Michigan REALTORS

For several years, Michigan Realtors® has been involved in a legal battle regarding a local government's ability to use fees in reasonable relation to the services being provided. It appears that, at long last, we have received additional clarity from the Michigan Supreme Court. The case, Michigan Association of Home Builders, et al v City of Troy, involved a dispute over the scope and application of inspection fees under Michigan's Construction Code Act. The Homebuilders, with support from Michigan Realtors®, argued that the building inspection fees generated under a contract between the City of Troy (the "City") and SafeBuilt Michigan, Inc. ("SafeBuilt"), violated Michigan's Construction Code Act ("Act") and the Headlee Amendment to the Michigan Constitution because the fees were not reasonably related to the services provided. Specifically, Section 22 of Michigan's Construction Code Act states that municipalities can only charge fees for building department services that are reasonably related to the cost of the service and that those fees may only be used for Building Department services and a Construction Board of Appeals. Section 22 expressly provides that fees shall not be used for any other purposes. Similarly, the Headlee Amendment at Section 32 requires that the amount of any "fee" charged by a municipality for a service bear a reasonable relationship to the cost of providing the service. The contract at the center of this longstanding dispute outsourced the operation of the City's Building Department to SafeBuilt. The City compensated SafeBuilt by paying 75-80% of the fees it collected for Building Department services. The City then retained the 20-25% surplus of those fees. The surplus fees were deposited into the City's general fund and used for the purpose of paying back alleged historical deficits incurred by the City in the operation of its Building Department in the years preceding its contract with SafeBuilt. The Supreme Court found that those fees retained by the City, which were pure profit or surplus, were retained in violation of the Act. As to the Headlee Amendment claim, the Supreme Court remanded the case to the trial court for further proceedings to allow the plaintiff associations to establish representational standing; that is, to demonstrate that some of their members have paid the excessive fees at issue. As this lingering issue moves forward, it will be interesting to see the type of statewide impact this ultimate determination could have around the state.