DTC Lawyers recently won a Supreme Court case on behalf of the Town of Pelham in litigation brought by several developers in the Town challenging the Town’s retention of impact fees imposed on the developers when their properties were built.  KLN Construction Company, Inc. v. Town of Pelham, (decided December 10, 2014) available at www.courts.state.nh.us/supreme/opinions/2014/index.htm.  The legal issue in the case turned on the technical question of whether the developers had standing to challenge the Town’s retention of the impact fees, but it required the Supreme Court to determine whether the Town had authority to adopt its impact fee ordinance.  Pelham’s Ordinance provided that any unused or unencumbered impact fees be returned to current homeowners, not the developers who initially paid the impact fees.

Impact fees are one of the “innovative land use controls” permitted by RSA 674:21.  Those controls permit municipalities to adopt a variety of mechanisms for land use planning and, in the case of the impact fees, to create a fee or assessment on developments including residential subdivisions, to help “meet the needs occasioned by that development for the construction or improvement of capital facilities owned or operated by the municipality…”  RSA 674:21, V.  Those facilities can include schools, water treatment and distribution facilities, fire stations, police facilities, etc.  These innovative land use controls are enforced by means of an ordinance adopted by the Town.  The statute requires that an ordinance imposing impact fees “establish reasonable times after which any portion of an impact fee, which has not become encumbered or otherwise legally bound to be spent for the purpose for which it was collected, shall be refunded, with any accrued interest.”  RSA 674:21, V(e).

Pelham adopted an impact fee ordinance pursuant to this statute and assessed impact fees on developments including those of the developers in this case.  The Town collected impact fees to pay for a portion of the new fire station occasioned by these developments.  The Supreme Court decided that the Pelham impact fee ordinance met the requirements of the statute quoted above by providing “the current owners of property on which impact fees have been paid may apply for a full or partial refund of such fees together with any accrued interest” if the Town had not spent or otherwise encumbered the impact fees within six years.  Town of Pelham case, at 2.  Since the developers had long since sold their properties and were no longer “current owners” as required by the Pelham impact fee ordinance, the Town challenged their standing to sue for “refund” of the impact fee.

The trial Court and later the New Hampshire Supreme Court agreed with the Town that the impact fee ordinance adopted by the Town was within the Town’s authority.  The term “refund” is not defined in the statute, so the Court looked to common usage for determining the appropriate meaning.  The developers argued that refunds could only be returned to those who had initially paid the fees.  The trial Court and the New Hampshire Supreme Court disagreed, finding that the Legislature did not see fit to include that restriction in the statute itself, and that it knew how to specify refunds be paid back to the original payor, as it specified exactly that in a later section of the same statute, pertaining to exactions.   RSA 674:21, V(j).  The Court also noted that a refund can be paid to those other than the original payors in a variety of circumstances.  Fundamentally, the Court determined that the Town of Pelham was within the authority granted to it by the statute, and its impact fee ordinance is a reasonable exercise of that authority.  The developers have no standing to sue the Town.

This decision provides guidance to those involved in the development of land subject to impact fees, as well as to municipalities in crafting appropriate impact fee ordinances.  For the Town of Pelham, the result avoided a lengthy and probably expensive trial, saving the taxpayers money.  For further information on this or other matters, please contact Attorney Kate Miller or Attorney John Ratigan.