The Mitigation Fee Act (Government Code § 66000 et seq.) provides the requirements for development impact fee programs. Most of the Act’s provisions were adopted in 1987 as AB 1600 and are sometimes referred to as “AB 1600 requirements.” In large part, the MFA codifies the requirements the U.S. Supreme Court established in its seminal decisions, Nollan v. California Coastal Commission, 483 U.S. 825 (1987) and Dolan v. City of Tigard, 512 U.S. 319 (1994). Those cases established the requirements that land use exactions must substantially advance the same government interest that would furnish a valid ground for denial of the permit and that such exactions must also be “roughly proportional” both in nature and extent to the impact of the proposed development.

Before enacting Government Code section 66020 to the MFA, a developer could not challenge the validity of fees imposed on a residential development without refusing to pay them. In other words, developers were required to pay disputed fees before they could be challenged. Section 66020 was drafted to correct that problem. The various subparts of section 66020 provide a procedure that allows a developer to pay the fees under protest, obtain the relevant building permit, and proceed with the project while pursuing an action to challenge the fees.  If the action is successful, the fees will be refunded with interest.

In Merkoh Associates, LLC v. Los Angeles Unified School District (Case No. B265178, March 22, 2016), a developer paid $25,000 in school fees to obtain a permit to reconstruct a single-family home and filed a request for a refund of fees for the demolition of the existing home. Eight months later the School District provided a demolition credit of nearly $9,000 but did not refund any interest.

Several months later the developer sued the District under Civil Code section 3278, which provides for interest when damages are awarded. The District demurred to the complaint and the trial court sustained the demurrer, ruling that Civil Code section is not a valid basis for interest on the refund of development impact fees and that the developer’s claim was too late under the 180-day statute of limitations of the MFA.

The developer appealed, arguing that the MFA did not prevent recovery of interest under Civil Code section 3287. The Second District Court of Appeal rejected the developer’s argument, however, ruling that section 66020 of the MFA “provides the exclusive method for challenging a school impact fee.” And because the MFA provides for interest in the context of development impact fees, “it controls and takes priority over a general statute.” The court also ruled that it was too late for the developer to follow the MFA’s procedures to obtain interest, and that the timely filing of a protest is a mandatory prerequisite to any action to challenge the imposition of development impact fees. Any such action must be filed within 180 days after the fees are imposed.