2017 Colorado Construction Defect Recap: Colorado Legislature and Judiciary Make Favorable Advances for Development Community

Last March, the Colorado General Assembly introduced House Bill 17-1279 concerning the requirement that a unit owners’ association obtain approval through a vote of unit owners before filing a construction defect action. The bill, passed in May, requires a home owners’ association to first notify all unit owners and the developer or builder of a potential construction defect action, call a meeting where both the HOA and developer or builder have an opportunity to present arguments and potentially remedy the defect, and obtain a majority vote of approval from the unit owners to pursue a lawsuit before bringing a construction defect action against a developer or builder. The bill amends C.R.S. § 38-33.3-303.5, which previously only required substantial compliance with the above-mentioned actions. Moreover, the previous version of C.R.S. § 38-33.3-303.5 did not require the HOA to perform these actions prior to a suit being filed. HB 17-1279 also removed the provision of C.R.S. § 38-33.3-303.5 that made it only applicable to buildings of five or more units.

This legislation, along with the Colorado Supreme Court’s decision in Vallagio at Inverness Residential Condo. Ass’n v. Metro. Homes, Inc., are significant developments in Colorado construction defect litigation. In Vallagio, a clause in the homeowner association’s declaration required arbitration of construction defect claims. This clause could not be amended without consent of the developer/declarant. The homeowner association voted to amend the declaration to delete the arbitration provision and filed a civil lawsuit against the developer. The trial court found the vote was valid, but the Court of Appeals reversed. The Supreme Court affirmed the Court of Appeals decision, holding that the consent-to-amend provision is consistent with the Colorado Common Interest Ownership Act (CCIOA), and that the Colorado Consumer Protection Act (CCPA) does not preclude an agreement to arbitrate CCPA claims against a declarant.

These two advances lend greater certainty to the development community and will hopefully make developers more willing to build in Colorado, which is currently facing a shortage of affordable housing. The General Assembly put forth several bills in the last few years to encourage such growth, but HB 17-1279 was the only bill passed in 2017 that addresses the construction of affordable multifamily housing. The population boom in Colorado is slightly cooling off with more Coloradans moving out. Individuals moving away cite unaffordable housing and high cost of living as reasons for leaving the Centennial State.