New California Law Allows Local Option to Collect Impact Fees Later in Development Process to Aid Developers

AB 2604, signed by the Governor on August 1, 2008, allows local agencies to defer the collection of development impact fees to the close of escrow. Given that most developer fees are currently collected at the building-permit stage, this bill will give some builders at least temporary relief from what can be a significant burden on new construction.

Under current law (Government Code § 66007), local agencies are prohibited from collecting developer fees or charges until the earlier of final inspection or issuance of a certificate of occupancy. However, fees may be collected at the building-permit stage if the agency determines they are for improvements for which an account has been established, funds appropriated and a proposed construction schedule or plan adopted. These requirements can be met by adoption of a capital facilities plan. Historically, the exception has effectively swallowed the rule, as the vast majority of jurisdictions routinely have made the statutory determinations necessary to collect fees at the building-permit stage. More recently, however, according to bill analyses, as many as fifty cities and counties have agreed to postpone collection of developer fees to the final inspection or certificate of occupancy stage to help builders work through cash flow issues. 

Effective January 1, 2009, AB 2604 amends Section 66007 to allow — but not require — local agencies to collect impact fees (with the exception of school impact fees) at close of escrow. The availability of clear statutory authority may encourage local agencies to defer collection to close of escrow, an option not expressly provided for under current law. The law allows the local agency to require the builder to execute a contract to pay the fee, recorded against the property and enforceable against successors. 

The ability to defer fees from certificate of occupancy to close of escrow would ordinarily not make much difference since escrows generally close immediately after issuance of the occupancy certificate. In the current market, however, buyer cancellation rates in some areas are as high as 60%, leaving builders with substantial unsold inventory and carrying costs that include significant impact fees (as high as $100,000 in some jurisdictions). AB 2604 promises at least partial relief. 

This posting appeared in the August Land Use and Development Alert was prepared by Bingham’s Land Use and Development Partner Geoffrey Robinson.   Visit www.bingham.com/landuse