Aiming to Jumpstart Condo Construction, Colorado Measure Provides Incentives for Builders
After years of pent-up demand for affordable housing–specifically for-sale condos and other multifamily options—the state passes a bill to ease risk for contractors
New law provides incentives for contractors in an effort to jumpstart construction of much-needed multifamily housing.
Photo by Jennifer Seward
Legislation sent to Colorado Gov. Jared Polis for signature after its passage before the state legislative session ended May 7, seeks to incentivize builders to build much-needed multifamily housing through a program that makes construction defect liability insurance more attractive by lowering their premiums.
If signed, the law would create a warranty program that contractors can opt into that covers defects at no cost to the homeowner for a minimum of one year for work quality and materials, two years for plumbing and electrical work and six years for major structural components. It also requires a third-party inspection during construction that will result in a certificate of occupancy and provide for various remedies in case a defect is discovered.
Jack Tate, president and CEO of Associated Builders and Contractors' Rocky Mountain chapter, said while contractors are hopeful, they are not sure the legislation goes far enough to revive the condo market. “Vague defect definitions and costly inspection mandates may not be viable trade-offs that reduce litigation or insurance burdens in return,” he says. “While the bill offers some legal protections for those who opt in, many of our builders doubt its practicality without further reforms. We of course support policies that result in a net growth of new development.”
Condominium construction in Colorado has been stymied since the 2001 Construction Defect Action Reform Act set up a process for homeowners to sue builders when they found defects that could range from minor complaints about finishes to serious structural or HVAC issues. As a result, high construction defect litigation costs had all but halted middle market condo construction in the state for years.
Architects and engineers will benefit both directly and indirectly from the legislation, as the new program raises the bar on naming design professionals in lawsuits by requiring a more robust Certificate of Review prepared by licensed professional peers that is better tailored to construction defect lawsuits than the version now in law, says Nikolaus Remus, advocacy engagement director for AIA Colorado.
“Better warranties offered by builders and third-party construction inspections will reduce the number of lawsuits that we commonly get pulled into even when there's no evidence of a design-related defect," he says. "Homeowners have a better path to getting defects corrected before resorting to lawsuits to be made whole."
But it won’t be a quick fix. “Even if developers are quick to utilize the new program, it will be years before these projects come to market and longer still to see how the new dispute resolution processes work if a defect occurs," adds Remus. “Tweaks may need to be made if the market doesn't embrace program requirements as currently written. We remain optimistic that [the legislation] is an important step in the right direction to promote more and better-quality multifamily residential construction in Colorado.”
Legislation pending in Oregon also seeks to address low condo inventory. The bill encourages new condo development by shortening the timeframe for lawsuits and reducing liability for developers and builders. House Bill 3746A passed the Oregon House with bipartisan support and is currently awaiting further action in the Senate Housing and Development Committee.
