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Page 18 — Multifamily Properties Quarterly — August 2017
Legal
I n light of the recently
adopted House Bill
1279 and the Colo-
rado Supreme Court’s
decision inVallagio at
Inverness Residential Condo-
miniumAssociation, Inc. v.
Metropolitan Homes, Inc., et
al. (217 CO 69), the time finally
may have arrived when devel-
opers and owners of existing
multifamily apartments can
begin converting them into
for-sale condominiums. Before
committing to a conversion
– a process that has not been
greatly utilized in recent years
due to factors including con-
struction-defect risk – develop-
ers should consider several
factors and legal requirements.
• Feasibility considerations.
To avoid potential construc-
tion-defect liability exposure,
many existing multifamily
apartment
projects
have been
restricted,
through
contractual
provisions
or recorded
documents,
from being
converted
to condo-
miniums
until expira-
tion of the
statute of
repose – between six and eight
years in Colorado. And even
if the project is not restricted,
while Colorado law provides
significant protection for archi-
tects and contractors through
the statute of repose, develop-
ers may not have the same
protections if they owned or
controlled
the apart-
ment proj-
ect during
the statute
of repose.
Additionally,
regardless of
any poten-
tial liability
for defects
in the
original con-
struction,
developers
undertak-
ing a condominium conver-
sion have potential liability
for defects in any newwork
undertaken as part of the con-
version.
Absent restrictions on con-
version, developers should
consider whether the project
will work as a condominium.
Are utilities submetered, is
submetering necessary and
what is the cost of retrofit-
ting the existing structure to
provide for submetering?Will
additional actions be neces-
sary to bring the condition of
the units and other structural
aspects to a saleable condition,
potentially requiring compli-
ance with current codes?
What amenities will target
unit purchasers expect (and
be willing to support through
homeowner association
assessments), and how does
this compare to the project’s
existing amenities?
• Compliancewith the Colo-
rado Common Interest Owner-
ship Act and approval by the
Colorado Real Estate Commis-
sion. Any new condominium
created by a conversion must
comply with the Colorado
Common Interest Ownership
Act.This means preparing a
condominium declaration, a
condominiummap, and arti-
cles of incorporation, bylaws,
rules and regulations, policies
and a budget for the HOA. For
developers not experienced
with condominium projects,
the majority of a declaration’s
framework is established by
CCIOA, but CCIOA also pro-
vides latitude in many areas,
such as assessment and vot-
ing methodologies.The time
to develop a “close-to-final”
set of condominium docu-
ments depends on the level
of complexity involved, the
developer’s readiness to decide
on a few important issues, and
the speed and accuracy of the
surveyor.
If the project will have 20
or more units, compliance
with the Colorado Subdivision
Developer’s Act is required.
The SDA requires registra-
tion and approval from the
Colorado Real Estate Commis-
sion before the negotiation or
execution of unit contracts,
although reservations agree-
ments with fully refundable
deposits may be permitted by
the CREC.
The CREC must approve or
reject the registration appli-
cation or request additional
information within 60 days
after receiving the applica-
tion.The approval period
often is shorter, but the CREC
subdivision developer review
staff is small, so the number
of active applications under
review at any time can impact
the timing. Developers have a
continuing obligation to renew
their registration and disclose
to the CREC certain changes to
the project (for example, the
filing of a lis pendens or law-
suit, or a new blanket encum-
brance).
The application must dis-
close specific information
about any person with a 24
percent or more financial
interest in the developer – or,
if no single person has at least
a 24 percent interest, the per-
son with the greatest financial
interest.The developer must
submit drafts of the proposed
or recorded condominium
documents, the sales contract
and reservation forms, a dis-
closure statement to be given
to each prospective purchaser,
and evidence that units will
be released from any blanket
encumbrance upon sale.While
the CREC may disapprove the
forms, the substance of the
condominium documents is
reviewed primarily to ensure
consistency with the disclo-
sure statement, and the sales
contract is reviewed to ensure
that it includes specific man-
datory provisions, including a
purchaser’s five-day right to
rescind, the timing of delivery
of deeds and title insurance
policies and other matters.
The disclosure statement
must include a description
of all the availability of utili-
ties, access and the amenities
within the project, as well
as the services, its dues and
Bryce Beecher
Counsel,
Brownstein Hyatt
Farber Schreck,
Denver
Jonathan Pray
Shareholder,
Brownstein Hyatt
Farber Schreck,
Denver
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