MN Supreme Court Reaffirms the Limits on Cities’ Ability to Impose Fees on Developers

In August of this year, the Minnesota Supreme Court issued a decision that should curtail statutory cities’ ability to make the approval of subdivision applications contingent on payment of fee or charges not specifically authorized by Minnesota law.

The case, Harstad v. Woodbury, involved a developer who submitted an application to the City of Woodbury for approval to develop a 183-unit subdivision. Woodbury deemed the application incomplete and sent the developer a memorandum outlining proposed charges for the subdivision, including an infrastructure charge. Once collected, the charge would be put into a dedicated account used to pay for future construction of off-site road improvements needed to support new development. The developer refused to negotiate or pay the infrastructure charge and sued.

The court first took a hard look at the statute (Minn. Stat. § 462.358, subd. 2a) that Woodbury claimed authorized the infrastructure charge, and ultimately concluded that “no part” of the statute authorized the charge for two reasons. First, the infrastructure charge did not constitute a “cash deposit” or “other financial security” as allowed under the statute, because the charge would not be returned to the developer in the event the developer satisfied all conditions tied to the security. Second, the court rejected Woodbury’s argument that the charge was “voluntary,” or that it could impose the infrastructure charge under the “broad grant” of contractual authority a city enjoys in the negotiation process with developers, because the charge was not within authorized by law.

Development Contracts

Harstad also made clear that a city’s power to enter into a development contract does not include the power to require a developer to pay an infrastructure charge. The court further cautioned that, while a city may have the authority to enter into development agreements, this authority does not allow it “to impose ‘other requirements’ that are inserted into development agreements, but that fall completely outside of the limits of the statute.”

Implications of Harstad Decision

As the court noted, the city variously described its infrastructure charge as “proposed major roadway assessment,” “major roadway cost participation,” and “major roadway special assessment.” Going forward, Harstad is a good reminder to statutory cities that their authority to charge, tax, or collect fees from developers, regardless of nomenclature, must be specifically authorized by Minnesota law.

Monroe Moxness Berg regularly advises and assists clients through the real estate development process and can help you assess fees and charges imposed by municipalities during this process.

About The Author

Mae van Lengerich