Attempts to limit construction defect lawsuits in Colorado shot down

Colorado laws have created a real problem for construction companies and homebuilders in the state. There is a high demand for real estate in the Denver metro area, especially for condominiums and townhomes located near popular light-rail stations.

Transit-oriented developments (TODs) are not a new concept in this country and, a few years ago, the city and county of Denver began developing these living spaces in order to provide residents with affordable, convenient and transportation-friendly homes. Multifamily units located in mixed-use communities located near public transportation allow city residents to rely less on their automobiles and offer owners a strong sense of community and a simplified lifestyle.

Unfortunately, under Colorado law, a homeowner association may bring a lawsuit against builders of individually owned multifamily units if a defect is found in two or more of the units. According to the Colorado Association of Homebuilders (CAH), some of the lawsuits have led to awards in excess of $20 million. As lawsuits against construction companies rose, the number of builders willing to subject themselves to endless liabilities declined, leaving a huge vacancy in the market.

Efforts to reform laws in Colorado

In response to the issue, Colorado lawmakers proposed Senate Bill 52 that would allow builders to remedy construction defects before they can be sued by homeowner associations. The bill also includes a binding arbitration requirement for claims against builders in TODs and provides immunity for such builders against environmental claims for issues caused by retail and transit development. At about the same time, the Denver Regional Council of Governments began a study regarding the effects of such a law on diversity within the TODs, but the study was not complete before the proposed law came to a vote in April.

During the two days of hearings regarding the construction-defect law, no one argued that Denver suffers from a lack of affordable, multifamily units. According to the CAH, while such units comprise about 20 percent of new construction in other states - and comprised over 25 percent of new construction in Denver in 2006 and 2007 - individually owned condos and townhomes now make-up less than 3 percent of construction in the area.

Unfortunately, the proposed law failed to garner enough support at the hearing. Lawmakers, construction companies and real estate developers will pursue a similar law change next year. Although the proposed law would not have helped all types of construction contractors, it was a good step in the right direction.

Seek legal help

Colorado law is not currently favorable to multifamily project builders but there are ways to limit your liability and manage your risk before, during and after construction. Consult an experienced construction law attorney and learn how you can minimize your exposure to lawsuits.