the clarity of the waiver clause and its alignment with public policy objectives. Courts have highlighted the importance of precise drafting and transparency, and may scrutinize waivers that undermine the Act's goal of making expropriated owners economically whole.
Notably, certain Alberta case law has emphasized that waiver clauses must be clear and comprehensive, and that courts may refuse to enforce waivers that conflict with the Act's objectives. This serves as a reminder that caution and careful drafting are essential when including such waivers in mortgage agreements.
Conclusion
Waivers of Sections 49 and 52 of the Expropriation Act are widely used in Alberta, but they allocate expropriation risk in a way that can materially affect both recovery and residual compensation. Lenders should ensure that wavier clauses use plain, unambiguous language that expressly addresses both Section 49 valuation limits and Section 52 disturbance compensation, and they should document the disclosure process to reduce enforceability risk. Borrowers should obtain independent legal advice, and treat any waiver as a negotiated term, considering alternatives such as limiting the waiver or carving out certain compensation.
If you would like to learn more about expropriation or security in land, we invite you to contact the authors of this blog post or any other member of our Commercial Real Estate group.
Bennett Jones