Construction Defect Law
Colorado Construction Defects Bill is on its way, but Details Remain Unknown
Ed Sealover
March 10, 2014
A bill seeking to jump-start the Denver area’s promising condominium construction sector will be introduced this session, but its sponsor said he remains unsure what types of legal reform will be a part of it.
Sen. Jessie Ulibarri, the Commerce City Democrat who was the swing vote in killing a construction-defects reform bill last year and has worked with the Metro Mayors Caucus for many months to come up with a more acceptable solution this year, said that he is looking at “all options,” including state funding, to offset the inordinate expense of insurance in condominium building.
Ulibarri, known for running some of the most complex and difficult bills in the Legislature, said he is working to find compromise among a diverse group of stakeholders that include builders, mayors and homeowners associations.
But there remain questions about whether any bill can address the goals of economic-development leaders who say Colorado law must be changed if there is to be any building of owner-occupied multi-family housing around the FasTracks lines that are going up now.
Ulibarri said that some of the requests of the Metro Mayors Caucus will be very difficult to pass. And House Speaker Mark Ferrandino, D-Denver, said he still doesn’t buy homebuilders’ arguments — made in opposition to trial lawyers’ — that making it harder to sue over defects will actually spur more development.
“It is my full intention to introduce a bill this year that will increase owner-occupied multi-family housing,” Ulibarri said. “What we have to do, as we do on every other issue in the Legislature, is say, ‘Let’s take small steps’ ... This bill is going to be smaller.”
While most metro areas report that 20 to 25 percent of new housing stock comes in the form of condos — which are lower-cost options for younger professionals uninterested in maintaining a yard, as well as empty-nest Baby Boomers wanting to downsize — it is only 2 percent in Colorado.
And mayors want to clear barriers to increasing that number quickly to allow developers to put up condos around the growing light-rail line before all the land there is gobbled up by apartment projects.
Developers and construction companies testified last year that no condos are going up because state law is structured such that the chances of two condo owners suing over even minor defects is close to 100 percent.
Sen. Mark Scheffel, R-Parker, authored a bill last year that would have required property owners to allow for repairs before suing if they were in proximity to a transit station, but that bill died in a Senate committee after Democratic senators said it was too broad.
This summer, a bipartisan group of mayors began working with legislators to do something to ease the lawsuit-heavy atmosphere around condo building. And they were buoyed by a Denver Regional Council of Governments study that identified state litigation law as the primary factor that will inhibit the sector going forward.
Lakewood Mayor Bob Murphy said city and business leaders would like to see two particular changes in the law:
- They want to require a super-majority of condo owners to have to agree to legal action before any lawsuit is filed — instead of just needing two of them to move forward.
- They want a requirement to attempt some sort of alternative dispute resolution before a suit can be filed.
Also, any bill this year would be applicable to all condominium development rather than just transit-oriented development, Murphy said.
“The affordable housing folks are on board with this too,” Murphy said. “For a decade this was sort of a clash of the titans between the plaintiffs’ bar on one side and the homebuilders on the other side. But it’s broadened to so much more now.”
While reform supporters may be growing, there is little sign that opponents are giving ground, however.
Ulibarri said he believes it would be “very difficult” to get the Legislature to approve a super-majority provision, and an alternative-resolution requirement also would be controversial.
Homeowners associations are expressing concerns about any proposed changes to the law as well.
Jonathan Harris, vice president of The Point Homeowners Association, a Five Points group that has battled contractors over construction defects, said the bill that the Metro Mayors Caucus wants ignores the fact that arbitration can be an expensive process for property owners.
He added that in mixed condo/apartment projects — such as his development — the developer can keep 51 percent of the property for apartments and have voting-bloc control.
And Ferrandino, who often has sided with trial lawyers in voting to expand or defend plaintiffs’ rights, said that even after reading the DRCOG study, he still believes that the condo slowdown is more market-driven than litigation-driven.
“By changing the law, it essentially would weaken homeowner protections. Would you actually have condos built? They can’t actually say that would happen,” Ferrandino said. “So, why would we want to weaken homeowners’ rights to remedy just because we think their should be more condos built?”
With that in mind, Ulibarri said he is looking at whether financial incentives could counteract the sky-high cost of insurance for builders looking to construct condos — one of the main reasons cited last year for why no one is building these units.
Those could involve grants or tax rebates or possibly other methods into which he continues to look.
But can any movement in the condo market be made without changing litigation law? That will be the central debate among stakeholders in the next month or so before a bill must be introduced.
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SOURCE: www.bizjournals.com