Rise Up Logo

Call Us Today!
(562) 659-9599

Developer sues Tustin school district, Santa Ana over school impact fees

Developer sues Tustin school district, Santa Ana over school impact fees

An artists’s rendering of the 264-unit apartment complex Lyon Communities plans to build at 1901 E. First St. in Santa Ana. The property was home to a vacant two-story building that was once occupied by Racquetball World and a four-level parking structure. COURTESY OF CITY OF SANTA ANA

A developer is suing Tustin Unified School District and the city of Santa Ana, claiming a change in how school impact fees are assessed cost the company nearly $ 250,000 while delaying construction of a 264-unit apartment complex.

Lyon Communities filed suit Aug. 7 in Orange County Superior Court alleging intentional and negligent interference with prospective economic advantage and interference with contractual relations, and asking for declaratory relief.

The case stems from conflicting interpretations of a state law that dictates how school impact fees are calculated.

“We’ll now have to go through the legal process,” said Tony Soria, chief financial officer for Tustin Unified. “It needs to be tested in courts.”

Lyon Communities is building an apartment complex on five acres at 1901 E. First St. in Santa Ana, near the Santa Ana Zoo. Plans call for 14 townhomes, 250 apartments, a residential clubhouse, a leasing office and 2,242 square feet of retail space.

Future residents of the property are expected to attend nearby Tustin Unified schools, which means Lyon Communities is required to pay school impact fees to the district.

When the project was approved in 2013, Santa Ana calculated school fees based on the square footage of individual rentable units – as it had for a previous Lyon Communities project in town, The Marke on MacArthur Boulevard. Lyon Communities confirmed that policy was still in place in fall 2014, according to records filed with the lawsuit, then secured a matching construction loan.

The Newport Beach-based developer claims in the suit that the Tustin district was soon “pressuring the city” to change that practice, instead calculating school fees based on the perimeter of the apartment building. In February, court records show a building official with Santa Ana agreed to change the policy.

Santa Ana has a policy not to comment on pending litigation, City Attorney Sonia Carvalho said.

“The city had initially incorrectly calculated the assessable space based on the law,” Soria said. “We questioned them on that, and they agreed.”

Government code 65995 defines assessable space as “all of the square footage within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, detached accessory structure or similar area.” In July, Assembly Bill 715 was signed into law, clarifying the assessed area does not include covered or uncovered walkways.

It’s the “similar area” phrase that causes confusion.

Including non-residential interior spaces such as hallways, leasing offices and a business center in the calculation for Lyon Communities’ project increased the assessed area by 70,000 square feet, the lawsuit states. That increased school impact fees by $ 238,549 up to a total of $ 1.1 million.

Lyon Communities filed a protest over the change Jan. 30. Days later, court records allege Santa Ana ordered Lyon to stop site work and said staff wouldn’t do courtesy inspections any longer.

“TUSD and the city are holding the project hostage to extract funds from Lyon in excess of that allowed under state law,” the lawsuit states.

The suit also claims Santa Ana violated the Mitigation Fee Act by not taking the policy change before the City Council or providing any opportunity for public feedback.

After studying the case, an independent hearing officer agreed with the developer, court records show, arguing the company had “a vested right to proceed” with their project “without fear” that the practice would be changed. The hearing officer then directed the Tustin district to refund the excess fees in July.

The school district disagrees with the ruling, Soria said, with the decision now to be left up to a judge.

Along with asking for a refund of the $ 238,549 fees, Lyon Communities is seeking damages for harm to its contractual relationships, additional loan carry costs and interest, additional project management costs and increased pricing from subcontractors.

One other developer in Tustin challenged the district’s interpretation of the school impact fee assessment, Soria said. That case also went to a hearing officer, who found in favor of the school district.

Contact the writer: 714-796-7963 or BStaggs@OCRegister.com

The Orange County Register – News Headlines : Real Estate News