The Home Builders Association of Delaware has filed a lawsuit in Delaware Superior Court challenging the legality of the City of Lewes’ building permit fee structure, arguing the city is unlawfully using building permit fees as a revenue-generating tool in violation of Delaware law, the city’s charter and constitutional protections.

The lawsuit alleges Lewes doubled its building permit fee from 1.5% to 3% of construction costs specifically to generate additional municipal revenue, despite already collecting permit fees far exceeding the actual cost of administering its building department.

“At a time when Delaware families are struggling through a housing affordability crisis, local governments should be focused on removing barriers to housing production, not making housing even more expensive,” said Katie Dodge Gillis, executive officer of HBADE. “Every unnecessary regulatory cost imposed on home construction ultimately gets passed on to homebuyers, renters and working families, or is absorbed by builders already dealing with rising costs.”

According to the complaint, city budget documents show building permit fees consistently exceeded building department expenditures by substantial margins for years, generating more than $1.6 million in cumulative surpluses even before the city voted to double the fee. The lawsuit further alleges Lewes officials openly discussed the fee increase as a mechanism to generate additional revenue for the city budget.

“Lewes cannot use aspiring homeowners, builders and property owners as an unlimited source of revenue to fund municipal operations,” said Gillis. “These kinds of unlawful fees directly increase the cost of housing and make it harder for Delawareans to afford to live in the communities where they work.”

The lawsuit alleges the city’s fee structure violates Delaware law because municipalities may only impose taxes expressly authorized by state law or municipal charter. HBADE contends the permit fee operates as an unlawful tax rather than a legitimate regulatory fee because it bears no reasonable relationship to the actual cost of issuing permits or regulating construction activity. The complaint also challenges the city’s methodology for calculating permit fees, alleging Lewes improperly includes land value and contractor profit in its calculation of actual construction costs, producing irrational and excessive fee amounts unrelated to any legitimate governmental purpose.

HBADE further alleges the fee structure violates the Delaware Constitution and U.S. Constitution by imposing excessive and disproportionate exactions without the legally required nexus to actual impacts caused by development.

“The Home Builders Association of Delaware is prepared to stand up against unlawful attempts to increase the cost of housing anywhere in this state,” said Gillis. “We will continue to investigate and pursue meritorious cases against jurisdictions that seek to unlawfully inflate housing costs through excessive permit fees, impact fees or other regulatory mechanisms.”

In reponse to the lawsuit, Lewes Mayor Amy Marasco said: "I am aware that the home builders association has challenged the city’s authority. We have not yet heard directly from our city solicitor, so at this point I do not have any more details, but of course we will review their letter and intent. The city’s ability to use permits and the increase in our building permit fees has been discussed in open public forums last year in FY 26 budget recommendations from our finance committee and in city council public meetings as well."