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— Multifamily Properties Quarterly — March 2016
“I
t’s a complicated issue, but
it’s too important to give up
on,” said Gov. John Hicken-
looper, during the Jan. 14
Colorado State of the State
address. “Let’s hunker down and craft
a law that balances affordability con-
cerns and homeowner rights with
businesses’ ability to operate.”
Building Momentum
Construction defect reform bills
have been proposed multiple times in
different forms over the last handful
of Colorado state legislative sessions.
The efforts have died each time. In
the absence of state action, a dozen
different counties and municipali-
ties have passed their own variety
of ordinances. These communities
include Colorado’s three largest cities,
Denver, Aurora and Colorado Springs,
along with Douglas County, Lakewood,
Arvada, Centennial, Commerce City,
Parker, Littleton,Wheat Ridge and
Lone Tree.
In May 2015, only days after the
legislative session concluded, the
Colorado Court of Appeals decided
Vallagio at Inverness Condominium
Residential Association, Inc. v. Metro-
politan Homes, Inc. (2015 COA 65). In
Vallagio, a condominium association
amended its declaration to remove
a mandatory arbitration provision in
order to pursue construction defect
litigation against the developer. The
developer challenged, contending that
the amendment was invalid because
the declaration required consent by
the developer to amend it, which was
not obtained.
The Colorado Court of Appeals
reversed the 10th Circuit District
Court, holding that
a declarant may
reserve the right to
consent to amend-
ments even after the
lapse of any period
of declarant control.
This decision has
been interpreted by
some as the Court
of Appeals’ indica-
tion of its support
for construction
defect arbitration
as an alternative to
litigation. Vallagio
has been appealed to the Colorado
Supreme Court, but the court has not
yet granted certiori.
These local construction defect
ordinances and the Vallagio decision,
along with the voices of the coalition
group, Homeownership Opportunity
Alliance, Metro Mayors Caucus and
the Denver Metro Chamber of Com-
merce, may finally have created the
momentum reformers need to secure
the votes necessary to change the law.
Local Ordinances
Opponents question how effective
the county and municipal ordinances
have been in attracting developers to
construct more affordable attached
housing. For example, Lakewood led
the charge, passing its construction
defect ordinance in October 2014, but
has not yet received an application for
a condominium project.
Reformers respond that change
takes time and, without state action,
the perception remains that Colo-
rado isn’t condominium-construction
friendly. Additionally, concerns remain
that one or more
of these local ordi-
nances may be chal-
lenged in court on
preemption argu-
ments.
Regardless, con-
dominium con-
struction has not
matched the real
estate boom in
Colorado over the
last several years.
While single-family
housing starts have
increased and the
rental market has skyrocketed, con-
dominium construction has lagged.
Today, condominiums represent just
3.4 percent of new housing starts,
compared to 20 percent in 2007,
according to the Homeownership
Opportunity Alliance. It is debatable
whether the main cause is the current
state of construction defect law and
insurance or lack of market demand.
Chances of Reform
This year’s discussion in the Colo-
rado General Assembly may look very
similar to last year’s debate. Despite
the bipartisan effort led by Senate
Republican Majority Leader Mark
Scheffel and Democrat Sen. Jessie Uli-
barri, most members have remained
firm in their position.
The lack of affordable multifam-
ily housing for first-time homebuy-
ers and seniors looking to downsize
has moved a number of Ulibarri’s
Democratic colleagues. However, that
argument has not changed enough
votes or changed the minds of key
legislative leaders. Two key legisla-
tors, Speaker of the House Dickey Lee
Hullinghorst and Sen. Minority Leader
Lucia Guzman, remain committed to
the position that almost all construc-
tion defect reform proposals would
impair the ability of homeowners
seeking relief for serious construction
defects. Just like last year, Speaker
Hullinghorst still is uniquely posi-
tioned to impede the progression of
a bill through committees and the
House floor.
Proponents and opponents of
reform see the actions of municipali-
ties passing local ordinances from
opposite perspectives. Supporters
of reform, such as House Minority
Leader Brian DelGrosso, argue that
a patchwork of different local ordi-
nances is not a solution. Opponents to
reform suggest that local ordinances
should be preempted as a matter of
statewide concern.
Scheffel and Ulibarri are committed
to continuing the effort. Much of the
debate will take place quietly among
members before a bill is drafted and
introduced. Familiar provisions –
mediation or arbitration rather than
litigation, a right to repair and a voting
requirement for homeowners associa-
tions – are the primary considerations.
So far, although developers and
affordable housing advocates have
met to discuss common interests, the
Colorado Trial Lawyers and plaintiffs’
attorneys indicate no meaningful
progress has been made.
The ultimate fate of construction
defect reformmay not be resolved
before the legislature adjourns in May,
in which case the issue could be set-
tled in a more democratic forum: the
November elections.
s
Michael Feeley
Shareholder,
Brownstein Hyatt
Farber Schreck,
Denver
Caitlin Quander
Associate,
Brownstein Hyatt
Farber Schreck,
Denver
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