Colorado Real Estate Journal - July 6, 2016
The legislative session included the introduction of 468 House bills and 217 Senate bills. The number of House bills may be a record. What were the results of these efforts for the real estate industry? The passage of two reactive bills: a bill to clarify last year’s urban renewal/tax-increment financing law and a bill to address the election process for special districts given the uncertainty of a recent Colorado Court of Appeals decision. What about the effort to correct the continued imbalance in the housing market by way of construction defects reform? If you are unaware of the answer to this question, then let me break the news: No bill was introduced; therefore, there will be no proactive measures to address this issue. This result is especially disappointing to most in the industry and to the greater business community. Each of these legislative issues is explained further below: Urban Renewal/TIF: The Senate introduced SB 16-177 to clean up issues with last year’s bill, HB 15-1348. NAIOP and other stakeholders pushed to clarify the dispute resolution process if there is disagreement about whether tax increments should be shared between a city and county governments to offset the impacts of urban renewal projects. The bill also clarifies that last year’s bill was not intended to jeopardize the existing financial obligations of an urban renewal board that remain outstanding as of December 2015. The bill failed to address the uncertainty regarding the bill’s application to existing projects. Some parties believed the law would not apply to projects approved prior to Jan. 1, 2016. While other parties believed the law should apply to projects approved, but for which financing had not yet began prior to Jan. 1, 2016. The applicability issue remains open and may be subject to legislation next year. Special District Elections: In the final weeks of the session, on April 21, the Colorado Court of Appeals issued a decision in Landmark Tower Association v. UMB Bank, hereinafter the “Marin” case. The Marin case relates to the Landmark development in Greenwood Village – specifically to the taxes levied by a special district and the election process used to form the district. In sum, the Marin court concluded that the purchase and sale contacts used to qualify the electors – who were the developers of the project – were a sham and, therefore, the tax elections were invalid. It has been common practice to use purchase and sale contracts to qualify electors in special districts. The decision may be subject to further appeal, but it essentially calls into question the validity of previously held elections and could potentially adversely impact the bond market. This uncertainty prompted legislation, SB 16-213, to prohibit any contest to the results of a special district election prior to April 21, 2016, on the grounds that any person voting at the election was not eligible to vote, and to validate the qualification of a person elected or appointed to a special district prior to April 21, 2016. The bill passed both chambers and was signed by the governor. A future bill may be necessary to further address and clarify the election process for special districts. Construction Defects Reform: If you recall last year, Senate Bill 15-177 sought three changes to Colorado’s Common Interest Ownership Act to: (i) increase the required notice to unit owners about the potential cost and impact of construction defect litigation, i.e., informed consent; (ii) prevent the removal of arbitration provisions from a community’s governing documents; and (iii) allow a majority vote of unit owners to bring a claim versus a few board members. The bill’s goals were to encourage condominium construction, which has severely lagged behind all other product types, and to provide an affordable option for homebuyers. A compromise bill was drafted to include the informed consent and voting changes. A Colorado Court of Appeals decision addressed the third piece relating to the removal of arbitration provisions, so it was not included in this year’s draft. The compromise bill was intended to be part of a “housing package” that would include, among other things, the extension of the time to allocated low-income housing tax credits and the creation of a tax exemption for money deposited in a first time homebuyer savings account. The negotiations regarding the compromise bill failed, and a construction defect bill was never introduced. The failure was due to the weight of traditional interests relating to construction defects litigation, and reform. However, the bill extending the time to allocate low-income housing tax credits and tax exemption for first-time homebuyers both passed and are awaiting the governor’s signature. Reilly is a director with Fairfield and Woods in Denver.