By Jeff Kerrane, Benson, Kerrane, Storz & Nelson
The past few years have seen an unprecedented surge in the introduction of state legislation aimed at curbing construction defect lawsuits. Several states have passed major reforms with the goal of increasing hurdles for community associations to file lawsuits, providing builders with a right to repair, limiting associations’ rights to amend their governing documents, shortening the deadlines to bring claims, and taking away a right to a jury trial.
The Community Associations Institute responded in 2016 by amending and broadening its public policy toward protecting associations’ rights to pursue construction defect claims. CAI has published public policies on a broad range of topics including board member education, the mortgage interest deduction, and satellite dishes. CAI’s public policies are intended to guide local chapters and legislative action committees in their advocacy efforts.
Prior to 2016, CAI had a limited public policy, titled “Protection of Association Claims in Right to Cure Legislation.” Last April, CAI’s Government & Public Affairs Committee redrafted and broadened this policy, renaming it, “Protection of Association Claims in Construction Defect Legislation.”
CAI’s new policy on construction defect legislation includes the following tenets:
- The Opportunity to Cure. While builders should be given an opportunity to present a reasonable plan to repair defective construction, an association should have the opportunity to accept or reject the plan. After all, the property belongs to the association and the owners, and it is their right to make the final decision as to what repairs are appropriate and who may perform the repairs.
- The Board of Directors Are the Decision Makers. Like any other non-profit corporation, the board of directors should have the power to make informed business decisions for the association, and the declarant should not be able to unreasonably restrain the board’s power to initiate legal proceedings by requiring a homeowner vote in the association’s governing documents. Furthermore, the declarant should not be permitted to retain any decision-making power over the association after the period of declarant control ends.
- Protection of Attorney-Client Relationship. When an association hires an attorney, the attorney’s communications with the board, homeowners, and community manager should be confidential, and should not be at risk of disclosure in litigation discovery proceedings. Further, legislation should not force an association to make specific legal disclosures in litigation if the association and its attorneys believe the disclosures to be untrue.
- Alternative Dispute Resolution. CAI encourages alternative dispute resolution (ADR), such as arbitration, as an acceptable alternative to construction defect litigation when consent to ADR is truly voluntary and occurs after the dispute arises. This means that a declarant should not be permitted to impose ADR provisions on homeowners and associations by inserting one-sided provisions in purchase agreements or governing documents.
- Right to Be Made Whole. CAI encourages legislation that provides the prevailing party with recovery of litigation expenses, attorneys’ fees, and pre-judgment interest.
- Statutes of Limitations and Repose. CAI recognizes that some construction defects are hidden, and may take years to show themselves. CAI’s new policy opposes any legislation that gives an association less than six years after substantial completion to bring a claim, or less than two years after the association discovers the defect.
- Self-Governance. Declarants should not be permitted to insert provisions in governing documents that make it more difficult, time consuming, or expensive for an association to bring a construction defect claim.
- State Concern. CAI supports consistent state laws and opposes the ability of cities and counties to pass a patchwork of local ordinances that make the laws for bringing a construction defect claim vary across different municipal jurisdictions within one state.
Jeff Kerrane is a partner at Benson, Kerrane, Storz & Nelson, which represents homeowners and community associations faced with construction defects throughout Colorado, Minnesota, Wisconsin, and Texas. Jeff was a member of CAI Government & Public Affairs Committee from 2015 to 2016.