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CO Shifts, Backs Developers

Wednesday, June 14, 2017

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The combined movements of Colorado Gov. John Hickenlooper and the Colorado Supreme Court have effectively shifted the attitude toward developers when it comes to construction defects.

In late May, Hickenlooper signed into law HB 1279, a measure that makes it more difficult for homeowners' associations to filed lawsuits against builders over construction defects. And last week, the state Supreme Court ruled in favor of builders regarding the amendment of founding documents.

History

Until recently, under the state’s defects law, the board of a homeowners association—with just a minimum of two people—could decide to sue a developer over shoddy construction work. The goal of the law in 2005 was to protect homeowners, but over the past several years lawmakers have been trying to reach a new compromise after seeing some of the negative impacts of the law.

Currently, the condominiums’ share of the housing market in Colorado is around 2-3 percent. That’s a 10-percent drop from 20 percent in 2005, when the current construction defects law was passed.

A report in the Wall Street Journal had indicated that the law hit the entry-level housing market hard because it ended up costing builders about $15,000 more per unit for insurance to cover the risk of “frivolous lawsuits.” Because of the cost hike, developers had leaned heavily on building rental properties instead of condominiums and affordable housing.

Those choices by the developers, combined with a significant rent and home-price growth in Denver, left out a part of the population who would normally be looking to buy homes, which was a main reason why so many different sides were able to come together.

In addition to the hit on the market, the law all but cemented that homes got caught in litigation crosshairs—with owners unable to refinance or sell their homes when the HOA is in the middle of a lawsuit.

The Push for Change

Rep. Alec Garnett, D-Denver; Rep. Lori Saine, R-Firestone; and Rep. Cole Wist, R-Centennial originally sponsored the bill, which gives developers and owners the right to work things out directly if there are any issues, instead of the HOA going directly to court.

HB 1279 passed the state House and Senate unanimously, and made its way to Hickenlooper’s desk.

“This bill will help us make housing more affordable in a lot of different ways,” Hickenlooper said before signing.

All collaborative parties realize that the passing was not an immediate fix, but all of them will be keeping watch this year to see sparks of change, such as property insurers coming down on policy costs or proposed apartment buildings that are still pre-construction switching to proposed condominium high-rises.

A climb above that 3-percent mark would also be a win, but co-sponsoring Sen. Jack Tate, R-Centennial, said that the team who worked on the bill will be there to make changes if they don’t see the impact they want.

“I’m looking forward to this being a robust first solution to our housing market,” he said. “And if it’s not, this project team will be here to deal with it for years to come.”

In the Courts

Within two weeks, however, the state Supreme Court also gave a push to builders in the case Vallagio at Inverness Residential Condominium Association v. Metropolitan Homes, Inc.

In May 2015, the Colorado Court of Appeals enforced the rule that required a condominium association had to get consent from the declarant if they wanted to make any changes to the governing documents—in this case, an amendment of an arbitration clause.

Last week, the Supreme Court upheld that ruling 5-2.

The building industry favors binding arbitration, which would be set in those governing documents.

Scott Smith, CEO of the Colorado Association of Home Builders, said the ruling should “start to reduce the risk of unnecessary and costly litigation, hopefully will encourage insurers to respond to the market and eventually will lead to the development of attainable condo projects.”

On the opposite end, homeowners advocacy group Build Our Homes Right called the ruling “outrageously unfair.”

Garnett—one of the chief sponsors of HB 1279—commented on the court ruling as well, saying it puts Colorado more in sync with other states. He urged everyone to see how these recent changes play out and called on developers to respond with their own changes, saying, “It’s on the industry to break ground and meet the pent-up demand.”

   

Tagged categories: Concrete defects; Condominiums/High-Rise Residential; Construction; Developers; Laws and litigation; Lawsuits; Residential Construction

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