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Some of the biggest homebuilders in Charlotte are suing the city for millions

A dozen of the largest homebuilders in Charlotte have filed a class-action lawsuit against the city of Charlotte, seeking the return of millions of dollars worth of fees for sewer and water connections they claim were unlawfully charged.

The federal lawsuit was filed last week in Charlotte, and alleges the city charged homebuilders excessive amounts for new connections to water lines and sewer systems. The builders are suing on behalf of all homebuilders active in the city for the past three years, which could include hundreds of companies and individuals, according to the lawsuit.

Spokespeople for the city and Charlotte Water declined to comment, citing the city’s practice of not talking about pending litigation.

Charlotte Water has struggled to keep up with capacity needs in fast-growing areas with older infrastructure, such as South End and SouthPark, in recent years.

The water agency has warned that some developers could face delays if there’s not enough sewer capacity to meet demand. Charlotte Water uses fees from new developments to help cover the costs of new capacity.

Homebuilders suing the city include D.R. Horton, Lennar, CalAtlantic, Weekley Homes and Shea Builders. Collectively, they’re building hundreds of houses in subdivisions throughout the city.

There were 3,321 new home construction starts in Charlotte as of the third quarter of last year, the most recent data available, according to home building tracker Metro Study.

According to the lawsuit, the homebuilders were charged more than $5 million in fees over the past three years, which they want back, with 6 percent annual interest.

The homebuilders allege that they were charged capacity fees up to a year before they were actually able to receive service and connect to the city’s water and sewer system. Fees were assessed at the time of building applications, not the time service was actually started. And those capacity fees were charged separate from “tap fees” covering the “actual cost incurred by (Charlotte Water) to tap a line and connect a subject property,” according to the lawsuit.

A recent state Supreme Court decision stated that cities do not have the authority to charge for future services, forcing the town of Carthage in Moore County to repay impact fees for water and sewage going back 10 years.

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The homebuilders also allege the fees were higher than an independent analysis said could be justified, the lawsuit says.

In fiscal year 2018, the lawsuit says, the city charged $3,394 in capacity fees per new property. That’s $936 more than an analysis by Raftelis Financial Consultants, commissioned by the city, found to be justifiable, the lawsuit says.

For fiscal year 2019, the city reduced the amount of capacity fees it charged to $2,458, in line with the maximum amount determined by the consultants, the lawsuit said.

Ely Portillo covers local and state government for the Charlotte Observer, where he has previously written about growth, crime, the airport and a five-legged puppy. He grew up in Maryland and attended Harvard University.
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