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Revamp of CO Construction Defects Law a Go

Thursday, April 27, 2017

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Developers and homeowners alike are seeing a glimmer of hope in Denver after the Colorado state House passed a bill that would give the two sides the right to work out any defect problems on their own—leaving out homeowners associations and steering away from lawsuits.

With an abundance of bi-partisan support, as well as backing from both construction and HOA entities, proponents say HB 1279 could revamp a sinking condominium market in the state.

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

 Current State of Things

Under the defects law now, the board of a homeowners association—with just a minimum of two people—can 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.

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 chances of “frivolous lawsuits.” Because of the cost hike, developers had heavily leaned 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, leaves 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 cements that home get caught in litigation crosshairs—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 are sponsors of 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.

Whether it will immediately entice more developers to go the route of the condominium remains to be seen.

“We’re hopeful,” said Scott Smith, CEO of the Colorado Association of Home Builders, “But time will tell.”

The legislation unanimously passed the House, and now heads to the Senate, where it is expected to pass as well.

“I’m very confident this compromise makes it to the governor’s desk,” Garnett said.

In the meantime, however, developers like Renzo Renzi with projects already underway may also breathe a small sigh of relief. In early April, Renzi, whose $500 million Paradise Living development would involve two towers with 800 condos total, said that he wasn’t worried about the defects law because of the quality of his buildings.

He, along with those backing the new bill, want the potential of Denver’s market to see the light of day.

“I am a developer who builds and sells, while other developers just do rentals,” Renzi told Colorado Real Estate Journal earlier this month. “I think there is definitely a market in downtown for owning, rather than just renting.”

   

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

Comment from Jesse Melton, (4/27/2017, 8:01 AM)

I like to think the drop in condo construction in Colorado is due to absurdly high real estate prices, notoriously poor construction quality and increasingly environmentally conscious first time home buyers flooding places like the greater Boulder area.

I also think the "frivolous lawsuit" claim highlights the even growing disconnect between building contractors and end users. It's not difficult to go through new construction sites and see things you know the contractors would never allow in their own homes and offices. I wish I could identify a better solution, but right now the best bet for buyers would seem to be more aggressive contract and standards compliance assurance inspections and increased responsibilities and culpability for HOA's.


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