Hot Button Issues in Colorado Construction
Liability for owners, developers, contractors and design professionals
A construction defects measure, which was introduced to the state legislature in the 2014 session, was not passed to the dismay of its supporters in the construction industry. The measure was intended to roll back provisions of the Construction Defect Action Reform Act which allow homeowners’ associations (HOAs) to file large, class-action lawsuits against builders for construction problems associated with new, for-sale housing units, such as condominiums.[1] The law only requires a majority vote of the members of the HOA board to begin the suit, which can be as few as two or three people. The law has reportedly led to a significant decline in the construction of condominiums and other residential construction projects which are managed by HOAs.[2] In recent years, permits for building condominium units have dropped significantly. In 2012, 108 permits were filed in metro Denver, while only 13 were filed through July of 2013, and new condominiums currently represent only 4.6 percent of the total new home starts in Metro Denver today. Experts attribute much of this negative change to the Construction Defect Action Reform Act.
Past measures to amend the law have failed, including one which would have added a “right to repair” step to the law, which would have allowed builders to fix defects before facing legal action. The measure failed due to concerns about limiting the rights of property owners.[3] The recent measure put before the 2014 Colorado legislature failed for what most analysts have stated to be “timing issues,” as the amendment was not introduced into the legislature until the last few days of session.[4] The amendment, introduced as Senate Bill 220, would have prohibited condominium HOAs from eliminating mediation or arbitration dispute resolution provisions for resolving defect claims if those remedies were specified in the original bylaws.[5] Further, it would have required HOAs to notify all owners in a condominium building, and receive written consent from most of those owners, before filing suit for construction defects.[6]
Arguments against any alteration of the Construction Defect Action Reform Act point to the fact that builders could just build to code and not suffer consequences. The counterargument is that the influx of construction defect claims has caused insurance rates to go up significantly for condominium and other affected construction projects, causing the overall cost of these construction projects to skyrocket, which also contributes to the low numbers of new condominium projects. Such costs and fears of potential litigation have also caused affordable housing projects in Denver to slow significantly.[7]
In response to these issues, the municipality of Lakewood, Colorado (located outside Denver) has passed a city ordinance designed to “soften the effects of Colorado’s construction-defects law.”[8] The law gives developers the “right to repair” defects before facing litigation and would require condominium HOAs to obtain consent from a majority of homeowners before filing suit.[9] In other words, the municipality of Lakewood put into place what the Colorado legislature could not push through this year or last year. Lakewood’s measure may serve as an example when the issue is taken up by Colorado legislature in 2015.
Notable Case Law in 2014
The Homeowner Protection Act of 2007 protects homeowners by voiding any contractual provision that would result in the waiver of a homeowner’s rights under the Construction Defects Action Reform Act.[10] This year, the Colorado Court of Appeals considered the issue of whether that law should also void certain waivers and releases in agreements between construction professionals working on residential projects.[11] The Court of Appeals left this issue unsolved. However, the Court held that the HPA could not be applied retroactively as such application was unconstitutional.[12]
[12] Id. at *4-5
