10 March 2015

Colorado senate committee approves construction defect bill

Late last night, the Colorado Senate Business, Labor, and Technology Committee voted to refer SB 15-177 to the committee of the whole. The vote followed nearly seven hours of testimony from those in favor of construction defect legislation and those opposed.

As I have previously discussed in this blog, the bill sponsors have argued that their measure will encourage the construction of more affordable housing by giving builders de facto immunity for claims of defective workmanship and property damage in common interest communities. The bill achieves this by establishing difficult voting and disclosure requirements for homeowner associations and requiring costly, private arbitration of any disputes that can overcome the procedural hurdles. During the recent hearing, proponents echoed these statements and testified that insulating homebuilders from claims would lower home prices and rents by increasing the supply of cheaply-built condominiums.

Opponents questioned whether the bill contained any provisions that would actually help the affordable housing market. They also argued that it was improper for the legislature to shift the cost of fixing construction defects onto those homeowners who can least afford to pay for necessary repairs.

In response to the opponents, bill sponsor Jessie Ulibarri, a Commerce City Democrat, argued that those who buy homes in affordable home communities should not expect to have legal recourse against a homebuilder after they close on a house. Ulibarri acknowledged his own childhood experiences growing up in poverty but was adamant that unsophisticated buyers do not deserve any special protections when they buy a home. Ulibarri told the committee that he reads every contract in full before he signs it, and he insisted that homebuyers should not be allowed to avoid waivers in the fine print of their closing documents.

Although witnesses testified that virtually all new residential construction projects present buyers with contracts of adhesion, such that homebuyers have no choice but to accept onerous waivers and arbitration clauses, Ulibarri was not persuaded. He instead told the committee that low income residents do “have a choice,” and that choice is to not buy a home. In other words, homebuyers can either choose to buy an affordable home with construction defects, or they can choose to keep renting.

How this “choice” will help solve problems of affordable housing and high rents remains to be seen, but proponents of the bill were confident that it would work out somehow.

I testified along with one of my clients concerning the high cost of private arbitration and how paying arbitrators to decide these claims is not realistic for many who live in affordable housing communities. Affluent communities with huge repair claims can always find a contingent-fee lawyer to front the costs of a construction arbitration, but that is seldom an option for communities of less-wealthy residents.

Democrats on the committee proposed three amendments, which would have preserved homeowners’ right to a jury trial, protected individual unit owners’ ability to seek repairs if their neighbors did not approve community action, and delayed implementation of any law until state agencies could present data showing that the bill would actually help create more affordable housing. Ulibarri opposed all of these amendments and convinced the committee members to vote down these proposals while approving several others that altered the mechanics of the bill.

Republicans on the committee appeared to be particularly persuaded by one witness who testified that rent on her apartment in Denver was too high. Although the witness gave few details about her apartment or rents on comparable properties, Committee Chair David Balmer at one point referred to this testimony as being the most compelling of the evening. Democrats questioned whether the bill would have any appreciable effect on rents in the Metro Area or lead to the construction of any homes within City limits that a resident in her income bracket could afford. Ulibarri countered with the suggestion that Habitat for Humanity, a supporter of his bill, might give the witness a house at a discounted price if the bill passes.

In the end, despite hours of testimony, the vote came down as expected, largely along party lines. Democrat Cheri Jahn joined the five Republican senators on the committee to vote in favor of the bill. Democrats Irene Aguilar and Rollie Heath voted no, and Democrat Linda Newell was excused.

The bill now heads to the State House of Representatives, where Democrats are expected to reject the measure absent major amendments to protect homeowners.

Further comments and links to related topics may be found on my twitter page. Additional coverage also appeared in today’s Denver Business Journal.