Following years of unsuccessful efforts by the Colorado legislature to pass meaningful construction defect reform to spur multi-family condominium projects in the state, Governor John Hickenlooper recently signed House Bill 1279 into law. This legislation will make it more difficult for homeowners’ associations to file construction defect lawsuits against the buildings’ construction professionals.
Currently, condominiums make up a very small percentage of the new housing stock in the Denver metro area. As such, there has been rising concern over the lack of affordable housing; especially because median home prices are also on the rise. Some lawmakers and other interested parties claim that the frequency of construction defect lawsuits associated with these multi-family communities is at least partially to blame for the lack of new developments and rise in overall home prices.
In the past, homeowners’ associations could sue builders for poor construction with the approval of a simple majority of an association’s board members. Subcontractors often had little recourse in these suits and they and/or their liability insurance carrier faced significant defense costs even though they completed only a small percentage of the construction work. These risks meant there were fewer subcontractors willing to do the work, fewer liability insurance carriers willing to insure such work, and fewer developers willing to build condominiums.
Lawmakers hope this legislation will encourage developers to once again start constructing multi-family condominium projects rather than focusing predominately on apartment buildings, to increase the inventory of affordable housing available for purchase; particularly, for younger first-time buyers. This is particularly important because apartment rent has skyrocketed in the metro area.
The law contains two key measures:
- A majority of a community’s homeowners must vote and approve a construction defect lawsuit before one could be filed, rather than simply a majority of the homeowners’ association board members; and
- It provides for a 90-day election period for the homeowners to vote on whether to file a lawsuit, following a mandatory meeting during which unit owners will have the opportunity to hear from representatives of both the homeowners’ association and construction professionals to explain the pros and cons of a lawsuit (including the potential costs and risks) before litigation could be filed.
As of now, it remains unclear how the success of this bill will be measured with respect to spurring new multi-family condominium construction. Some preliminary indicators may include an influx of liability insurers returning to the market, a decrease in premiums for policies sold to construction professionals, and ultimately, an increase in developers’ willingness and plans to undertake such projects. Certainly, lawmakers and other interested parties will keep a close eye on the early impact of this legislation to determine the necessity and scope of future measures. This law took effect immediately upon passage.
Please contact me if you would like to learn more about this law and how it may impact your organization.
Doug Stevens, a litigation attorney at Caplan and Earnest, can be reached at 303-443-8010 or email@example.com