HBAM sees major legal victory in permit fee overcharge lawsuit with city of Troy

TROY — The Home Builders Association of Michigan announced earlier in October that a major legal victory has been reached in its permit fee overcharge lawsuit against the city of Troy.

“The wheels of justice don’t always move fast, but they’ve finally moved in this case,” Bob Filka, CEO of the HBAM, said in a press release.

The litigation for this issue has been ongoing since 2010. The HBAM first filed when the city chose to outsource their permitting activities and received a 20% to 25% commission on every permit issued by their contractor. 

The contractor, SAFEbuilt Michigan Inc., provides community development services that assist building departments, public works departments, private providers and tribal nations in many U.S. communities.

The HBAM said the high amount of fees collected from SAFEbuilt for building inspection services violated the State Construction Code Act, as they’ve argued that these fees were in violation of Michigan’s Headlee Amendment, which generally prohibits local governments from imposing taxes without a vote of the residents. In this case, it was excessive permitting fees that caused the Headlee violation, according to the HBAM.

“This case initially challenged the City of Troy’s decision in 2010, after the great recession, where the City of Troy privatized its building inspection department, and entered into a contract with Safe Built,” an emailed statement from Troy Communications Director Courtney Flynn said. 

“MAHB (HBAM) argued that the provision that allowed the City to capture 25% of all building permit fees to cover the City’s direct and indirect costs was violative of the Construction Code Act. MAHB (HBAM) also alleged that the amounts collected by the City under this contract were actually a tax, rather than a fee, which was not approved by the voters, and therefore violated the Headlee Amendment to the Michigan constitution.”

Throughout these past 14 years of litigation, this issue has seen different wins and losses for both the HBAM and city of Troy as it has been brought to the Oakland County Circuit Court and the Michigan Court of Appeals as well as the Michigan Supreme Court multiple times. 

“We tried to reach a compromise back in the day and the city said no,” Filka said. “We’re going to stick this out.”

Recently, in a 3-0 unanimous decision, the Michigan Court of Appeals rejected the city’s appeal of a lower court’s ruling that the city violated the state Headlee Amendment. A hearing is planned for earlier December to further hear both sides, and the city also has until the end of November to appeal the decision. The city could also owe the HBAM around $600,000 in legal fees.

“Our association leaders continued to have the fortitude to do what was necessary to hold the City of Troy accountable, no matter how long it has taken,” Filka said in a press release.

“We’ve been to the Michigan Supreme Court twice and the Court of Appeals three times in this case. Despite the city’s effort to use every technical argument at their disposal to delay proceedings, we are nearing the finish line.”

The City of Troy is currently reviewing the opinion and exploring its options.   

“At issue is whether or not the City can charge for the time spent by other City employees necessary for enforcement of the Michigan Building Code (such as the Fire Department), or whether it can only recoup the costs for its employees that are registered as trade professionals,” Flynn said in an email. 

“A second issue is whether or not MAHB is a taxpayer that is able to bring this lawsuit against the City (standing). The City is still evaluating its next steps.”

The HBAM has also recently expressed their concerns to the acting City Manager Frank Nastasi, via letter, due to the increase of residential Building Permit Plan Review Fees to 1% of the cost of construction which occurred earlier in June 2024.

“We are concerned that using a percentage of construction cost as the means by which the amount of the fee is determined violates the State Construction Code Act (“CCA”) and the Headlee Amendment to the Michigan Constitution,” the HBAM letter from Filka said. 

“Under both of these laws, the amount of a fee for any building department service must be proportionate to the cost of providing the service. … Prior to June 1, 2024, HBAM’s members were paying Building Permit Plan Review Fees between $250 and $450. Today, permits for building the same house costs between $3,600 and $4,900. Overall, HBAM members are experiencing increased permit costs per home in double the amount paid prior to June 1, 2024. This is not the case in neighboring communities such as Farmington Hills and Royal Oak which have flat fees.”

City officials have not officially responded to the HBAM at this time on this issue, but they have said they are evaluating their options.

“Prior to raising its fees, the City reviewed the financial status, which showed that Troy’s expenditures exceeded revenues, so the City increased fees in an attempt to recoup its costs for enforcing the Construction Code Act,” Flynn said in an email.

Filka said that once these issues have been officially resolved, the HBAM plans to further provide support to other Michigan communities that are facing similar challenges with these fees.

“This decision should put every community in the state on notice: building permit fee revenue can only be used to pay for your permitting and inspection activities,” Filka said in a press release. 

“If you are charging exorbitant fees and/or are utilizing those dollars for other government purposes, we’re going to be knocking on your door and pointing to this decision. Excessive fees only increase the cost of housing in our state and while most communities recognize this and have established fees that comply with state law, there are a number that do not. That needs to change, and this decision should get the attention of those skirting the law.”

For more information, visit hbaofmichigan.com or troymi.gov.