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Enforcing Building Codes in a City’s ETJ in Texas

Enforcing Building Codes in a City’s ETJ in Texas

Cities routinely collect permit fees as they go about enforcing their building codes, but what is a city in Texas to do about development in its extraterritorial jurisdiction (ETJ)?

According to a recent appellate court decision, a city cannot pursue code enforcement in its ETJ. However, (1) that case may be appealed to the Texas Supreme Court, and (2) there may be other ways to collect permit fees anyway.

On May 10, 2018, the Third Court of Appeals in Dallas published its opinion in Collin County, Texas v. The City of McKinney, Texas v. Custer Storage Center, LLC. The case arose from a dispute after Custer developed a self-storage facility in McKinney’s ETJ, acquiring building permits from the county but not from the city. Collin County and McKinney were operating under a so-called “1445 Agreement,” which specified that the city had exclusive authority to regulate the subdivision plats and approve related permits in the city’s ETJ. Nevertheless, the court ruled that no city may enforce building codes or collect building permits in its ETJ. The court specifically cited Town of Lakewood Village v. Bizios, a 2016 Texas Supreme Court decision, where the court had held that general law municipalities could not extend building codes or permits to the ETJ. The Dallas appeals court ruled that the Bizios decision also applies to home rule cities; therefore, every city is prohibited from enforcing building codes or permits in its ETJ. The opinion states that the city “lacks authority to require a landowner developing property in its [ETJ] to obtain City building permits, inspections and approvals, and pay related fees.”

It is entirely possible that the City of McKinney will appeal this decision to the Texas Supreme Court. If the city appeals and the Texas Supreme Court takes the case, it would most likely clarify whether the prohibition on enforcing building codes and permits truly applies to all cities or just to general law cities, as it stated in Bizios.

How does the Custer decision affect home rule cities?

After the Bizios decision, many home rule cities began or continued to collect permit fees and otherwise enforce building codes in ETJs because Bizios specifically dealt with general law cities. Now, however, a home rule city will not be able to continue to enforce building codes and permits in the ETJ in the “usual” way. There may be other ways to do so, however.
Here’s the good news first.

Possible Workaround: “Non-Annexation Agreements” / Development Agreements

Subchapter G of Chapter 212 of the Texas Local Government Code authorizes cities to enter into so-called “non-annexation” agreements with landowners. Section 212.172 specifically states that the agreement can, in exchange for the promise by the city not to annex the land for a certain period of time, “authorize enforcement by the municipality of certain municipal land use and development regulations in the same manner the regulations are enforced within the municipality’s boundaries,” or even “authorize enforcement by the municipality of land use and development regulations other than those that apply within the municipality’s boundaries, as may be agreed to by the landowner and the municipality.” Therefore, under a valid non-annexation agreement, the city could require and enforce building codes and permit fees, just as if the land were within the city limits. A plain reading of the statute suggests that an agreement is not required to reference annexation, but only at least one of the nine items listed in 272.172(b):

(b)  The governing body of a municipality may make a written contract with an owner of land that is located in the extraterritorial jurisdiction of the municipality to:

(1)  guarantee the continuation of the extraterritorial status of the land and its immunity from annexation by the municipality;

(2)  extend the municipality’s planning authority over the land by providing for a development plan to be prepared by the landowner and approved by the municipality under which certain general uses and development of the land are authorized;

(3)  authorize enforcement by the municipality of certain municipal land use and development regulations in the same manner the regulations are enforced within the municipality’s boundaries;

(4)  authorize enforcement by the municipality of land use and development regulations other than those that apply within the municipality’s boundaries, as may be agreed to by the landowner and the municipality;

(5)  provide for infrastructure for the land, including:

(A)  streets and roads;

(B)  street and road drainage;

(C)  land drainage; and

(D)  water, wastewater, and other utility systems;

(6)  authorize enforcement of environmental regulations;

(7)  provide for the annexation of the land as a whole or in parts and to provide for the terms of annexation, if annexation is agreed to by the parties;

(8)  specify the uses and development of the land before and after annexation, if annexation is agreed to by the parties; or

(9)  include other lawful terms and considerations the parties consider appropriate. 

Possible Workaround: Planned Unit Development Districts

Section 42.046 provides that the governing body of a municipality that has disannexed territory previously annexed for limited purposes may designate an area within its ETJ as a planned unit development district containing no less than 250 acres. Agreement requirements follow in Chapter 42. Even if a city had not disannexed territory previously annexed for limited purposes, it could potentially do so, and then be eligible to create a PUDD.

Now for the bad news.

Not a Workaround: 1445 Agreement

In locations where there is no 1445 Agreement between a city and county, developers in such a city’s ETJ would generally look to the county and city equally for the approval of their plats, etc. Granted, the presence of a 1445 agreement did not seem to affect the court’s ruling in Custer.

Not a Workaround: Subdivision Ordinance

Cities do have certain specified authority and power in the ETJ. Section 212.003 of the Texas Local Government Code provides that a subdivision ordinance is applicable to a city’s ETJ if, and only if, the city has specifically extended its subdivision regulations to the ETJ. However, the statute specifically provides that the city may not regulate the use of any building or property.

Not a Workaround: Development Plats

Sections 212.041-212.050 allow cities to require development plats in the ETJ but expressly provides that it “does not authorize a municipality to require municipal building permits or otherwise enforce the municipality’s building code in its extraterritorial jurisdiction.”

Could a City be required to disgorge permit fees previously collected?

In September 2015, the 150th District Court ordered the city of Helotes, Texas, to repay more than $1 million, including attorney’s fees, to four homebuilders as refunds for ETJ permit fees previously collected. It was the third lawsuit of that ilk filed against Helotes. However, Helotes was and is a general law city and not a home rule city, and therefore was never acting under color of law. General law cities, unlike home rule cities, can only exercise powers specifically granted to them by the legislature.  After Bizios (but before the recent appellate decision in Custer), many home rule cities interpreted Bizios for the proposition that they could collect permit fees. The Texas Municipal League acknowledged that interpretation without specifically endorsing it. But given the fact that home rule cities can exercise any authority not specifically denied to them by statute or case law, it is unlikely that any home rule city would have to disgorge fees collected under a reasonable (at the time) interpretation of the legal status of the issue.

There is an extended analysis of this issue after Bizios but before the recent Custer decision in this article that covers a number of potential development issues that arise outside a city’s corporate limits.

Conclusion

Although Bizios is still the law of the land, the recent appellate decision in Custer seriously calls into question whether any city, home rule or not, can enforce building codes and collect building permits in the ETJ. Until the Supreme Court clarifies its position, it would be wise for home rule cities to either (1) avoid enforcing such codes and collecting such fees, or (2) proceed under a workaround like a non-annexation agreement or a planned unit development district.

Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our municipal law practice can be found here.

Drew Shirley is a Houston attorney with experience in tort and business litigation and business and real estate transactions. Shirley graduated cum laude from Duke University, then received two advanced degrees – a master’s in journalism and a law degree – from the University of Texas at Austin. He joined the Randle Law Office in 2015.

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