Liability For “Special Assessments” For Public Improvements

Twenty years ago, a landowner developed plans for a “high-end residential housing project.” The developer entered into a written development agreement with the city to proceed with construction and make improvements to the properties to make the development fit for residential housing. Under the agreement, the city agreed to install sewer and water lines and surface the entire street, with the cost of the street improvements assessed to the adjoining property owners. The developer, in turn, agreed to compensate the city for “construction costs” and agreed to hire an engineer to survey and subdivide the land. After completion of the survey, the land was subdivided and half of the lots were sold by 2005.  After the developer’s death, the city proceeded with plans to surface the street and, in 2006, the City Council adopted a resolution authorizing paving and other improvements. The resolution specified that the cost of the improvements would be assessed to the adjacent lot owners. 

The lot owners filed a petition with the trial court to contest the proposed assessments. The plaintiffs claimed the assessments were void because they were contrary to a city ordinance that required the original developer (sub-divider) to pay for surfacing and grading of streets. Despite the lawsuit, the city moved forward with the street construction and assessed the costs to the lot owners. 

At trial, the plaintiffs (lot owners) testified that they would “derive no benefit” from the street and the resulting loss of privacy and increased traffic would decrease property values. The city introduced evidence showing that the street increased the value of the plaintiffs’ properties. The trial court rejected the plaintiffs claims concluded that the plaintiffs failed to prove that the assessments were excessive and that their properties were not benefitted. Further, the trial court concluded that the plaintiffs could not be granted relief for the city’s failure to enforce the ordinance requiring the sub-divider to pay for street construction. 

The plaintiffs appealed, arguing that the city had no authority to assess the street improvement costs, because the ordinance required the sub-divider to bear the costs. The city answered, claiming that the newly-constructed street was outside the subdivision and did not fall under the purview of the ordinance. The city argued that they were not legally required to follow the ordinance and were entitled to use “any available authority” to make public improvements. 
The Iowa Supreme Court affirmed the trial court’s ruling. First, the Court agreed that the plaintiffs did not state a claim for which the court could grant relief. In other words, the plaintiffs challenged the unfairness of the city not following the ordinance and not the assessment procedures as required by Iowa Code §384.66(1). Improvement of city infrastructure is authorized by Iowa Code §384. Generally, cities may contract with independent authorities, such as developers, to share in the costs of improvements. Thus, the developer can make improvements to the lots and pass the expenses onto the lot owners by adjusting the price of the lots. 

But, is a municipality required to enforce its ordinances?  It depends on whether the terms of the ordinance are mandatory or directory. Here, the ordinance merely established minimum standards for development. The city’s failure to enforce the ordinance and require the developer to personally finance the improvements would undermine the city’s objectives in this case. The appellate court held that the ordinance was not mandatory and that the city may waive strict adherence to the ordinance when the objectives of the ordinance could not be met. 

Iowa Code §384.61 allows a city to assess lot owners when making public improvements according to the benefit conferred on the property. Though the lot owners argued that the new street did not provide any special benefit, the arguments were not sufficient to rebut the presumption that the assessments were correct. According to the court, the city’s transformation of the street from gravel to pavement objectively conferred a benefit to the lot owners, even though they claimed they were satisfied with the gravel. Nelson, et al. v. City of Hampton, No. 08-0563 (Iowa Sup. Ct. Aug. 26, 2011).