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CEN Biotech - Acquired Rights Doctrine

|Includes: Creative Edge Nutrition, Inc. (FITX)

To understand the current issue in Lakeshore with CEN Biotech, it is important first to understand some basic terminology in land use planning: primarily "permitted use" and "legal non-conforming use". It is the second term which I would like to focus on. This statutory protection within Ontario, and in the Supreme Court, is also described as, "the doctrine of acquired rights".

The Mayer and town welcoming CEN Biotech to Lakeshore

"Zoning" is the process which creates areas where land can only be used in certain ways based on the zoning classification. Each zone has a list of uses that are permitted and any uses outside of that are presumptively not permitted.

The courts have determined that zoning changes cannot end a use that was already legal before the change in the zoning took place. And so the doctrine of legal non-conforming use was established. As long as the use of the land does not change, then the use can continue.

This law is built to protect land and business owners from unfair changes or additional bylaw creation that might otherwise place restrictions on the use of the existing property.

In Ontario, the doctrine of legal non-conforming use can be found in Section 34(9) of the Planning Act.

"PART V, LAND USE CONTROLS AND RELATED ADMINISTRATION

Excepted lands and buildings

(9) No by-law passed under this section applies,

(a) to prevent the use of any land, building or structure for any purpose prohibited by the by-law if such land, building or structure was lawfully used for such purpose on the day of the passing of the by-law, so long as it continues to be used for that purpose; or

(b) to prevent the erection or use for a purpose prohibited by the by-law of any building or structure for which a permit has been issued under subsection 8 (1) of the Building Code Act, 1992, prior to the day of the passing of the by-law, so long as the building or structure when erected is used and continues to be used for the purpose for which it was erected and provided the permit has not been revoked under subsection 8 (10) of that Act. R.S.O. 1990, c. P.13, s. 34 (9); 2009, c. 33, Sched. 21, s. 10 (1)."

The Supreme Court of Canada also made it clear in Saint-Romuald (City) v. Olivier that the use can be intensified, so long as it does not change in "kind".

But let's first examine what the law says, and then we will go through some point of facts regarding the situation surrounding CEN Biotech and the town.

Simply put, this Ontario Planning Act, RSO 1990 law makes it crystal clear that CEN Biotech is protected from any by-law creation that would prohibit the use of its land or buildings from operating under its intended use as long as the use of the property does not change after a new bylaw is created that would restrict its use.

While many are concerned, the idea that Lakeshore possesses a legitimate ability or concerning intent to create a by-law that would either restrict CEN Biotech from operating, or would require them to re zone or reapply for new permits under this new by-law is quite simply ridiculous, as this law was specifically created to protect land and building owners for this exact situation.

In order for the town of Lakeshore to have any leg to stand on in regards to interfering with the use of the property, several factors would need to be in play at the same time:

1) CEN Biotech would need to be attempting to change the use of the property to another use entirely. Such as changing from an impound lot to a cabbage patch.

2) CEN Biotech would have to be attempting to change the use of the property after a by-law was created that would restrict the use of the land for the new purpose.

3) CEN Biotech would need to be pre-permit stage. They would need to be still seeking a permit for the buildings structures at the time the new bylaw was passed.

Obviously, CEN Biotech has not found itself under any one of those 3 conditions, let alone even 1. Thus the issue remains plain as day that CEN Biotech has complete rights in continuing to acquire its MMPR license from Health Canada, and to proceeding with operations under such MMPR in its current agricultural conforming condition, and further more; "No by-law passed under this section applies to prevent the use of…" because CEN Biotech has not changed the use of its property and no such by-law has existed.

In fact, until any proposed by-laws are passed and enacted, CEN Biotech even has full legal rights to purchase and develop additional agricultural property for its medical marijuana operations as long as the building permits are acquired and use of the property is determined prior to the passing of the new restrictive by-law.

I'm now also going to give you some excerpts from the Canadian justice review board archive entitled:

"The Planning Act: What's New, What Remains, What You Should Know"

"The purpose of this paper is to provide an overview, with examples where helpful, of

how the Ontario Municipal Board (the "Board") and the Courts have interpreted and

applied the wording of subsection 34(9)."

I have given an excerpt to show the intent of the paper and I will now give some examples of existing uses when by-laws are passed:

(ii) Use of Buildings or Structures on the Day the By-law was Passed

A use will not lose its non-conforming character by virtue of expanding the use to the

entire building or structure, as long as the owner maintains an intention to make such use

of the building or structure. For example, in Re Hartley and City of Toronto,13 an

association purchased a duplex residential building as a home for juvenile girls two days

before a by-law was passed to prohibit such a use. The Association occupied the upper

dwelling unit, while the lower dwelling unit was continued to be occupied by the

previous owners. The question before the Court was whether the use of only part of the

premises constituted "using for purposes prohibited by the by-law". The Court found that

where possession has been taken so far as it can be and in good faith for the purpose for

which the building was acquired, the ingredients for protection are met:

"The test of the bona fides of the user must be whether the acts done disclose a

real intention to use the building for its intended purposes and an actual user so

far as that purpose could be carried out at the time."14

The Supreme Court had the opportunity to consider almost the identical facts in a case

called Central Jewish Institute v. Toronto.

15 In that case, a private school purchased

property with the intention to conduct schooling services on the premises. At the time

that the land was purchased, schooling was permitted under the by-law. When it became

clear that the by-law was about to be amended to prohibit its proposed activities, the

school arranged for a number of teachers and students to be present on the premises prior

to the passing of the by-law. The Supreme Court found that it was not necessary that the

entire premises be used as a school at the time the by-law was passed to be afforded

protection for the entire building. The Supreme Court also confirmed that, while an

intention to use the building is not sufficient in and of itself to determine whether

protection should be afforded to the owners, it is "an important element in considering

evidence as to actual user."16

OK. So clearly CEN Biotech has a bona fide intent to operate a large scale medical marijuana grow operation. That could not be clearer. However, what about in if CEN Biotech wishes to expend the buildings purpose or significantly increase capacity through expansion?

As was noted in Re Hartley and Central Jewish Institute above, the Courts have found

that the entire building or structure for which a legal non-conforming use is being made

enjoys the exemption from the zoning by-law, as long as the intention of the owner to use

the building or structure for that purpose was bona fide. However, the analysis is not so

clear when the building or structure has been reconfigured to allow additional density of

use. It may be that this increased density will disentitle the owner from relying on the

protection of subsection 34(9). For example, in R. v. Grant17 the Ontario Court of Appeal

found that a legal non-conforming two-unit apartment building could not be extended

into a four-unit apartment dwelling, and similarly in Weisburg v. Kingston (City),18 the

Court refused to permit the extension of a legal non-conforming four unit dwelling to a

five unit dwelling. Instructive for this issue may be the impact of intensification, as

discussed in Saint-Romuald v. Olivier, which case is discussed below.

So it appears that the only real danger to CEN Biotech could perhaps be that they may experience some difficulty in expanding the build out of the facility to the entire 10.3 acres. However, this is not a cut and dry matter as we see in certain methods of evaluation in preexisting use was demonstrated by a test in determining expansion criteria under the scope of previous by-laws.

4. To the extent activities are added, altered or modified within the scope of the

original purpose (i.e., activities that are ancillary to, or [page921] closely related to, the

pre-existing activities), the Court has to balance the landowner's interest against the

community interest, taking into account the nature of the pre-existing use (e.g., the

degree to which it clashes with surrounding land uses), the degree of remoteness (the

closer to the original activity, the more unassailable the acquired right) and the new or

aggravated neighbourhood effects (e.g., the addition of a rock crusher in a residential

neighbourhood is likely to be more disruptive than the addition of a fax machine). The

greater the disruption, the more tightly drawn will be the definition of the pre-existing

use or acquired right. This approach does not rob the landowner of an entitlement. By

definition, the limitation applies only to added, altered or modified activities.

So here we see demonstrated that it is the Court's stance that it must balance the landowner's interest against the community interest, taking into account the nature of the pre-existing use. However, although the narrower pre-existing condition may be held to more tightly after a restrictive by-law is passed, the situation surrounding CEN Biotech is a little unusual in that a formal plan and intent has been supplied to and approved by the Canadian government for a full 1.3 million lb capacity which seems to have addressed the concern of density of use prior to this situation arising.

Therefore it is my belief that CEN Biotech will maintain legal grounding under the protection of the doctrine of acquired rights in their expansion and build out of the entire property even if is if Lakeshore passes supplementary restrictive by-laws. Of course Lakeshore also has the right to amend their added by-laws to make it an easier process for CEN Bio expansion later down the road, through once a government facility is classified and operational under health Canada's jurisdiction, I believe this will be who holds the cards.

I hope this helps you to form an opinion about the current state of your investment in FITX, and to highlight what may be the real questions in this situation, and what may be baseless fear. I believe we as investors can rest easy on the matter of both zoning for current build outs and licensing from health Canada.

Disclosure: The author is long FITX.