Law exempting Bloomington, W. Lafayette from rental fee cap struck down

Marilyn Odendahl for www.theindianalawyer.com

Rental property owners in Bloomington and West Lafayette may be getting a reduction in their registration fees after the Indiana Supreme Court struck down the exemption that allowed the college towns to charge more to landlords than the $5 mandated in state statute.

The city of Hammond challenged the “fee exemption” provision in Indiana Code section 36-1-20-5 as unconstitutional special legislation. Under the exemption, the cities of Bloomington and Lafayette were exempt from the $5 cap per rental unit.

The 2014 Legislature instituted the restriction in House Enrolled Act 1403, which exempted the hometowns of Indiana and Purdue universities from limiting the rental fee. But the bill included language stating the fee restriction would “not apply to a political subdivision with a rental registration or inspection program created before July 1, 1984.”

Subsequently in May 2014, the city of Hammond charged Herman & Kittle Properties $86,000 in rental-registration fees and penalties on two apartment complexes. The landlord pointed to the new legislation and contended its fees would “significantly reduce” after the fee restriction took effect June 30.

Hammond countered its rental-fee program was not subject to the fee caps because its rental inspection program – which the fees funded – was started in 1961, well before the legislation’s July 1, 2014 limit.

While Hammond’s lawsuit was pending, the Indiana General Assembly tinkered with the language in the statute. Specifically, the Legislature amended the statute to exclude the northwest Indiana city from the fee exemption.

In response, Hammond amended its complaint, arguing the fee exemption violated both Article 4, Section 22’s prohibition of special laws relating to fees and Article 4, Section 23’s prohibition of special legislation where a general law can be made. The city also argued the fee exemption was not severable from the remainder of I.C. 36-1-20-5.

The Indiana Court of Appeals agreed the fee exemption does violate the Indiana Constitution. Also, the appellate court found the statue was nonseverable and struck down all of Section 36-1-20-5.

In a unanimous opinion, with Justice Geoffrey Slaughter not participating, the Indiana Supreme Court held the fee exemption was unconstitutional special legislation in City of Hammond v. Herman & Kittle Properties, Inc. and State of Indiana, 19S-PL-148.

However, the justices also ruled the exemption was severable from the remainder of I.C. 36-1-20-5. Thus the fee restriction operates statewide and all municipalities are restricted from charging a rental-registration fee that exceeds $5.

As proponents of the fee exemption, Herman & Kittle Properties failed to convince that Supreme Court that the special law is justified because Bloomington and West Lafayette have a more renters who tend to be young and unsophisticated, and the two cities have a history of regulating landlords through inspection and registration programs.

“The justifications set forth by Herman & Kittle demonstrate nothing more than a ‘generalized uniqueness’ in Bloomington and West Lafayette,” Chief Justice Loretta Rush wrote, citing Buncich, 51 N.E.3d at 142 n.7. “In other words, while there are characteristics of Bloomington and West Lafayette that may be uncommon or rare across the state, that is not enough; rather, ‘there must be unique characteristics that justify the particular of legislation.’”

On the severability issue, Herman & Kittle asserted because the statute did not contain a nonseverability provision as created by Indiana Code 1-1-1-8, the presumption would be the fee exemption is severable from the remainder of I.C. 36-1-20-5.

Hammond pointed out the Legislature failed three times at imposing fee restrictions and was not successful until it crafted a bill that excluded Bloomington and West Lafayette. According to the city, the Statehouse would not want a provision limiting rental-registration fees unless Bloomington and West Lafayette were spared.

The Supreme Court found that Hammond did not defeat I.C. section 1-1-1-8(b)’s presumption that operates in favor of severability.

“Hammond has not demonstrated that the legislature intended to revert back to a time when political subdivisions could charge any rental-registration-fee amount of their choosing,” Rush wrote. “Rather, the legislature, over many years, strove to limit the burden that increasing fees were placing on rental community. Thus, to invalidate the Fee Restriction would go against legislative intent – not support it.”