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By Heidi E. Storz, Esq., Benson, Kerrane, Storz & Nelson, P.C.

During the last legislative session, the Colorado legislature passed House Bill 17-1279. The new law, now codified as C.R.S. § 38-33.3-303.5, creates additional hurdles for community associations to jump over to hold developers and builders responsible for shoddy construction. The law does this by creating new requirements that must be met before a community association is entitled to bring a claim in court or arbitration. 

The requirements of the new statute kick in when the notice of claim process has failed, and community associations are left with no other choice but to take legal action against developers and builders. Before taking such action, however, a community association must now provide additional disclosures to homeowners and must hold a homeowner meeting. The developer/builder is entitled to attend the meeting with the presumed purpose of trying to convince homeowners not to vote in favor of further legal action. After the homeowner meeting, the association must collect written votes from a majority of the homeowners within a specific timeframe.

Happily, the additional disclosure requirements in the statute are relatively evenhanded and are disclosures that most construction defect attorneys have typically already provided to associations and homeowners. Per the statute, homeowners must now be informed that:

1. The construction defects might result in increased maintenance and repair costs;
2. The association’s claims will expire if it does not take legal action;
3. Sellers have a duty to disclose the defects until the defects have been repaired;
4. The association has hired attorneys and must identify the terms of the attorney fee agreement;
5. Legal costs may be incurred and must identify what those legal costs are estimated to be;
6. The association may have to pay its own attorney fees if the association does not prevail on its claims;
7. A court or arbiter may require the association to pay the developer/builder’s costs and fees if the association does not prevail on its claims;
8. There is no guarantee that the association will recover enough to repair all of the defects;
9. The value of the home may be less until the defects have been repaired;
10. It may be more difficult to sell or refinance the home until the legal action is resolved or the defects are repaired.

With respect to the homeowner vote, the legislature did try to even the playing field by limiting whose votes will count to meet the majority requirement. For example, the statute specifically excludes votes for units that the developer/builder still owns, votes from bank-owned units, votes from unit-types that do not have defects, and votes from units where the owners are deemed “unresponsive.”

If an association is within a city that has enacted a construction defect ordinance that spells out different disclosure and voting procedures, the new state statute is expected to override the city ordinance. Similarly, if the association’s governing documents spell out different disclosure and voting procedures, it is anticipated that the new state statute will override the association’s governing documents.

Though the new statute creates additional hurdles for associations to jump over to hold developers and builders responsible, the hurdles are manageable and will not stop associations and homeowners from obtaining redress in court or arbitration. Given that developers and builders were originally pushing laws designed to provide them with a complete shield from liability, the legislature did well in enacting House Bill 17-1279.

Heidi E. Storz, Esq. is the Managing Partner of Benson, Kerrane, Storz & Nelson, a law firm that represents homeowners and community associations with construction defect cases.