Colorado Supreme Court Gives a Boost to Builders in Construction Defects Battles

Construction continues on a 334 unit condo building project, called The Coloradan, west of Union Station on April 21, 2017 in Denver.

The Colorado Supreme Court on Monday gave builders a reason to cheer Monday, ruling that a homeowners association in Centennial was wrong to ignore a requirement that it first get consent from the developer before changing the way disputes over construction defects claims are handled.

The 5-2 ruling in Vallagio at Inverness Residential Condo Association v. Metro. Homes, Inc. upholds a “consent-to-amend” provision that the builder had placed in the declarations for the project, which stated that binding arbitration would be used in any construction defects disputes and that changing that stipulation would need the consent of the builder.

The Vallagio homeowners association decided to move ahead with a lawsuit against the builder without first getting its consent to change the dispute resolution method from binding arbitration.

Binding arbitration is favored by Colorado builders as a method of dispute resolution because they say it keeps things from getting bogged down in costly litigation. They cite the inevitability of being sued for alleged construction flaws as one of the major reasons for flagging condominium starts here.

Data show that whereas condos consisted of approximately 1 in 5 housing starts in the state last decade, they are down to around 3 percent of all starts today.

Monday’s long-awaited Supreme Court ruling addressed a critical component of the defects issue, which has tasked state lawmakers over the last four legislative sessions. Colorado’s construction defects law has been blamed for slowing new condominium projects to a crawl by making it too easy for homeowners to sue for shoddy workmanship, like leaky windows or sinking foundations.

Homeowner association advocates have stood firm against efforts to implement mandatory arbitration, arguing that depriving homeowners of their right to sue for relief from slipshod workmanship on what is often their biggest life investment is unconscionable. Some have argued that arbitration often favors builders and that a courtroom is a fairer venue for all parties.

An attempt earlier this year to make arbitration mandatory in resolving construction defects disputes — in the form of Senate Bill 156 — came up short in the state legislature. Many lawmakers late in the session said they would look to see what the Supreme Court decided in Vallagio for guidance on what to do next on the issue.

Lawmakers did manage in 2017 to pass a single defects reform measure — the only one despite years of attempts — requiring that a majority of homeowners give consent before an HOA takes action against a builder for alleged defects. Backers of House Bill 1279 said it’s only fair to give homeowners a voice on proposed legal action that could prevent them from selling or refinancing their home while the dispute is being adjudicated.

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