Municipalities Take Construction Defect Laws Into Their Own Hands

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.

In 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.