Colorado developers frequently cite Colorado’s Construction Defect Action Reform Act (CDARA) as an obstacle to building new condominiums in the state. Developers contend that the law makes it too easy for condo boards to sue developers for workmanship issues, however trivial. As a result, Colorado has seen significant growth in the development of rental apartments, while development of new, for-sale, multi-unit housing, has declined in the state. In 10 years, new condo development in Colorado dropped from 20 percent to just 3 percent of total new-housing starts. Recognizing this issue, Governor Hickenlooper and the Colorado Legislature have taken an interest in reforming CDARA by, among other things, making it more difficult for condo boards and associations to sue construction professionals. Well on its way to becoming law, HB 17-1279 does exactly that.
After the enactment of HB 17-1279, the executive boards of homeowners’ associations (HOA) in common interest communities will have to satisfy three broad elements before bringing suit against a construction professional on behalf of the community’s individual unit owners.
First, HOAs will have to give notice to all unit owners and the construction professionals against whom the lawsuit is being considered. This notice requirement serves a dual purpose—to put developers on notice of defects being alleged, and to inform residents of the potential consequences of proceeding with a lawsuit against a construction professional. Among other things, the notice must inform residents of the potential costs and attorneys’ fees the HOA may incur, that the market value of the units may be “adversely affected” during the pendency of the action, and that the HOA may be responsible for compensating the construction professional for its attorneys’ fees and costs in the event that the HOA does not prevail in the suit.
Second, before proceeding with a lawsuit, HOAs will have to call a meeting at which both the executive board and construction professional will have an opportunity to present relevant facts and arguments. This meeting must be held no less than 10 days, and no more than 15 days, after mailing of the notice described above. In addition to presenting their position at the meeting, construction professionals who attend the meeting will be allowed to present an offer to remedy any defects alleged by the HOA.
Third, HOAs will have to obtain approval from the majority of unit owners before proceeding with a lawsuit. Prior to obtaining approval, HOAs will have to provide unit owners with detailed disclosures regarding the potential costs and benefits of proceeding with a suit. The voting period begins at the conclusion of the meeting described above. The voting period ends 90 days after the meeting notice was mailed or “when the association determines that the construction defect action is either approved or disapproved, whichever occurs first.”
Finally, it is worth noting that issuing the notice described above to unit owners and construction professionals tolls the statute of limitations for all claims described with “reasonable specificity in the notice,” for either 90 days from mailing the notice, or until the HOA determines that the construction defect action is approved or disapproved, whichever occurs first.
While it is clear that HB 17-1279 will make it more difficult for HOAs and plaintiffs’ attorneys to bring construction defect actions against construction professionals in Colorado, it remains to be seen whether this reform will spur the new condominium development intended by its enactment.
HB 17-1279 was passed by the House on April 24, 2017 and by the Senate on May 4, 2017. Governor Hickenlooper—an ardent supporter of the legislation—is expected to sign the bill into law in the coming days.
