Posted by: Patricia Salkin | January 30, 2021

MD Court of Appeals Holds Developer Could Not Enforce Recoupment Agreement Entered into by Mayor

This post was authored by Matthew Loescher, Esq.

This case reviewed whether a developer, K. Hovnanian Homes of Maryland, LLC, could enforce an agreement against the Mayor and City Council of Havre de Grace, which was approved by the City Council by a verbal motion at a public meeting. The agreement, which was titled “Infrastructure Capital Projects Cost Recoupment Agreement” set forth that the City would impose and collect a “recoupment fee” for each residential dwelling unit constructed on two parcels of property described as “Parcel 2” and “Parcel 3” in connection with the development of 414 residential dwelling units on those properties. Hovnanian constructed residential units on the adjacent parcel known as “Parcel 1,” as well as water, sewer, and other infrastructure that served the Parcel 1 development, which Hovnanian contended would also benefit residences constructed on Parcels 2 and 3. Pursuant to the terms of the Recoupment Agreement, the City would collect a fee in the amount of $3,304.57 per residential dwelling unit, “to be paid by the property owners upon the issuance of each building permit, and remit the fee to Hovnanian, representing the property owners’ pro rata share of Hovnanian’s infrastructure costs.” The potential aggregate amount of fees that will be collected and remitted to Hovnanian under the Agreement was for $1,368,094.47, and the City’s collection obligations were for 21 years.

As to procedural history, the circuit court declared that under the applicable provisions of the Charter, the Agreement was a binding and enforceable contract. The circuit court issued a writ of mandamus directing the Mayor to record the Agreement and entered judgment against the Mayor and City Council and in Hovnanian’s favor, in the amount of $144,822.32. The City appealed to the Court of Special Appeals. In a reported opinion, the Court of Special Appeals reversed the judgment of the circuit court.

On appeal, Hovnanian argued that the City Council’s verbal motion to approve the Recoupment Agreement created a binding and enforceable agreement against the City. Here, as part of its express ordinance-making powers, the General Assembly delegated to municipal legislative bodies the authority to “establish and collect reasonable fees and charges. The court found that the Mayor and City Council of Havre de Grace were the municipal legislative body that established fees and charges, and that the legislative mode for establishing such charges was pursuant to a duly enacted ordinance. Moreover, these powers could not be exercised by the Mayor, nor could they be exercised by a verbal resolution of the City Council, as the exercise of the power in either manner would be inconsistent with the statutory requirement that the establishment and collection of reasonable fees be undertaken by the legislative body by ordinance.

Lastly, notwithstanding the mayor’s lack of authority to establish or waive fees or assessments under the law, the developer contended that the City was bound by the contract executed by the mayor, who was an agent acting on the municipality’s behalf. The court rejected this contention, finding the fees that Hovnanian sought to enforce under the Recoupment Agreement were not adopted by ordinance. As such, the Agreement was found to be ultra vires and unenforceable. The judgment of the court of Special Appeals was therefore affirmed.

K. Hovanian Homes of Maryland, LLC v Mayor and City Council of Havre De Grace, 2021 WL 302874 (MD 1/29/2021)

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