Colorado Capitol Report

Construction-Litigation Reform: Now, Will They Build Them?


This Capitol Report is brought to you by:

  • community-banks-of-colorado

State Policy News

Construction-Litigation Reform: Now, Will They Build Them?

Two major steps forward have been taken this year to address the dearth of affordable, entry-level, multi-family housing units.

For years, the construction of condominiums has been stifled because developers have feared easy-to-file class-action lawsuits by unit owners.  Insurers, consequently, raised policy premiums to a level that also dissuaded developers from undertaking such projects.

The result is that only a very small percentage percent of new multi-family housing starts each year are condominiums when compared to a decade ago or currently to other areas around the country.

An excellent memorandum from the Legislative Council, issued April 17th, discusses the complexities of the issue as well as past legislation that set the stage for this year’s legislative debate.

The memorandum cites a 2013 study by the Denver Regional Council of Governments found that in 2013 construction of “for-sale housing,” i.e., condos, comprised only 2 percent of all active construction in downtown Denver.

DRCOG found that developers had to pay an additional $15,000 more per condo unit when compared to an apartment unit because of the greater risks associated with potential construction defect litigation.  DRCOG also determined that most condo developers put the odds at almost 100 percent that they would be sued by HOAs over alleged construction defects.

For four years, legislators have vigorously debated the issue under a partisan cloud but to no avail.

The first major accomplishment this year was the legislature’s passage of a bill that will make it more difficult for home owners associations (HOAs) to file class-action lawsuits against developers alleging construction defects.

The second step forward was a recent decision by the Colorado Supreme Court concerning whether or not unit owners could prevent developers from requiring that construction defect claims be resolved through arbitration.

Colorado Supreme Court Decision

The Colorado Supreme Court decision, issued June 5th, enables developers to use arbitration to resolve construction-defects disputes with unit owners.

The Court’s 5-to-2 decision in the case, Vallagio at Inverness Residential Condominium Association, Inc., affirmed an earlier decision by the Colorado Court of Appeals.  The lawsuit was filed against Metropolitan Homes, Metro Inverness, Greg Krause and Peter Kudla.

The Court’s ruling in the Vallagio case, No. 15SC508, permits a developer, under the Colorado Common Interest Ownership Act, to “retain a right of consent to amendments to a provision of a common interest community’s declaration mandating arbitration of construction defect claims . . . “

Prior to the Court’s decision, a HOA could delete from a “declaration” the provision that the unit owners have to engage in mediation to resolve their claims of construction defects.  The plaintiff asserted that the Colorado Consumer Protection Act barred the developer’s right to “consent.”  In other words, a HOA could remove the provision requiring mediation and there was nothing that the developer could do about it.  The Court rejected this argument.

HB-1279

Governor John Hickenlooper signed HB-1279 into law on May 23rd,

The political logjam finally broke when bipartisan sponsors and interested organizations on both sides of the issue reached agreement on HB-1279 to establish a statutory framework that balances the interests of builders of townhomes and condominiums with that of the units’ owners.  CACI supported the measure.

Key aspects of the compromise bill included:

  • A majority of homeowners–instead of a majority of a homeowner association board–must vote to approve filing a lawsuit against a developer over alleged construction defects;
  • Extending the statute of limitations by 90 days during the voting period for homeowners to discover and report alleged defects before unit owners proceed with a vote on whether or not to pursue a lawsuit against the builder;
  • Reducing the types of unit owners who can participate in the vote;
  • Detailing more specifically the process for the election on whether or not to pursue a lawsuit, including informing homeowners of the pros and cons of a lawsuit.

The effect of HB-1279 and the Court’s ruling on the construction of new condos will take time to determine.

First, however, will insurers reduce policy premiums enough to persuade developers that it is worth taking the risk to build condos again?

Whether or not developers then convert existing apartments to condos or planned apartment projects to condo projects or launch new condo projects will be the intense focus of public officials at state and local government levels, the business community and prospective homeowners.

For information about CACI’s work on this issue, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.

For news media coverage of this issue, read:

What’s next for Colorado condos following Supreme Court Ruling and defects law?” by Ed Sealover, The Denver Business Journal, June 5th.

Colorado Supreme Court sides with builders on arbitration in construction defects case,” by Joey Bunch, Colorado Politics, June 5th.

House Sends Compromise Construction-Litigation Reform Bill to Senate with 64-0 Vote,” CACI Colorado Capitol Report, April 24th.


Colorado Civil Rights Division Undergoing “Sunset Review,” CACI to Submit Comments

A “sunset review” of the Colorado Civil Rights Division (CCRD) is underway by the Colorado Department of Regulatory Agencies (DORA).

From the CCRD Web site:

The Colorado Civil Rights Division (CCRD) is charged with enforcing the State’s anti-discrimination laws in the areas of employment, housing and public accommodations. CCRD works to eliminate and prevent discrimination in these areas through investigation, education, mediation and enforcement.

The CCRD sunset review, which is being conducted by the Office of Policy, Research and Regulatory Reform, is scheduled to be completed by October 15th.

Several CACI Labor and Employment Council members have drafted changes to existing CCRD rules.  All Council members have now been asked to review the draft comments before they are submitted to DORA.

Other CACI members with concerns and questions about the Council’s draft comments should contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.


Colorado Department of Revenue Proposes Rule Changes for Retailers Not Collecting Sales-and-Use Tax

On April 25th, the Colorado Department of Revenue (DOR) held a stakeholder meeting, which included CACI representatives and other interested parties, to discuss proposed changes to the rule on notice-and-reporting requirements for retailers that do not collect Colorado sales-and-use tax.

As a follow-up to that stakeholder meeting, DORA has prepared draft revisions to the rule.

DORA  is seeking to adopt an emergency rule on or before June 30th on this issue.

CACI members who would like to submit comments in response to the emergency rule, please provide any comments to DORA by June 23rd at the following email address: dor_rulereview@state.co.us.

DORA will also accept comments to be considered for only the permanent rule by June 30th, which can also be sent to: dor_rulereview@state.co.us.

Finally, depending on the comments that it receives, DORA plans to hold a rulemaking hearing on this rule in mid-August or early September. Additional comments will be accepted until the rulemaking hearing is complete.

For more information on the proposed rule change, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.


CACI Brochure Now Available Online

A new CACI brochure, which has been mailed to all CACI members, also is available on the CACI Web site.

The 14-page color brochure provides a broad overview of CACI and its mission to improve and protect the Colorado business climate, including:

  • State public policy advocacy before the Colorado legislature, the Office of the Governor and State departments and agencies.
  • Helping shape pro-business State and Federal policies through involvement in CACI’s six Councils: Energy and Environment; Federal Policy; Governmental Affairs; HealthCare; Labor and Employment; and Tax.
  • Federal public policy advocacy through relationships with the Colorado offices of the state’s nine-member Congressional Delegation.
  • Connections to the U.S. Chamber of Commerce and the National Association of Manufacturers, both of which to whom CACI belongs.

The brochure includes information about ways in which business leaders can connect with their peers as well as public officials:

  • January Colorado Business Day Luncheon
  • October Annual Meeting
  • Chair’s Roundtable;
  • EXECs Advocacy Program;
  • Manufacturing Program, which brings together CEOs to discuss mutual concerns and public policies that affect them;
  • CEO dinners;
  • Executive Connections, which are receptions that feature notable speakers from both the public-and-private sectors who address issues of current concern to the business community; and
  • Small-group meetings of CEOs with members of Congress and other private-and-public leaders.

Members are encouraged to mail the link to this brochure to send to colleagues who may not be familiar with CACI.  In addition, members are encouraged to share the link to the online brochure with other businesses that are not members, such as suppliers and customers.

For information about membership in CACI and its benefits, contact Dave Tabor, Senior Vice President, Business Partnerships, at 303.866.9650.

For information about CACI events, contact Tricia Smith, Senior Vice President, Events and Political Fundraising, at 303.8669629.