Climate shifting after cities move to reform law
As state lawmakers take another crack at reforming the state’s construction-defects law this legislative session, they will be doing so in a shifting legal environment that promises to remain in flux in the absence of state action.
A dozen communities — including Colorado’s three largest cities — have taken action on their own to make it harder for homeowners to sue for faulty building practices. Most did so in the months following the legislature’s unsuccessful attempt to pass a construction-defects reform bill last spring.
And in May, the Colorado Court of Appeals handed down a decision in Vallagio vs. Metropolitan Homes that buttressed the use of arbitration as an alternative to litigation in defects cases. That ruling has been appealed to the state Supreme Court.
“The landscape is complicated,” said Sen. Jessie Ulibarri, a Democratic sponsor of last year’s Senate Bill 177. “It’s a different landscape than last year.”
Meanwhile, there is some question as to how effective the various municipal measures will be in luring condo builders back to Colorado. Lakewood passed the first such measure in October 2014 and has yet to receive an application for a condo project.
Mayor Adam Paul said there have been many inquiries from builders, but getting that initial commitment has been difficult.
“There’s some hesitation to be first,” he said.
Sen. Mark Scheffel, RParker, said after so many years of dealing with the state’s construction-defects law, many builders have become “gun-shy” about moving forward with condominium projects.
“It’s not going to turn on a dime,” he said.
That’s why the senator thinks state legislation on the topic of construction defects is still necessary. He is helping craft a bill for the 2016 session, which begins Wednesday. It is the fourth attempt at such legislation in as many years.
“Personally, I still think this is an issue of statewide concern,” Scheffel said. “This is incredibly important topic to the state, and the economy is getting talked about a lot.”
A lack of condo units has caused extended concern as housing prices and rents have soared.
According to a report from Patricia Silverstein, chief economist with Development Research Partners in Jefferson County, only 3.4 percent of singlefamily home starts in metro Denver in 2015 were condos. Nine years ago, that share was 25 percent.
In downtown Denver, 870 townhomes or condos went up in 2007. That number had fallen to 59 by last year, according to the Downtown Denver Partnership.
Reform proponents blame Colorado’s construction-defects law for the condo shortage, saying the law makes it too easy for homeowners to sue over cracked foundations, leaky windows and other structural problems.
In turn, they argue, insurance companies have jacked up rates for condo builders, and builders have stayed away. Those seeking affordable housing, like young families in search of a starter home, have suffered most, they say.
Molly Foley-Healy, an attorney who serves as legislative liaison for the Community Associations Institute’s Legislative Action Committee, said those pushing for changes in Colorado’s construction-defects law are making specious arguments.
She said condos will come back when the market calls for it. Right now, she said, apartments and rental properties are commanding top dollar.
“As the economy continues to rebound and housing is on the upswing, they’re going to build more condos,” Foley-Healy said. “Obviously, destroying homeowner rights is not the panacea to getting condos built.”
The legislature should leave the issue alone, she said.
Scheffel concedes that a bill this year would have to look different from last year or risk defeat again.
“We’re looking at different approaches,” said Scheffel, who wasn’t ready to divulge details.
Last year’s bill would have made mediation or arbitration, rather than litigation, the preferred method of dispute resolution in construction-defects cases. It also would have required that a majority of all homeowners in a condo or homeowners association approve any legal action before it is taken.
House Speaker Dickey Lee Hullinghorst, D-Boulder, was one of the top Democrats to block construction-defects legislation last year. She is not convinced that another bill would do much to improve the affordable housing challenge, but she does fear it could let builders off the hook for shabby work.
“We have to be very careful that we don’t interfere with the rights of people who are making one of the very biggest investments they will ever make — their home — that they wouldn’t have the ability to get redress if there are serious concerns,” she told a Denver Metro Chamber of Commerce breakfast meeting last week.
Leaders of multiple cities around the metro area, especially those on the Regional Transportation District’s burgeoning commuter rail system, say they can’t wait for the state to make the condo market healthy again.
Centennial Mayor Cathy Noon said “we hear from our residents that ownership other than single family housing is very limited — especially from our aging population and young professionals.”
The southern suburb is the most recent Colorado city to embrace construction-defects reform, passing a measure last month. The area hasn’t seen a condo built within its borders for years.
“With limited vacant land remaining in Centennial, we needed to do what we could as a city to help provide choices,” Noon said.
But just passing measures locally doesn’t guarantee they will stand up to legal scrutiny.
“I expect that all of these local measures will be challenged in court,” said Bruce Likoff, a real estate transaction attorney with the law firm Bryan Cave.
The basis for the legal argument against cities taking the matter into their own hands, Likoff said, is that such action unlawfully preempts state control over the issue.
That’s just as well, said Jonathan Harris, president of Build Our Homes Right. The Denver resident wrestled for years with the builder of his Five Points home, trying to get major structural issues fixed.
He called the defects ordinances passed by Lakewood, Denver and others “a backdoor erosion of homeowner rights” that eventually will get struck down in the courts.
Harris urged state lawmakers not to go down the same path.
“It’s not popular to take away people’s rights — especially in an election year,” he said.