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Condo's - New Construction Defect Law
Colorado, like many urban areas across the country is experiencing a building boom. In a recent housing industry survey, behind Chicago and Dallas, more millennia’s are heading to Denver than anywhere else in the country. States are looking for ways to foster and promote affordable housing. The construction of condominiums is a great method to reach that goal which is typically an entry-level vehicle to homeownership. Unfortunately, condominium projects continue to be one of the most litigious project types for developers and the design and construction team.
In the 1990s and early 2000s, there was a dramatic uptick in defect lawsuits, particularly in the condominium market across the country including the Denver area. A result of that litigation was a rise in the cost of insurance policies for developers and the design and construction firms. Developers left the market and design and construction professionals were told to avoid those projects by their insurance carriers, or restricted coverage on condo projects. Condominium projects have fallen to around 3 percent of all housing starts, compared with 20 percent just a decade ago.
To help address this issue, Colorado House of Representatives unanimously approved House Bill 1279 on April 24, 2017 addressing construction defects specifically for condominium projects. HB 1279 passed unanimously in the Colorado State Senate and is anticipated to be signed into law by Governor Hickenlooper, who has identified the bill as a major success of the 2017 legislative session. After four year of debates in Colorado over the appropriate level of construction defects reform, represents of both Democrat and Republican parties representatives strongly supported change.
The bill requires condominium homeowners’ associations (HOA) to follow more restrictive notice and voting requirements prior to initiating construction defect claims against a developer or builder.
Prior to bringing a construction defect claim against the developer on behalf of all unit owners, HB 1279 requires the HOA board to:
- Notify all unit owners and the developer against whom the lawsuit is being considered.
- Call a meeting at which the HOA board and the developer will have an opportunity to present relevant facts and arguments and at which the developer may, but is not required to, make an offer to remedy the defect, 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 required meeting commences a 90-day voting period during which the HOA will accept votes for or against proceeding with a lawsuit, and also starts any statute of limitations relative to bringing a claim.
- The bill also requires the HOA to maintain copies of unit owners and records of votes received in connection with a proposed lawsuit.
Five other construction defects bills were introduced during the 2017 legislative session, however died before May 10, 2017, the last day of the session. The other bills included more provisions that addressed topics such as reducing insurance premiums to promote growth, further defined construction defects, included dispute resolution methods, binding arbitration, a builder’s right to repair, and a alternate informed consent proposal.
If you have questions on methods for managing and mitigating risk in connection with condominium projects, please contact SmartRisk.
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