01 September 2017

Colorado's new construction defect law takes effect in September: What you need to know.

 Colorado’s new construction defect law officially takes effect this month. Although HB 17-1279 was passed in May, the statutory text provides that it only applies “with respect to events and circumstances occurring on or after September 1, 2017.” With that date now upon us, practitioners should be mindful of the law’s new requirements.

The law applies to any lawsuit wherein a homeowner association files a construction defect action on behalf of two or more of its members. “Construction defect action” is defined broadly to include any claims against construction professionals relating to deficiencies in design or construction of real property. Before an association may commence such an action, its board must follow several steps.

First, the board must schedule a meeting of all homeowners and notify the affected construction professionals of the time and place.

Second, after waiting at least five days, the board must deliver notice of the meeting and the potential construction defect action to all homeowners at their last known addresses. This notice must also go to the construction professionals. The notice must include a description of the alleged construction defects with reasonable specificity, the relief sought, a good-faith estimate of the benefits and risks involved, and a list of mandatory disclosures concerning assessments, attorney fees, and the marketability of units affected by construction defects.

Third, the board must conduct the actual meeting of the homeowners. The construction professionals named must be allowed to attend and address the unit owners during the meeting. The construction professionals may make an offer of repairs to the homeowners at that time, but they are not obligated to do so. The meeting must occur between ten and fifteen days after the mailing of the second notice, or else the subsequent vote will be void. There is some ambiguity in the statute, and boards may therefore wish to schedule this meeting exactly ten days after mailing to avoid future challenge.

Fourth, the board must tally the votes of all homeowners on whether to proceed with the construction defect action. The vote can occur by any written means but must occur within ninety days of the mailing of the notice, and this time period may not be extended. Subject to certain exceptions, the association may only proceed with the construction defect action if a majority of voting homeowners approve the construction defect action. Some homeowners are excluded from this vote: The Association need not count votes from the developer or its affiliates, banks that own homes, owners deemed to be nonresponsive, or owners of homes of a type in which no defect is alleged in communities where common expenses are not shared.

The law contains a number of nuances and technical requirements not discussed in this summary, and associations considering a potential construction defect action should contact a qualified attorney to ensure compliance with its provisions. Some associations may also have to follow other requirements contained in their covenants or in local ordinances, to the extent such terms are not preempted by state statutes.

HB 17-1279 does not obviate the existing requirement that an association serve a construction professional with a notice of claim and consider an offer of repairs prior to commencing a lawsuit or arbitration. The new law contemplates that the notice of claim would be sent first, and that the meeting and vote would occur if the construction professional’s response to the notice of claim was inadequate. The statutes of limitation and repose remain tolled during both the notice of claim period and the subsequent voting period.

The new law was enacted to address builders’ perceived fear that HOA boards were filing construction defect lawsuits without notifying their members. Opponents of the bill noted that the first Construction Defect Action Reform Act had already established mandatory notice requirements back in 2001, but builders claimed that these requirements did not go far enough. Stakeholders on both sides of the debate agreed to support HB 17-1279 as a compromise in 2017 in hopes of spurring more condominium construction without sacrificing consumer protections.

Attorney Jesse Witt was active in negotiations over the content of HB 17-1279 at the state capitol, and The Witt Law Firm is available to assist board members and others with questions about the new requirements of HB 17-1279. The firm also maintains strategic partnerships with specialists in homeowner association elections and voting requirements, and it has construction experts available to evaluate potential claims. Please contact the firm for more information.