Colorado Court Rules Developers in Common Interest Communities Can Require Arbitration of Defect Claims Even After They Sell Last Interest

By on May 28, 2015
Leave a comment

Condo developers in Colorado scored a victory this month in a decision from the Colorado Court of Appeals. In Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al, the court held that a clause contained in a homeowner association’s declaration requiring arbitration of construction defects claims cannot be amended without consent of the developer/declarant if the declaration requires its consent. This is the case even if the declarant no longer owns any units, provided the declaration reserves the right to declarant after it sells its last interest in the community.

In Vallagio, the declaration required the developer/declarant’s consent to any change in the declaration’s requirement that construction defects be tried in arbitration. After the homeowner’s association gained control, it amended the declaration to eliminate the arbitration requirement. It then file suit in court against the developer. The trial court held the association’s vote eliminating the arbitration requirement was valid, but the Colorado Court of Appeals reversed finding the amendment invalid because it did not first obtain the developer/declarant’s consent to the change.

The Vallagio decision is good news in the wake of the failure of state legislative efforts to encourage further condo development in Colorado. This spring, the Colorado house rejected legislation, passed by the state senate, that stated when the governing documents of a common interest community require mediation or arbitration of a construction defect claim and the requirement is later amended or removed, mediation or arbitration is still required for a construction defect claim.

Filed under Condominiums, Construction Defect, Homeowners Association (HOA)

Municipalities Take Construction Defect Laws Into Their Own Hands

By on November 17, 2014
Leave a comment

Cities in Colorado are taking matters into their own hands to increase condo construction despite the Colorado Legislature’s failed attempts to address the litigious environment around construction defect claims.

CON BLOG_lakewoodIn October 2014, Lakewood became the first Colorado city to pass an ordinance aimed at increasing condo construction after it has become nearly non-existent since the passage of the Colorado Construction Defect Action Reform Act due to developer’s fears of being sued.  For example, in 2008 condos represented 26 percent of new home starts in metro Denver, compared to the current 4.6 percent.  The Lakewood ordinance gives builders and developers a “right to repair” before facing litigation and requires condominium boards to get the majority consent from homeowners prior to filing suit.  Colorado state law only requires the consent of a majority of a homeowner association board – not the homeowners themselves – to authorize litigation.  There also is no “right to repair” requirement.  Following Lakewood’s passage of the ordinance, other communities in the Denver metro area are considering whether they should follow suit.

Proponents of the ordinance hope it will spur condo construction while opponents argue it allows developers to become slums. Cities are hoping to add more condos around transit stops rather than apartments to give people a sense of ownership to create more stable, lasting communities.  Because of the overly litigious environment, insurance premiums for the construction of condominiums are 25 percent to 45 percent higher in Colorado.  Consequently, only projects capable of generating a higher profit margin for developers are high-end condos, leaving no construction of low- to mid-priced condos.  Additionally, some national builders will not even build condos in Colorado for fear of being sued.

Whether this ordinance, which overrides state law, will withhold a challenge in court is a question likely to emerge in the near future.  While home-rule municipalities have the ability to pass ordinances that are strictly of local concern, some argue that this ordinance addresses a matter of statewide concern and, therefore, is unconstitutional.  Although a question exists of whether this ordinance is constitutional, at a minimum, it has created a dialogue among other communities to discuss the state of the economy and the need to find a solution.

Filed under Condominiums, Construction Defect, Municipalities