Overview of the Ruling
On November 21, 2024, the Illinois Supreme Court ruled in Habdab, LLC v. County of Lake that fees imposed as a condition of annexation are not road improvement impact fees governed by the Illinois Road Improvement Impact Fee Law (Impact Fee Law).
Instead, the Court held that these fees fall under the Illinois Municipal Code, which permits municipalities to negotiate financial contributions as part of annexation agreements. The ruling clarifies the distinction between annexation fees and impact fees, reaffirming local governments’ authority in land-use planning and development agreements.
Background of the Case
The case arose when Habdab, LLC, a developer, sought to annex unincorporated land into the Village of Mundelein through agreements made between 2018 and 2020. Under an intergovernmental agreement (IGA) between Lake County and several municipalities, developers were required to pay fees upon annexation.
Habdab argued that these fees were actually road improvement impact fees and should, therefore, be subject to the restrictions outlined in the Impact Fee Law, limiting how and when such fees can be assessed.
Legal Arguments
Habdab filed suit, contending that the fees imposed were unlawful because they did not comply with the procedures and limitations outlined in the Impact Fee Law. The developer claimed that road impact fees can only be assessed when a municipality issues a building permit or a certificate of occupancy, not as part of an annexation process.
The county and village countered that the fees were lawful and negotiated as part of an annexation agreement under the Illinois Municipal Code, which provides municipalities broad authority in annexation matters.
Lower Court Decision
The Circuit Court of Lake County ruled in favor of the county and village, holding that the fees were not subject to the Impact Fee Law because they were tied to annexation rather than development permits. The Appellate Court upheld this decision, emphasizing that municipalities have the legal right to impose conditions on annexation, including financial contributions for infrastructure improvements.
Illinois Supreme Court Decision
The Illinois Supreme Court affirmed the lower courts’ rulings, reinforcing the distinction between road improvement impact fees and annexation-related fees. The Court explained that the statutory definition of road improvement impact fees specifically limits their application to charges imposed as a condition for issuing building permits or certificates of occupancy. Since the fees at issue were required as part of an annexation agreement, they were properly authorized under the Illinois Municipal Code.
Implications for Municipalities
This ruling ensures that municipalities retain flexibility in structuring annexation agreements, allowing them to require financial contributions for necessary infrastructure improvements without being constrained by the Impact Fee Law. The decision highlights the importance of annexation agreements in local development and underscores the legal authority of municipalities to negotiate terms that address community needs.
Implications for Developers
For developers, the ruling serves as a reminder that annexation agreements can impose financial obligations beyond those covered by the Impact Fee Law. Going forward, developers engaging in annexation discussions with municipalities will need to carefully review and negotiate such agreements, understanding that courts will uphold these financial commitments if they are lawfully imposed under the Illinois Municipal Code.
If you’re a developer or municipality navigating annexation agreements or land use disputes in Chicagoland, Birchwood Law is here to help. Contact us today to ensure your agreements are strategically sound and legally compliant.