On December 8, 2015, the Colorado Springs City Council unanimously (9-0) voted to approve an Ordinance that reforms construction defects litigation for common interest communities. In a municipality that rarely has unanimous votes, the passage of the Ordinance demonstrates Colorado Springs’ strong desire to reform construction defect litigation and more importantly, encourage the building of multi-family developments.

At the first reading of the Ordinance on November 24, 2015, there was strong involvement from both sides. The proponents argued the Ordinance was a good start to encouraging multi-family developments and striking a fair balance between the interests of builders and HOAs/homeowners. The opposition argued the Ordinance favored builders over HOAs/homeowners and should have some of its language modified, especially as to informed consent and provisions concerning the role of the Pikes Peak Building Code in construction defect litigation. Ultimately, the City Council unanimously passed the Ordinance on its first reading.

Between the first and second readings, the opposition continued their attempts to convince the City Council to modify some of the Ordinance. At the second reading on December 8, 2015, the City Council did engage in some additional discussion about some provisions in the Ordinance, but no member of the opposition spoke. We believe this may be an indication that opposition to municipal construction defect reforms is waning and opposition to such reforms may focus on an anticipated bill before the Colorado General Assembly in 2016.

The Ordinance is similar to other construction defect ordinances on the Front Range. For instance, HOAs must deliver a detailed written notice to homeowners as to eleven important issues that are impacted by construction defect litigation. Such notice must be personally delivered or mailed to each homeowner. HOAs then must obtain written consent from at least a majority of homeowners before commencing construction defect arbitration or litigation.

HOAs also must provide builders with Notices of Claims before commencing arbitration or litigation. Importantly, the Notices must provide a “description of each construction defect in sufficient detail to allow the builder to determine the nature and location of each of such defect.” Upon receipt of the Notices, builders must submit a written acknowledgment. Builders then have the right to inspect the alleged construction defects and make a written offer to repair. Such written offer must provide detailed information about the construction defects to be repaired, the method of repair, and a reasonable completion date for the repairs. Builders have the right to make the repairs, even over the objection of HOAs and homeowners. However, to strike a balance as to each party’s rights, HOAs and homeowners may commence arbitration or litigation if the repairs are not complete and do not satisfactorily resolve the construction defects.

At the same time, the Ordinance is different from some of the other construction defect ordinances on the Front Range. For instance, similar to only Aurora, the Ordinance provides builders with the option to make a written cash settlement offer to the HOA instead of an offer to repair. Unlike with the right to repair, the HOA is under no obligation to accept the cash settlement offer. The HOA also may make its own written cash settlement offer to the builder, who also is under no obligation to accept. The HOA’s acceptance of a cash settlement offer provides a full settlement and release for all alleged construction defects identified in the Notice.

The Colorado Springs Ordinance also is different from other construction defect ordinances because it limits the ability of HOAs and homeowners to use a violation of the Pikes Peak Building Code to support a construction defect claim. The Ordinance confirms a violation of the Pikes Peak Building Code is not a separate cause of action and cannot prove a construction defect merely through the violation. The Ordinance also prohibits HOAs and homeowners from using a violation to support strict liability and negligence per se claims. Finally, the Ordinance states that any construction “constructed or installed in substantial compliance with such code, shall not be considered defective for purposes of proving any construction defect claim.” This provision provides a safe-harbor for builders who substantially comply with the Pikes Peak Building Code. This provision had been hotly contested by the opposition to the Ordinance on the basis that it may preclude implied warranty claims and use of the word “substantial.”

Finally, the Ordinance is the only construction defect ordinance that does not limit the ability of HOAs and homeowners to amend mediation and arbitration provisions in declarations. The City Council and City Attorneys’ Office made the decision not to include any such provision based on the case of Vallagio at Inverness Res. Condo Ass’n v. Metro Homes, 14CA1154 (Colo. App. 2015). Vallagio prohibits the later amendment of mediation and arbitration provisions in declarations. If the Colorado Supreme Court overturns Vallagio, it is anticipated the City Council will review this issue.

With Colorado Springs joining Denver, Lakewood, Aurora, Lone Tree, Commerce City, Littleton, Wheat Ridge, Arvada, and Parker in reforming construction defect litigation, the issue now becomes whether the Colorado General Assembly will take up and pass similar legislation. It is anticipated a construction defect bill will be introduced in Committee, but it is unknown if it will pass through Committee and get an actual vote in the Colorado General Assembly. If such a bill is introduced in the Colorado General Assembly, Sherman & Howard L.L.C. will issue another Client Advisory to keep you informed.