Contracting parties may extend the statute of limitations for construction defect claims, according to a new opinion announced today by the Colorado Court of Appeals.
Construction defect claims in Colorado are subject to the Construction Defect Action Reform Act (CDARA), a series of statutes first enacted in 2001 and modified at various times since then.1 In 2007, the legislature passed the Homeowner Protection Act, which amended CDARA to codify and protect certain homeowner rights, including a prohibition on any contracts that purport to shorten the statute of limitations period.2
In South Conejos School District RE-10 v. Wold Architects Inc.,3 the court addressed the flipside of this issue: If parties cannot shorten the statute of limitations, does that also mean they also cannot lengthen it? In other words, the court considered “whether a contract provision is enforceable if it provides a more generous claim accrual standard” than the statute?4
The court first noted that the statute requires claims be asserted within two years of the date the property owner first discovers the “physical manifestation” of a construction defect.5 Prior decisions had interpreted this language to mean that a cause of action could accrue upon discovery of property damage, even if the owner was unaware of the underlying defect that caused the loss.6 In South Conejos School District, however, the parties had agreed that claims would not accrue until a defect had been “Discovered,” which the contract further defined to mean the owner’s “detection and knowledge” of the defect, an event that could potentially occur at a much later date.7 Addressing a question of law via interlocutory appeal, the court ruled that this contract language was enforceable, and that sophisticated parties could agree to extend the statute of limitations period.
The court discussed freedom of contract principles, and it emphasized that contracts are generally enforceable unless they violate statutory prohibitions or public policy.8 The court acknowledged that CDARA prohibits shortening the limitations period, but the court concluded that this did not prevent parties from lengthening the period.9 This is a logical distinction, since it would make little sense to invoke a statute designed to protect property owners as grounds to erase additional protections that an owner had negotiated with a construction professional.
The court discussed its earlier decision in Highline Village Associates v. Hersh Companies, which had identified a similar issue.10 Oddly, the court did not mention the Colorado Supreme Court’s later holding in Hersh Co. v. Highline Village Associates, which affirmed and reversed the prior opinion in part.11 In the latter case, the supreme court held that a builder could be liable for breach of warranty even after the construction defect statute of limitations period had expired, insofar as claims for “breach of a subsequent contractual duty to repair or replace rather than recovery for a deficiency in the original work, they do not fall within the class of actions governed by section.”12
Although the Hersh case was decided prior to enactment of the relevant CDARA provisions, its logic is consistent with the recent interpretation of South Conejos School District. Both cases recognize that a builder remains liable for repairing construction defects during the time period set forth in any written warranty or contract. CDARA sets a minimum period of two years for negligence claims, but nothing in the act prevents parties from negotiating remedies of longer duration.
1 C.R.S. §§ 13-20-801 to -807.