While Colorado struggles with an ongoing housing supply deficit and potential buyers grapple with interest rate resistant prices and higher costs of borrowing, local and state governments are entertaining all kinds of potential solutions to Colorado’s affordable and attainable housing issues, including increasing the availability of accessory dwelling units, providing local governments with rights of first refusal on affordable housing projects, and creating high-density transit corridors.
While these ideas are aimed at lowering the overall development cost of housing and corresponding purchase prices and rental amounts, certain proposed legislation in the Colorado General Assembly is gaining traction, which if passed could have a significant impact in increasing construction and development costs, and therefore pushing prices and rents higher for Coloradans across the state.
Developers commonly point to the cost of insuring over and defending against construction defect claims as a significant factor contributing to higher housing prices, and the primary reason for the lack of condominium development in the state. Despite these industry concerns, the Colorado General Assembly is presently deliberating over House Bill 24-1230 (the Bill), which if passed, will nearly double the time period during which consumers can bring construction and design defect claims, and potentially penalize developers and builders in other ways. On April 4, 2024, the Colorado House of Representatives passed the Bill with a somewhat close vote of 35-27 (and three excused votes), moving this forward to the Colorado Senate for consideration.
This Alert provides a summary of the relevant provisions of the Construction Defect Action Reform Act (C.R.S. 13-20-801, et seq.) (CDARA) before providing insight on the Bill’s changes to CDARA and the potential intended and unintended impacts across the state.
What is CDARA?
In 2001, Colorado enacted CDARA to regulate construction and design defect actions and claims, with further amendments to the legislation passed in subsequent years. The intent of the statute was to balance the rights of homeowners to bring valid claims, while also protecting construction professionals from frivolous claims.
Under CDARA, construction and design defect claims and actions are subject to a notice of claim and potential claim resolution process. A claim must be brought within the timeframe set forth in CDARA and must comply with the act’s requirements to provide notice to the alleged responsible party and provide such party with the chance to make an offer of settlement or repair, before a claimant can proceed with a formal lawsuit or arbitration proceeding.
CDARA, like other states’ construction defect laws, provides for both a statute of limitations and a statute of repose. The statute of limitations is determined based on the date upon which the alleged construction or design defect is discovered or reasonably should have been discovered. On the other hand, the statute of repose provides a time limit under which a claimant’s right to bring a claim under CDARA elapses, regardless of when the claim is or should reasonably have been discovered.
The Bill, if Passed, Would Nearly Double the Statute of Repose for Construction Defect Claims
Currently, under CDARA, the time period to bring a construction defect claim against a contractor, developer, or similar construction professional commences upon substantial completion of the property containing the alleged defect and expires six years thereafter. If the basis for a claim arises in the fifth or sixth year, however, the claimant must bring the claim two years thereafter, in which case a claim could potentially be brought up to eight years from substantial completion.
Under the Bill, the six-year statute of repose would be extended to 10 years, and if the basis for a claim arises in years nine or 10, the claimant must bring the action within two years, in which case a claim could potentially be brought 12 years from substantial completion. This proposed extension of the statute of repose would place Colorado among the top 10 states with the longest statutes of repose for construction and design defect claims.
This proposed extension of the statute of repose would place Colorado among the top 10 states with the longest statutes of repose for construction and design defect claims.
Increasing the statute of repose under CDARA will likely result in more construction and design defect litigation and longer exposure for developers, builders, and other construction professionals.
Presently, a claim arises when the claimant identifies (or in the exercise of reasonable diligence should have identified) “the physical manifestation of the defect in the improvement which ultimately causes the injury.” (C.R.S. 13-80-104(b)(I)). The Bill would modify this requirement so that a claim would arise only when both the defect and the cause of the defect were discovered (or reasonably should have been discovered). This change may allow claimants more, rather than less, time to investigate and bring a claim under CDARA.
The Bill Imposes Steep Penalties for Use of Contractual Provisions that Purport to Waive or Limit any Rights or Remedies Provided Under CDARA
Currently, CDARA limits a prevailing claimant’s monetary damages to actual damages, except in limited circumstances that include an accompanying violation under the Colorado Consumer Protection Act (C.R.S. 6-1-101, et seq.) (the CCPA). CDARA already provides that any attempt to waive, limit, or curtail the rights, remedies, or damages available under CDARA is void as contrary to public policy. Under the Bill however, any such attempt to waive, limit, or curtail the rights, remedies, or damages available under CDARA would also be considered a deceptive trade practice under the CCPA. If the Bill were to pass in the Senate and be signed into law, purchase and sale contract drafters beware, as general waivers of all liability and other provisions that were previously merely unenforceable in Colorado could potentially be construed as a deceptive trade practice, and subject to additional damages of at least $500 per violation (which amount is subject to further significant increase if there is a finding of bad faith), and attorneys’ fees.
The Bill Introduces Prejudgment Interest as an Additional Remedy Under CDARA
In addition to potential damages under the CCPA, the Bill would expand an award of actual damages a successful claimant may receive to include prejudgment interest in the range of six to eight percent per annum. This amount would begin accruing from the time the defective work at issue was substantially completed or the improved property was sold from the original developer or builder. This additional remedy is not currently available under CDARA, and will likely serve to invite more construction and design defect claims in Colorado.
The Bill Prohibits Certain Limitations on Construction Defect Claims
The Bill would render null and void any provision in a purchase and sale contract, declaration of covenants, conditions or restrictions, or other governing document that limits class actions or group claims; and, the proposed Bill would also prohibit any provisions in a declaration that purport to expand any requirements or threshold for a homeowners association to bring a construction defect action, above and beyond those currently delineated in the Colorado Common Interest Ownership Act (C.R.S. 38-33.3-101, et seq.).
The Bill May Have Unintended Consequences
If the Bill passes the Senate and is signed into law, the Bill may likely result in a higher frequency of construction and design defect claims in Colorado, and more liability for developers, builders, and other construction professionals, thereby raising the amount of soft development costs, whether in damages claims payouts or higher insurance premiums. This increase in costs will most likely correspond with continuing upward pressure on housing prices. While ostensibly a consumer protection measure, opponents argue the Bill may have the unintended effect of helping to price out of the housing market those very people the legislation aims to protect.
We will continue to monitor the Bill and advise of its passage or defeat in the Colorado General Assembly.
