CREJ

27 / 100

February 18-March 3, 2015 — COLORADO REAL ESTATE JOURNAL — Page 27
Law & Accounting
C onstruction defect liti-
gation has been hot
for the past decade.
Now a reversal of a construction
trend away from multifamily has
focused industry attention on the
negative impact of CD litigation
and produced a new push for leg-
islative reforms.
Notwithstanding the presumed
fear of CD litigation, Colorado’s
current building boom is led by
residential and public works proj-
ects. This is after amajor slowdown
in constructionduringandafter the
2007 to 2009 recession. During the
last decade, residential construc-
tion was hit hard by the recession
and subsequent departure ofmany
in the construction labor force to
the oil fields of Northern Colorado
and North Dakota. The residen-
tial building environment was
further weakened when CD liti-
gation scared off many insurance
entities that provide coverage for
architects, engineers, contractors
and subcontractors that design and
build residential projects.
Now market demand and
potential profits have overcome
the fear of CD litigation as 2014
saw a surge in residential construc-
tion. This has, in part, addressed
the lack of new multifamily units
coming tomarket.Developerswho
had turned their talents to build-
ing apartments in order to avoid
the risk ofmultifamily construction
litigation and the restricted avail-
ability of insurance for those types
of projects are returning to multi-
family construction.
The current hot topic is the pro-
posed legislation to take the teeth
out of, or at least put some restric-
tions on, futureCD lawsuits. This is
coupled with the actions taken by
local governments todoanendrun
around what
may or may
not come out
of the Legisla-
ture by estab-
lishing their
own restric-
tions to impact
CD litigation.
Attempts to
put some defi-
nition to CD
litigation start-
ed in the early
2000s with the
initial passage
of the Construction Defect Action
ReformAct in 2001. CDARAI was
an attempt to add some structure,
deadlines and requirements for
those asserting CD claims to those
defending against them. As with
any statute open to interpretation,
it soon became apparent that addi-
tional legislationwasnecessaryand
CDARA II became law. CDARA II
significantly expanded CDARA I
and applied to all cases filed after
April 25, 2003.
CDARA II applied to residen-
tial and commercial construction
while CDARA I was applicable
to residential construction. This
increased the number of projects
where CDARAII applied.
CDARA was amended two
more times with the passage of
the Colorado’s Homeowner Pro-
tection Act of 2007 and Colorado’s
Construction Professional Liability
InsuranceAct of 2010.
2014 was the year the pent-up
demand for multifamily construc-
tion squared off against the current
collection of statutes controlling
CD litigation. Senate Bill 220 was
introduced andwouldhave placed
numerous limitations and road-
blocks to the then structure for CD
litigation. That bill was defeated,
but set the stage for the current
round of CD legislation.
We can anticipate that the issues
that will be addressed in the 2015
legislation will be similar to those
set forth in 2014. The 2014 bill was
framed to reduce the use of the
court system as the place to fight
out CD claims and instead shift the
claims into arbitration. One view
of this is that it is better to have a
neutral arbitrator than a potentially
hostile jury that may have heard
about or experienced defects and is
likely to award damages.
If the 2015 bill follows the 2014
bill, we can expect to see broader
disclosure requirements from a
homeowner’s association to its
members, perhaps including the
requirements that attorney fees
and costs be disclosed to members
prior to the initiation of any law-
suit. The issue of the impact of a
CD case on the marketability of a
member’s property may also need
to be disclosed, depending on the
language of any successful legisla-
tion. Undoubtedly the issue ofwho
gets to vote andwhat percentage it
takes to approve the filing of a CD
lawsuit by a homeowner’s associa-
tionwill be addressed.
How will another version of
CDARA affect CD litigation?
Certainly, the up-front disclosure
and vote requirements may make
it more difficult to get litigation
started. However, the best that the
insurance and construction indus-
try can hope for is that these restric-
tions will result in fewer cases.
Ultimately, as the residential boom
continues, defects will be found
andCD litigationwill proceed.
Note: In construction litigation,mul-
tifamily does not include apartments,
just condominiums and townhomes.s
Carrie Rodgers
Partner and
Construction group
chair, Moye White
LLP, Denver
city’s affordable housing require-
ment when first constructed and
then the conversion to condo-
miniums occurs within five
years of the payment. In Denver,
it is clear in listening to council
hearings when Denver’s Inclu-
sionary Housing Ordinance was
adopted that the ordinance was
not intended to cover a typical
conversion of apartments to for-
sale condominium units. How-
ever, if the conversion involves
substantial rehabilitation of the
existing building and creates 30
or more condominium units,
then the project will likely need
to satisfy the IHO’s require-
ments for providing affordable
housing; this is an issue that the
next round of conversions will
need to face and get clarified.
n Construction Defect Impli-
cations. Finally, the conversion
of an existing building that is at
least 6 years old potentially can
avoid some construction defect
claims because it falls outside
the statute of repose for defect
claims in Colorado. But keep in
mind that even in those cases the
developer will remain liable for
defects associated with the reha-
bilitation work it undertakes,
and for misrepresentations that
it or its agents make to buyers
concerning the condition of the
project, as well as for failure to
disclose defects of which the
developer knew or reasonably
should have known. Providing
clear, written disclosures to buy-
ers and keeping on file evidence
of the buyer’s receipt of the dis-
closures is still the best practice.
The next wave of conversions
is inevitable. While they may
offer a bit of relief from defect
exposure, be aware of the addi-
tional regulatory requirements
and oversight involved.s
6400 S. Fiddler's Green Circle
Suite 1000
Greenwood Village, CO 80111
Phone (303) 796-2626
Fax (303) 796-2777
Deals. Litigation. Great Service.
Merc Pittinos Matt Dillman Abe Laydon
Attorneys at Law