On October 31, 2022, in the case of Stelmach Project Management Ltd. v. City of Kingston, the Ontario Court of Appeal held that the City of Kingston may rely on the Municipal Act to enact by-laws imposing fees based on the capital cost of installing water and sanitary sewer infrastructure.

The implications of this decision could extend well beyond the particular development in question, potentially opening a path for municipalities to create a second source of charges —in addition to development charges —to apply against land development in Ontario. Furthermore, this second source would be one that does not have the same legislative and procedural controls as development charges. Given recent and proposed changes to development charges, parkland contributions and the replacement of the former section 37 contributions with the community benefits charge, this decision could very well result in an increased usage of these alternative Municipal Act fees and charges on new real estate developments in Ontario.

Facts and Legislative History

The appellant is a land developer who was developing two residential properties in the City of Kingston (the City). In 2014, the City enacted two by-laws imposing fees or charges related to development within Kingston. The first being the Impost By-law, which allowed the City to impose a fee, based on the capital cost of installing water and sanitary sewer services. The Impost By-law was passed under s. 391(2) of the Municipal Act, S.O. 2001, c. 25 (the MA) which provides that a fee or charge for capital costs related to services or activities may be imposed on persons not receiving an immediate benefit but who will receive a benefit at some later point in time. For the City of Toronto, see corresponding provision in s. 259(2) of the City of Toronto Act, S.O. 2006, c. 11.

The second by-law was a Development Charges By-law, passed under the Development Charges Act, S.O. 1997, c. 27 (the DCA), under which the City imposes charges to cover the anticipated capital costs related to specific services such as protection (fire and police), roads, parks and recreation, library, transit, affordable housing and administration. Section 2 of the DCA provides express authority for a municipality to impose development charges.

At the time their application was commenced, the appellant owed $410,000 to the City in fees with respect to the development of the two properties.

The appellant argued that the City was obligated to pass the Impost By-law under the DCA rather than the MA, as the specific by-law making power in the DCA ought to be preferred over the general power in the MA. The appellant submitted evidence that the City of Kingston was one of the few municipalities in Ontario who charged impost fees under a by-law enacted under the MA rather than the DCA. Further, it was argued that the Impost By-law was illegal because it failed to import all the requisite procedural protections required under the DCA and that the charges under the by-law were prohibited by s. 394(1) of the MA.

The application judge held that the City was permitted to pass the Impost By-law pursuant to the general powers conferred under the MA and that the charges were not prohibited. The Court of Appeal ultimately upheld this decision.

Is the City Obligated to Rely on the Specific Powers of the DCA?

The Court of Appeal first analyzed the issue of whether the City was obligated to pass the Impost By-law under the more specific power of DCA, rather than the broad powers in the MA. The Court of Appeal found that the City has multiple sources of power to impose fees to recover capital costs and that it is not compelled to rely on the DCA. This is evidenced by the broad language in s. 391(2) of the MA, which encompasses charges and fees to recoup all capital costs payable by the municipality. Furthermore, the Court of Appeal highlighted that the legislative history of the MA and the DCA made it clear that the legislative intention was to create a dual regime to recover capital costs whereby the City could pass by-laws under its choice of statute. For example, s. 2(1) of Fees and Charges, O. Reg. 584/06 specifically contemplates the situation where a municipality could impose the same fee twice and prohibits such "double-dipping."

Did the City Fail to Import the Requisite Procedural Protections?

The Court of Appeal went on to find that the City did not fail in importing required procedural protections. Section 15 of the MA provides that if a municipality has the power to pass a by-law under specified sections and also under a specific provision of this or any other Act, the power conferred is subject to any procedural requirements that apply to the power and any limits on the power contained in the specific provision. The appellant interpreted s. 15 of the MA to mean that the City was required to meet the same procedural protections afforded by the DCA. Such protections by the DCA include a right to appeal, which the City was incapable of providing under the Impost By-law.

The Court found that the appellant improperly interpreted the statute. The terms "any other Act" in s. 15 were to be understood in the context of the relevant legislative history and that the interpretation did not apply to the DCA. Further, the provisions of the DCA and the MA were found to not be interchangeable as s. 15; s. 391(2) of the MA permits a charge on a person, whereas s. 2 of the DCA authorizes charges against land.

Does s. 394(1) Prohibit the Charges Levied Through the Impost By-law?

Section 394(1)(e) of the MA provides that no fee or charge by-law shall impose a fee or charge that is based on the generation, exploitation, harvesting, processing, renewal or transportation of natural resources. The appellant claimed that the aforementioned section prohibited the City from imposing charges on water, including wastewater. The Court of Appeal found that the overall purpose of s. 394(1) was to prevent municipalities from imposing fees and charges unrelated to matters of municipal governance. Further, to accept the appellant's argument would mean that the City would be enjoined from imposing water and wastewater user fees on ratepayers —an absurd result. Ultimately, s. 394(1)(e) was found not restrict a municipality from imposing fees and charges on land developers for the cost of providing infrastructure that transports water and wastewater for the benefit of its ratepayers.

The appellant's argument failed on all three issues resulting in the dismissal of the appeal. The City was permitted to enact the Impost By-law relying on the MA to levy charges for water and sanitary sewer infrastructure.