State High Court Ruling Puts Officials on Notice About Fees

California cities and counties cannot overcharge developers for building inspection and permit fees as a way to fatten their coffers, the state Supreme Court ruled recently.

In a Dec. 22 opinion involving Rancho Cucamonga, the court upheld state law saying building fees must be based on the “estimated reasonable costs of providing the services for which the fees are charged.”

The decision could affect similar lawsuits filed by national homebuilder Barratt American against fees charged by other Southern California local governments, including Orange County and Encinitas in San Diego County.

“This is like a train siren coming down the tracks,” said Walter P. McNeill, the Redding attorney who filed the Rancho Cucamonga and Orange County lawsuits on Barratt’s behalf. “It ultimately enforces accountability by cities and counties and it prevents them from overcharging.”

Rancho Cucamonga, using a method common to many cities and counties, had charged fees based on the value of new construction as determined by the square-footage of the new homes.

In its ruling, the justices revived a lawsuit by Barratt charging that Rancho Cucamonga’s building fees were excessive in 2002. But the court said fees charged any earlier couldn’t be challenged because Barratt had missed a state-imposed deadline to appeal them.

The court also refused Barratt’s request for a refund, saying state law allowed only future fees to be reduced in the event of overpayments.

James L. Markman, the Brea attorney representing Rancho Cucamonga, couldn’t be reached Tuesday for comment. But he told the Los Angeles Daily Journal legal newspaper that the ruling’s impact would be slight because the city had changed its payment structure and now collected fees based on the cost of the services.

In March 2003, Orange County also changed the way it had been collecting building fees. County supervisors agreed to collect a deposit from builders and then charge them based on the amount of time and materials spent toward specific projects.

Barratt’s suit against Orange County is on appeal after a Superior Court judge ruled last January that the county overcharged developers $4.5 million in fees from 1999 to 2002. Barratt had argued that the county actually overcharged by $18.5 million.

The state Supreme Court last year also agreed to hear the Encinitas case, which that city had lost on appeal. But the review was put on hold pending the ruling in the Rancho Cucamonga case.

Barratt’s lawyer said the lawsuits had put cities and counties around the state on notice that they could not charge developers excessive building fees as a way of bolstering sagging treasuries.

“Cities and counties have to justify what they’re charging,” McNeill said. “That’s all we’ve ever asked.”