Vallagio Decision Follows First Legislative Step on Construction Defects Reform
Members are cautiously optimistic about promise of HB1279

Just a few weeks removed from the 2017 legislative session, two more steps have been taken to reform Colorado’s construction defects laws: Governor Hickenlooper signed House Bill 1279, and the state Supreme Court reaffirmed the Appeals Court decision in the Vallagio case.

The June 5th decision in the Vallagio at Inverness Residential Con. Ass’n v. Metropolitan Homes, Inc. case affirms that condo developers may include “consent-to-amend” provisions in its declarations, preventing an HOA board from unilaterally stripping provisions—such as requiring that construction-defects disputes be settled by arbitration—from an association’s governing documents.

“We are pleased with the state Supreme Court’s decision to uphold the previous decision in the Vallagio case,” said Jeff Whiton, Executive Vice President and CEO of the Metro Denver Home Builders Association. “The Home Builders Association submitted a compelling amicus brief to the Supreme Court detailing the negative impacts of construction-defect litigation on Colorado’s housing market, homeowners, would-be buyers and home builders.”

HB1279—the bipartisan legislation that now requires majority homeowner consent before a construction-defects legal action can be taken—was supported by the Home Builders Association of Metro Denver and the Colorado Association of Home Builders as part of the Homeownership Opportunity Alliance coalition.

“Our members thank the bipartisan legislators, as well as our coalition partners, for working diligently on this issue over the past four years,” Whiton said. “This legislation is another step in a longer process to update all of the laws needed to spur the construction of attainable condos.”

HB1279 broke the long stalemate at the state capitol on efforts to update laws governing construction-defects litigation against multi-family builders. The impasse was created by a well-financed lobbying effort by several trial attorney groups and the HOA-management trade association that works closely with these law firms. Pressure increased at the legislature, brought on by more than a dozen local governments, in working with the Metro Denver HBA, passing their own ordinances attempting to spur attainable condo developments and statewide business groups, community leaders, frustrated renters and media editorials calling for a fix.

Specifically, the newly signed legislation requires that, before an HOA board brings a lawsuit against a builder on behalf of unit owners, there must be:

·        Notification to all unit owners and the builder against whom the lawsuit is being considered;

·        A meeting at which the HOA board and the builder will have an opportunity to present relevant facts and arguments and the developer may, but is not required to, make an offer to remedy; and

·        Approval of a majority of the unit owners after giving them detailed disclosures about the lawsuit and its potential costs and benefits.

According to Whiton, association members have reported permits being pulled to develop condos in the Denver area, but that most of these condominiums are smaller projects. For example, permits have recently been issued for three condo projects in Denver totaling 109 units and LakeHouse at Sloan’s Lake has another 206 permits issued.

The association continues to discuss with legislators, local government leaders and other stakeholders the many factors, including legislation like HB1279, considered when making investments and taking on the risks of certain projects like condos.

“We have heard from several members that they see House Bill 1279 as a step in the right direction and will be a factor in their planning processes,” Whiton said. “As an industry, we look forward to HB1279’s promised impact on the condo market made by legislators and the governor, combined with the Supreme Court’s decision in Vallagio.”

The association remains hopeful that these steps will improve the climate for building attainable housing—and more condo projects will follow. We will continue tracking this issue, as well as participating in future construction-defects reform efforts.

-by Jeff Whiton

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