The impact of construction defect lawsuits on condominium development in Colorado has been a hot topic recently. Colorado law treats residential construction differently than non-residential construction. This increases the risk of construction defect claims on residential projects, particularly when there is a homeowners’ association.
Many in the construction industry and the public sector believe that construction defect lawsuits are stifling condominium construction and hurting housing diversity. For instance, according to last year’s study by the Denver Regional Council of Governments (“DRCOG”), not a single permit for new condominium development was issued in downtown Denver in 2012 and most of 2013. The DRCOG study further found that construction defect litigation results in $15,000 of added costs per condominium unit. These added costs come from increased insurance coverage and premiums, higher quality control costs, and a reduced pool of subcontractors willing and able to take on the risk of residential projects.
During its past two sessions, the Colorado General Assembly has introduced legislation intended to decrease the number of condominium construction defect lawsuits. This proposed legislation addressed arbitration provisions, notice to HOA members prior to the filing of a construction defect lawsuit, and a mandatory majority vote of HOA members to approve the filing of a construction defect action. To date, these legislative efforts have failed.
Now one Colorado municipality is taking action on this issue. A recently proposed ordinance in the City of Lakewood would provide many of the protections the General Assembly has been unable to enact. Ordinance O-2014-21, as currently drafted, gives builders (the ordinance defines “builders” to include contractors, developers, and original sellers) the right to inspect alleged defects and make an offer to repair. If the builder elects to repair, the HOA or other owner may not prohibit the builder from making repairs. The repairs would be under warranty for two years following completion. The ordinance would also nullify any amendment to a condominium declaration that removes an arbitration provision, and it would require HOAs to obtain informed consent from at least 51% of its members before filing a construction defect action.
A public hearing and final vote on the ordinance is set for October 13.
Lakewood’s mayor hopes that enactment of the ordinance will spur condominium development, particularly around the city’s new light rail stations. If enacted, this ordinance could give developers and contractors additional protections against defect lawsuits on projects in Lakewood. Plaintiff’s lawyers will likely argue, however, that the ordinance unlawfully conflicts with state law. Nevertheless, passage of this ordinance may spur other municipalities to enact similar provisions which, in turn, may increase pressure on the General Assembly to enact meaningful construction defect action reform.
