As I had predicted, the construction industry’s efforts to have the Colorado legislature pass a revised construction defects law has failed. The bill was intended to assure that construction defects claims initiated by condominium homeowners associations be arbitrated before going to court.
But all is not lost because developers and contractors of condominium projects have other avenues available to achieve the same result. It appears that a local developer, an affiliate of Metropolitan Homes, may have a solution.
The construction industry’s fear that juries are likely to favor condominium owners and their associations in defects lawsuits has prompted the industry to take steps to require binding arbitration of construction defects claims. Those efforts have succeeded in a number of Colorado small towns, but the heavily lobbied Colorado legislature nixed the attempt statewide.
However, back in 2007, the affiliate of Metropolitan Homes (Metro Inverness) appears to have achieved the same result through condominium declarations that governed homeowner’s association activities. The Metro Inverness declarations provided: (1) that a 67% vote of the condominium owners was required to amend their declarations; (2) that construction defects claims be arbitrated rather than going to court, and (3) that the declarations requiring arbitration could not be amended without the developer’s written consent.
The homeowners association involved began a construction defects lawsuit. Metro Inverness, Metropolitan Homes (the contractor) and their affiliates resisted. They asserted that the association’s defects claims had to be arbitrated. Before it initiated its lawsuit, the association had attempted to vote the removal of the mandatory arbitration requirement. The developer had not consented to the amendment. The trial court ruled that the developer’s consent to the amendment was not required.
However, on May 7, 2015, the Colorado Court of Appeals reversed the trial court and held that the association’s attempt to amend that declaration without the developer’s consent was ineffective. The court sent the case back to the trial court to determine whether the arbitration requirement also applied to the project contractor, Metropolitan Homes, and two members of the association board who had been appointed by the developer.
Although the Colorado Court of Appeals decision in the Metropolitan Homes case may be subject to further review by either that court or possibly by the Colorado Supreme Court, that case and the recent non-action by the Colorado Legislature suggest that there may be ways to solve the industry’s problem outside the legislative route. Metropolitan Homes appears to have solved the problem through the use of the governing homeowners association declarations.
If the Colorado Court of Appeals or Supreme Court does not change the May 7 Court of Appeals decision, future condominium developers will have a clear path to require arbitration of condominium construction defects claims. The final decision may not be forthcoming for several months, but the chances in the appellate courts are better than they were, or will be with the Colorado legislature.
Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison PC.