Page 18
— Multifamily Properties Quarterly — May 2016
C
onstruction defect reform has
been a hot issue at the state
capitol building over the past
several years as residential
properties for sale in the
Denver metropolitan area remain at
historically low levels. Condominium
construction in the area has come
to a near standstill in the wake of
mounting legal liability exposure for
construction defects – the catalyst
for bipartisan efforts to reform criti-
cal construction defect issues.
Last May, Senate Bill 177 presented
hope for the advancement of much-
needed reform. The bipartisan bill
sought, in part, to address the com-
mon occurrence of an homeown-
ers association voting to remove
arbitration provisions from com-
mon interest community governing
documents, which had been placed
by the developers when the condo
community was created. But after
passing through the Senate, the bill
died in a House of Representatives
committee by one vote. Some local
governments have picked up the
baton on the effort but a statewide
law is considered vital.
The next day, the Colorado Court
of Appeals published its decision in
the highly publicized construction
defects case of Vallagio at Inverness
Residential Condominium Associa-
tion, Inc. v. Metropolitan Homes, Inc.,
et al. The appellate court held that
declarations requiring declarant con-
sent prior to the removal of an arbi-
tration provision by homeowners are
valid and enforceable under the Col-
orado Common Interest Ownership
Act, the statute governing condo
communities and HOAs. There is a
pending petition with the Colorado
Supreme Court
for further review
but it is unknown
whether the state’s
highest court will
take the case.
The Vallagio deci-
sion was a step in
the right direction
for repairing Colo-
rado’s construc-
tion defects law.
However, this past
fall, the court of
appeals took a step
backward in this arena.
In November 2015, in the case of
Rogers v. Forest City Stapleton, Inc.,
et al., the appellate court decided, for
the first time, that an implied war-
ranty of “suitability” exists between
a developer of a vacant lot and an
owner of a home on that lot who is
not the first purchaser.
Forest City Stapleton is the master
developer of Stapleton, a redevelop-
ment of the old Stapleton Airport
into a mixed-use community with
about 12,000 residences. Forest City
subdivided some 4,700 acres of land
into lots, formed Park Creek Metro-
politan District for the purpose of
installation of infrastructure to serve
those lots, and sold residential lots
to homebuilders. The homebuilders
built homes on those lots and sold
the houses to homeowners. As part
of its work at Stapleton, Forest City
performed no actual construction.
However, it selected builders, exer-
cised control over the architecture
and design of homes, and acted as
the construction manager for Park
Creek Metropolitan District’s infra-
structure projects.
One of the home-
builders at Staple-
ton sold a lot to
and a completed
a home for the
plaintiff, Tad Rog-
ers. Rogers paid
a premium for a
deeper basement
that could be later
finished with high-
er ceilings. Once
the home was
complete, and Rog-
ers had closed on
his purchase and
moved into the home, he learned
that the ground-water level on his
lot was too high for the intended
basement build-out.
Rogers sued Forest City under a
theory of implied warranty of suit-
ability – even though Forest City did
not build the house or even sell the
lot to Rogers. Rogers claimed For-
est City implicitly warranted the lot
would be suitable for construction of
a house with a basement suitable for
finishing.
Rogers also made a claim against
Forest City for nuisance, based on
the use of recycled concrete aggre-
gate base course to build roads
in the neighborhood. The use of
RCABC allegedly caused clogging
of perimeter drains on Rogers’s lot,
which exacerbated the water issue.
The roads were constructed by Park
Creek Metropolitan District, but Rog-
ers argued Forest City effectively
controlled Park Creek Metropolitan
District and acted as construction
manager. Therefore, Forest City was
liable for the nuisance caused by the
use of RCABC.
The case went to trial, with exten-
sive expert testimony, and the jury
sided with Rogers on both claims.
Relying on prior-related Colorado
case law, as well as case law from
other jurisdictions, a divided court
of appeals held that an implied war-
ranty of suitability exists between
a developer of a vacant lot and the
owner of a home constructed on
that lot (even if that owner is not
the first purchaser) if the developer
improves the lot for a particular pur-
pose; and all subsequent purchasers
rely on the developer’s skill or exper-
tise in improving the lot for that
purpose.
With respect to the nuisance claim,
the Court of Appeals found in favor
of Forest City, recognizing that Forest
City was separate from Park Creek
Metropolitan District and therefore
not liable for any nuisance caused
by Park Creek Metropolitan District’s
use of RCABC for road construction.
The Rogers opinion is significant
because it is the first time the Colo-
rado Appellate Court has recognized
that a master developer may be
liable to a subsequent home pur-
chaser under an implied warranty of
suitability.
Land developers in Colorado
should take note of this case
because it creates new liability for
claims for implied warranties from
parties with whom the land develop-
ers have no contractual relationship.
Both sides of the case have filed
petitions for review with the Colo-
rado Supreme Court on different
issues. The court presently has peti-
tions for review pending in both the
Vallagio and Rogers cases.
s
Amy K. Hansen
Shareholder,
Polsinelli, Denver
Richard M.
Murray
Associate,
Polsinelli, Denver
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