The First Regular Session of the Seventy-first General Assembly is Out for Summer having adjourned May 10, 2017, so it seemed an appropriate time to recap Construction Defect Reform across the State.
This session again saw an ambitious batch of Construction Defect reform bills – six in in fact. Both the Speaker of the House and President of the Senate highlighted reform in their opening speeches. The bills ranged from defining “construction defect” to early allocation of costs among defendant litigants.
However, the only bill to garner enough support to make it to the Governor’s desk was HB 17-1279. The bill requires that, before the executive board of a unit owners’ association (HOA) in a common interest community brings suit against a developer or builder on behalf of unit owners, the board must: Notify all unit owners and the developer or builder against whom the lawsuit is being considered; Call a meeting at which the executive board and the developer or builder will have an opportunity to present relevant facts and arguments; and Obtain the approval of a majority of the unit owners after giving them detailed disclosures about the lawsuit and its potential costs and benefits.
The hope is that it will reduce the risk of construction defect litigation just enough for insurance companies to lower their rates, allowing builders to re-enter the owner-occupied multi-family housing market in Colorado.
It will likely take a few years for insurance carriers to respond to HB 17-1279 with rate reductions, and another few years for builders and developers to feel confident that HB 17-1279 offers any true protection from overzealous litigants, but apparently, hope springs eternal among the General Assembly.
The Colorado Supreme Court’s recent ruling in Vallagio at Inverness Residential Condo Association vs. Metropolitan Homes Inc. will probably have more impact; reinforcing the power of a Declarant to bind future HOA members to arbitration of construction defect disputes.
In early June, the Court ruled that a homeowners association was wrong to sue a builder after disregarding bylaws that require binding arbitration to settle claims of construction defects. The association’s key misstep, the court said in a 5-2 ruling, involved its bid to change the rules to allow litigation without getting the consent of the development’s builder.
“Because the unit owners did not obtain the Declarant’s written consent to remove the declaration’s arbitration provision, the attempted amendment was ineffective. Consequently, the Association remains bound by the arbitration agreement …”
Cities also continue to effectuate change on the local level. Those that currently have Construction Defect ordinances include:
Arvada, Aurora, Castle Rock, Centennial, Colorado Springs, Commerce City, Denver, Durango, Fort Colins, Lakewood, Littleton, Lone Tree, Loveland, Parker, Westminster, and Wheat Ridge.
These ordinances include a combination of Notice-Repair language (pre-suit notice to construction professionals with a right to repair); Disclosure-Voting requirements (pre-suit disclosure to HOA members and lawsuit approval); Substantive Law changes (limitation of type or scope of a construction defect claim); or Plat Note language (allowing developers to record plat notes mandating arbitration).
As we enter the 2017 summer construction season, once again very little has changed from years past despite reform efforts at the General Assembly. The General Assembly will convene once again in January 2018, and we will continue watching the circus for any true reform.
Special Thanks to @AxiomPolitics for working tirelessly and keeping the Colorado Defense Lawyer Association up to date on all legislative matters.