Lawsuit claims Miami overcharged building permit fees for years, seeks $76 million refund

A lawsuit is demanding that the city of Miami refund more than $76 million in “excessive” building permit fees collected over more than a decade.

The lawsuit, filed this month by a Miami property owner, alleges that the city has been knowingly charging exorbitant fees for building permits. The suit claims the city, since revamping how it charges for building permits during a financial crisis in 2010, has turned the fees into a “hidden profit reservoir” and should be ordered to refund the surplus money under Florida law.

This isn’t a suit that will affect most small builders or the average homeowner — the fees in question don’t apply to permits for single-family homes or duplexes. But anyone who pulled construction permits to renovate or construct apartment, condo and office buildings would have shelled out for them, according to the lawsuit.

“It’s money the city has that they know they shouldn’t have. We’re talking about thousands of people who are entitled to get their money back,” said Coral Gables attorney Alexander Fox, one of the attorneys who filed the lawsuit.

The lawsuit was filed in Miami-Dade circuit court on behalf of Fox One LLC, which paid over $200 for a permit and fees for work done on a small Little Havana commercial property that housed a small diner, and a money-wiring business. The lawsuit was filed by attorneys Fox (whose uncle owns the property), Simon Ferro Jr., and Benjamin Weinberg, of Leon Cosgrove Jimenez.

The city of Miami did not respond to a request for comment sent by the Herald on Friday.

The attorneys expect other plaintiffs to join the suit, which could earn it a class-action designation in the coming months. The lawsuit asks a court to declare the city has been overcharging fee payers and has been illegally stockpiling that money. Under Florida law, the lawsuit says, the tens of millions of dollars are part of a “restricted” general fund; it can only be used for costs associated with the building department.

The suit also asks for a permanent injunction barring the city from collecting exorbitant permit and inspection fees, and ordering the city to reimburse the overage charges.

Another fee scandal?

The lawsuit comes on the heels of another legal conflict — in October, the city was sued for allegedly overcharging for parking, a class-action case in which the city could be on the hook for more than $50 million. The class, which could represent tens of thousands of workers, residents and visitors, wants a judge to force the city to reimburse them and stop it from collecting a 15% parking tax.

The allegations in the pending lawsuits are reminiscent of another fee scandal in Miami, one born of budget shortfalls that wound up costing taxpayers millions and roiling City Hall in the mid-2000s. In that saga, the near-bankrupt city in 1998 created a “fire rescue” fee to fill budget gaps, ranging from less than $100 to several thousand dollars for some property owners.

The city collected more than $100 million over about four years before the courts declared such fees were partially illegal. In 2009, Miami wound up shelling out $15.55 million to refund people who’d paid the fees.

The building permit hike emerged from a similar financial crisis. In September 2010, as Miami’s city commission — in the aftermath of the Great Recession — was grappling with a $105 million shortfall thanks to plunging property tax revenue.

At the time, the commission slashed employee salaries and pension costs, while hiking fees on a variety of services, including the cost of using municipal pools, docking boats at city-owned marinas and hauling away garbage. The commission, at the time, was led by Miami Mayor Tomás Regalado; current mayor Francis Suarez, at the time, was a commissioner.

The steep increase in building permit fees was little publicized, but amounted to a significant windfall for the city over the years.

Before 2010, “master” permit fees for construction or renovation projects were based on square footage. Fees for a new condo building, for example, cost 25 cents per square foot, and 30 cents per square foot for a commercial property.

Then, there were “trade” permits priced per unit — for example, $7.50 for the first 10 light fixture sockets, or $26 for each window air-conditioning unit.

A new fee structure

But the commission overhauled the system, pegging building fees instead to the cost of construction, not square footage. Master permit fees became 1 percent of the total cost of construction, plus one-half of one percent of the total estimated cost of construction above $30 million. Trade permit fees were changed to be one-half of one percent of the estimated cost of the “discipline or trade.”

At a special commission meeting in September 2010, the building department estimated that some projects would deliver four times the amount of master permit fees.

One example was the luxury ICON Brickell Two condo building, which cost $154 million to build the previous year and brought in $219,542 in master permit fees. Had the project been built after 2010, the building department told commissioners, the developers would have paid $920,000 in master permit fees, the suit said.

The Icon Brickell condo complex in Miami. In 2010, Miami city leaders used the buildings to project how much more money it could raise by increasing building permit fees.
The Icon Brickell condo complex in Miami. In 2010, Miami city leaders used the buildings to project how much more money it could raise by increasing building permit fees.

The commission passed the ordinance changing the fee structures, although it removed single-family homes and duplexes from the new system. The new structure went into effect on Oct. 1, 2010.

But the whole system goes against Florida law, according to the lawsuit, which mandates that local governments are required to collect “reasonable fees” to pay for the cost of reviewing and issuing building permits, and conducting the related inspections. The suit cites a Florida law that says that a government’s annual revenue from building fees and related earnings “may not exceed the total estimated annual cost of allowable activities.”

The change of the fee structure, the lawsuit says, “was dramatic and immediate” — racking up more than three times the amount in building permit fees the following fiscal year. By the 2013-2014 fiscal year, as Miami was yet again experiencing a condo boom, the city’s building permit revenue reached $22.74 million, a tenfold increased from just four years earlier.

As of the end of the 2019-2020 fiscal year, the lawsuit alleges, the city’s surplus building funds totaled approximately $90 million — of which at least $76.5 million should be refunded to fee payers.

“Seventy-six million? Wow, the city of Miami never learns its lesson. This is reminiscent of the fire fee [scandal],” said Horacio Aguirre, the chairman of the Miami River Commission and frequent critic of the city’s administration.

Aguirre said he believes the exorbitant fees encourage unsafe, unpermitted construction work on buildings. “And, in effect, you make it very hard for small developers to come out of the ground. Only big developers can afford the excessive expenses,” said Aguirre, who reviewed the complaint on Monday.

The lawsuit alleges that excess money should have been returned because in 2019, the Florida Legislature passed a law establishing a cap on how much in building funds local governments could carry over from fiscal years to the next. The law mandated that a a government cannot carry over “any amount exceeding the average” of its building code enforcement budget from the previous four years.

The law, signed by Gov. Ron DeSantis, also said prohibited, excess building monies must be used to “rebate and reduce fees.”

One of the bill’s sponsors, Florida House Rep. Michael Grieco (D-Miami Beach), said Monday the law was passed to prevent exactly what is alleged in the lawsuit against Miami — governments charging excessive fees and hoarding the money.

“The lawsuit is right,” said Grieco, who is not involved in the legal action against Miami. “If the allegations are true, I think the city has big problems on its hands.”