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Many townships have zoning regulations to help guide proper development. Often, zoning ordinances prescribe comprehensive standards for large developments to ensure compatibility with adjacent and nearby land uses, among other things. Interestingly, many large and complex zoning applications (e.g., renewable energy projects, extraction operations, and even complex manufacturing proposals) are being submitted in smaller townships that often lack full-time staff such as professional planners.

This leads to these townships hiring third-party consultants such as planners, lawyers, and engineers to evaluate applications against a zoning ordinance. In some cases, these municipalities are not charging the costs of professional review to applicants. In many cases, these reviews require evaluating zoning ordinance standards against application materials, which may exceed 1000 pages.  This e-letter helps explain how a township can, and should, charge reasonable review costs to applicants using an “escrow policy” to help ensure professional review of complex zoning applications, while “keeping money on the table” and avoiding costs to be borne by a township and its residents.

The Michigan Zoning Enabling Act gives townships the ability to enact zoning ordinances and land use regulations. These regulations can vary from very simple (such as those governing the placement of fences) to very complex (such as those governing utility-scale solar projects). The purpose of a zoning ordinance is, among other things, “to ensure that use of the land is situated in appropriate locations and relationships.” MCL 125.3201(1).

As a result, townships frequently have thoughtful standards in zoning ordinances for a township board and/or planning commission to evaluate when reviewing an application. For example, a township may be tasked with ensuring that a utility-scale wind project meets certain specific sound standards. On the other hand, a zoning ordinance may provide that mineral extraction operations must adequately manage haul route traffic, dust, and not cause unreasonable noise or vibrations on adjacent properties.

Although townships in many instances have planning commissions and part-time zoning administrators tasked with applying these standards to proposed developments, they may lack the necessary technical expertise or resources to fully evaluate complex application materials. Consider, for example, whether a township planning commission can objectively determine, without outside help from a traffic engineer, that a proposed large manufacturing site can accommodate traffic?

To offer technical guidance to a planning commission evaluating complex zoning applications, townships hire outside experts such as attorneys, planners, engineers, and other consultants. These consultants can help the township planning commission review complicated (and lengthy) application materials and provide findings in digestible staff reports to help townships make informed decisions on such applications as well as to help provide transparency on the content of complex zoning applications to the public.

Unfortunately, there are costs associated with professional review of zoning applications. Moreover, some townships may “leave money on the table,” by simply bearing the costs of hiring professional consultants using their general fund.

It should be noted that Michigan law supports passing through reasonable costs of professional review of zoning applications to applicants by using escrow policies. This concept is not “new,” even though many townships still may not pass along such costs to developers. See Cornerstone Investments, Inc v Cannon Twp, 239 Mich App 98, 104; 607 NW2d 749 (1999) (20+ year old published Michigan Court of Appeals decision upholding use of an escrow policy reviewing a planned unit development).

More recent Michigan Court of Appeals opinions have further supported townships being able to require escrow review fees. See Forner v. Allendale Charter Twp. Supervisor, unpublished per curiam opinion of the Court of Appeals, issued March 21, 2019 (Docket No. 339072). The Forner case upheld a $1,500 escrow fee from an applicant challenging the placement of a fence before a zoning board of appeals to help fund costs of a consultant and a law firm to prepare an opinion to the zoning board of appeals on the request. Notably, the Forner case discussed the ability of a township to charge reasonable fees for regulatory purposes to uphold the fee. See e.g., Bolt v Lansing, 459 Mich 152, 161-162; 587 NW2d 264 (1998) (our Supreme Court defined three criteria for a determination of the legitimacy of a fee charged by a municipality: (1) a fee must serve a regulatory purpose, (2) a fee must be proportionate to the necessary costs of the service, and (3) a fee is voluntary).

Having established the rationale for escrow fees and the legal framework that supports them, it is important for a township to have a proper escrow fee policy (which can be done by resolution) to ensure the defensibility of the fees. Such a policy should consider the following:

1. When does a township want to be able to charge an escrow? It may not be appropriate for a run-of-the-mill zoning request (e.g., review a land use permit associated with a single-family dwelling), but may be appropriate for any land use that is designated as a special use.

1. Note that even though a township can exclude certain land uses from escrow fees, escrow fees can also help recoup “normal” expenses such as publication costs that are sometimes not passed along to applicants.

2. Who determines the amount of the escrow deposit? Many townships may delegate this responsibility to a zoning administrator or planning commission so they can do research into what types of consultants may be necessary for a particular project (i.e., a specialized law firm with experience in reviewing renewable energy application materials) and approximately how much they may charge.

3. How will the retained consultants evaluate application materials? It is important that professional review of application materials relate to standards within a zoning ordinance. Therefore, an escrow policy should be very deliberate in ensuring that retained professionals are helping determine whether an application adheres to zoning ordinance requirements.

4. What happens when a township requires more funds or has excess funds? An escrow policy should specify what happens when more funds are needed for professional review and what happens when a township has excess funds from an applicant. Usually, policies will provide for required replenishment of the escrow (before consideration of a project can occur) and provide for the return of excess funds without interest after review.

5. Who will serve as township consultants? Although this is not necessarily a consideration for an escrow policy, it may be in the best interests of a township to build relationships with outside consultants such as legal counsel or planners to be ready in the event a township receives a complex land use application. It is often helpful to know what consultants a township will use before it is necessary to retain a consultant (i.e., an application is pending).

To conclude, Michigan law allows townships to pass through professional zoning review costs to applicants. To ensure comprehensive review for land use applications that may have the ability to significantly alter the landscape of a township for the future, townships should utilize escrow policies to make sure adequate review of significant projects occurs—but not at the expense of a township’s general fund.

By: Kyle A. O’Meara

This publication is intended for educational purposes only. This communication highlights specific areas of law and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.