January 6-January 19, 2016 —
COLORADO REAL ESTATE JOURNAL
— Page 19
1 9 0 0 A T T O R N E Y S | 3 8 L O C A T I O N S W O R L D W I D E ˚
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Law & Accounting
C
ommon-interest com-
munities are governed
through boards of
homeowners that serve the asso-
ciation. After a certain period of
time, the developer must transi-
tion the control of the board to
homeowners who own units in
the project. The city and county
of Denver has joined the city of
Lakewood and the city of Auro-
ra in passing an ordinance that
addresses construction defect
claims in common interest com-
munities in its Council Bill No.
15-0811. The provisions apply
to any common interest com-
munity created in the city and
county of Denver after Jan. 1,
2016. The stated goals of the ordi-
nance are to promote a diverse
housing supply and transit-ori-
ented development and to cre-
ate sustainable neighborhoods.
However, the ordinance does
not address how a diversity in
price points or development near
transportation will occur. It is not
clear how either issue will be
resolved by the ordinance since
the results benefit all condomin-
ium projects, not just those that
create a diversity of housing or
are transit-oriented.
The ordinance, does, how-
ever provide several provisions
aimed at protecting development
parties in the development of
condominiums, including archi-
tects, contractors, subcontractors,
developers, declarants and their
affiliates, builders, vendors, engi-
neers or inspectors.
First, the ordinance ends strict
liability for development parties
in building code violations and
provides that no city building
code violationwill support a con-
structiondefect claimbasedupon
strict liability. Any improvements
to real property regulated by city
code and installed in substan-
tial compliance with the code is
not considered to be defective
to prove a construction defect
claim. A violation of a city build-
ing code does not create a private
cause of action for failure to com-
ply with a building code.
Second, at least 60 days before
service of notice of a construc-
tion defect claim, the board is
required to send additional infor-
mation to unit owners, including
information about the statute of
limitations, the amount the asso-
ciation expects to recover if the
association prevails, the amount
of the con-
tingency fee
to be paid to
the attorneys
and the costs
of the consul-
tants and liti-
gation. There
also must be
included in
the notice a
statement that
if the associa-
tion makes a
claim
and
does not win, the board expects
that the association will have to
pay for its own attorney fees,
consultant fees, expert witness
fees and other costs, plus defen-
dant’s consultant fees, expert
witness fees and court costs. This
part of the ordinance is confusing
because it does not address the
fact that in most contingency fee
cases there are not attorney fees
if the party does not prevail, and
generally the law in Colorado
is that each side pays its own
costs, unless shifted by statute or
contract. It is not clear from the
ordinance if this statement is not
factually accurate if it still must
be included in the notice. The
ordinance does not provide any
fee-shifting provisions.
The notice also must include
a statement that if the associa-
tion does not recover from the
defendants, it may have to pay
to repair or replace the defective
work. Again this is confusing,
because if repairs are required to
common elements, such repairs
are required by law to be made
by the association in any event
(see CRS 38-33.3-307). Associa-
tions must maintain the common
elements in a common-interest
community by law.
The notice must also include a
statement that until the claimed
defective work is repaired or
replaced or the claim is con-
cluded the market value of the
affected units will be adversely
affected and until the claimed
defective construction work is
repaired or replaced, or until the
claim is concluded, owners will
have difficulty refinancing and
potential buyers will have dif-
ficulty obtaining financing. The
notice must also include a state-
ment that certain federal under-
writing standards prevent refi-
nancing or obtaining a new loan
in projects where a construction
defect is claimed and that certain
lenders as a matter of policy will
not refinance or provide a new
loan in projects where a defect is
claimed. The notice requirements
that the board must send require
that the notice contain assertions
and conclusions that may or may
not be factually accurate in a par-
ticular association. However, the
ordinance fails to provide for this
possibility.
Third, the ordinance requires
that the board must obtain writ-
ten consent from a majority of
homeowners to approve the
board’s proposed actions, and
in the written consent, the home-
owner must acknowledge receipt
of the notice provisions required
by the ordinance.
Fourth, the ordinance sets
forth certain provisions related to
enforcement of covenants requir-
ing alternative dispute resolution
for construction defect claims. If a
declaration in a common-interest
community requires any form of
alternative dispute resolution for
construction defect claims assert-
ed by the association, by the
board or by any unit owner and
the declaration expressly prohib-
its any future amendments to
the declaration that would mod-
ify or eliminate the requirements
for alternative dispute resolu-
tion without the consent of the
declarant, any attempt to modify
or eliminate the requirement for
alternative dispute resolution by
the association, by the board or
by unit owners absent consent
of the declarant shall be deemed
ineffective, an abrogation of a
contractual obligation and void
against public policy.
This provision is contrary to
CRS 38-33.3-217, which provides
a statutory mechanism to amend
declarations. A declaration may
be amended only by the affirma-
tive vote or agreement of unit
owners of units to which more
than 50 percent of the votes in
the association are allocated or
any larger percentage, not to
exceed 67 percent. Any provision
in the declaration that purports
to specify a percentage larger
than 67 percent is declared void
as contrary to public policy. The
ordinance prohibits an amend-
ment to a declaration by a vote of
67 percent of unit owners that is
permitted, if not required, by Sec-
Amy Brimah
Managing partner,
Brimah LLP, Denver
