Tort Reform on Construction Defects
Lawmakers Kill Lawsuit Limits on Condo Defects
Ed Sealover
April 17, 2013
Tort reform on construction defects in Colorado will have to wait another year. After a hearing spanning two days, the state Senate Judiciary Committee killed SB 52, a proposal by Sen. Mark Scheffel, R-Parker, to limit lawsuits over condominiums and townhouses that have brought construction of such residences virtually to a halt in the Denver area.
Sen. Jessie Ulibarri, a Commerce City Democrat who Scheffel thought would support the bill, instead voted against it Wednesday, saying he would prefer to wait for the results of an ongoing Denver Regional Council of Governments study on the lack of new multifamily projects and work with Scheffel on a solution over the summer.
No one denied that there is a problem with the lack of affordable, multifamily units for sale.
John Covert, director of Greenwood Village-based market research firm Metrostudy, told committee members that 20,000 new condo and townhouse units were built in Denver in 2006 and 2007 — about 26 percent of the local housing starts for those years — and that just 2 percent of housing starts were in that category in 2012.
Several homebuilders said the reason for the shutdown in condo construction is a Colorado law that allows homeowners associations for multifamily units to sue the builder if two or more of the units have defects. Those lawsuits can lead to decisions costing builders $20 million or more.
“We end up getting sued on virtually every multi-family community we build,” said Chetter Latcham, the Shea Homes Colorado president, who added that such development has gone from 50 percent of the company’s construction stock in 2006 to 0 percent in 2012.
Under SB 52, builders of multifamily units in transit-oriented developments would have had a right to repair any alleged defects before dealing with legal action, would have been able to bring any legal claims to binding arbitration, and would have been immune to lawsuits for environmental conditions related to transit and retail development, such as noise, odors, light and vibrations.
Scheffel chose to focus on transit-oriented development — a definition he narrowed to anything withing half a mile of a light-rail line — because mayors and economic developers are trying to get builders to create condos near the new RTD lines.
But critics said the bill was a premature attempt to fix a problem whose link to Colorado law is not yet established, and that it could provide an incentive to people to buy property away from transit lines because they have more legal rights with that property.
And a number of homeowners associations said that they need the right to sue builders because they have made other efforts to get problems in their condos fixed and faced great resistance from them.
“What the bill does is give an unfair advantage to the less-than-stellar developers,” said Molly Foley-Healy, a special counsel for the Denver law firm of Winzenburg, Leff, Purvis & Payne LLP. “The right to repair is a significant issue.”
In the end, SB 52 died on a party-line 3-2 vote, with Republicans on the committee supporting it and Democrats opposing it.
Scheffel is a resilient legislator — this is the man who’s brought bills pushing some form of business personal property tax relief for five straight years — and you can bet he’ll be back with some effort at limited construction-defects tort reform next year.
But the opposition to SB 52 shows that the battle lines on this issue may be hard to overcome, even for such a limited scope as condominiums along the light-rail lines.
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SOURCE: www.bizjournals.com