As is widely known to the Colorado construction industry, the number of new condominium projects being developed in metropolitan Denver and elsewhere in the state is few.
The reason is largely attributable to lawsuits against condo developers, designers and contractors. It is no secret that many new apartment projects are being designed with the prospect that once those lawsuits can no longer be brought, they will be converted into condo units and sold. Under Colorado law, construction defect suits cannot be brought more than six years after substantial construction completion (with few exceptions).
In an attempt to solve the problem, a number of Colorado legislators are behind a bill now pending in the Colorado General Assembly, Senate Bill 15-177. It is aimed at either curtailing homeowner association lawsuits or perhaps reducing the dollar amounts of judgments against developers, designers and contractors.
The statute's construct is that:
• Condominium association construction defect claims are to be mediated and, if mediation is unsuccessful, subject to binding arbitration rather than litigation in court, typically before juries.
• A majority of the condominium unit owners are well informed and agree to have their associations pursue construction defect claims with full knowledge of the expenses that they will incur and risks they will undertake if claims are pursued.
To achieve these results, the pending bill provides that if an association's governing documents require arbitration of association construction defect claims, those provisions cannot be changed. The proposed law additionally provides that owners be given timely notice of the construction defect claims being considered, estimates of the expenses owners are likely to incur as well as the effect upon the values of their units of pursuing defect claims, their marketability and their ability to finance or sell their units.
Under the bill, the unit owners would also be notified of how the association proposes to fund the cost of pursuing claims—usually through periodic homeowner assessments.
How this bill will end up is anyone’s guess. The last time the Colorado General Assembly dealt with construction defect laws, it was bombarded by heavy and well-financed lobbying on both sides. The result was the limp and mostly ineffective Construction Defect Action Reform Act (CDARA) that appears to have had little effect upon prior Colorado law and no measurable benefits to property owners, developers or construction industry members.
If passed by the legislature substantially with its present content, there are likely to be more condominium projects in metro Denver. To the extent that the bill's requirements that condominium unit owners must be fully informed of the expense and risk involved in their associations pursuing construction defect claims, the bill makes good sense and it may eliminate the present prospect that every new condominium project is a lawsuit waiting to happen.
That’s the good news. The bad news is that there’s no telling what the Colorado legislative might do—and, depending upon which side you’re on, it might make things worse rather than better.
Rather than relying on the politicians, greater protection for condominium developers, designers and contractors would lie in the governing documents of homeowner associations. When properly conceived and well drafted, those documents could achieve the same results as the pending Colorado Senate Bill.
Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison PC.