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Six Things You Need to Know About Construction Defects in Condo Conversions

02/01/2019 6:58 AM | CAI Rocky Mountain Chapter (Administrator)

By Jennifer A. Seidman, Esq., Burg Simpson Eldredge Hersh & Jardine, P.C. 

Colorado is outpacing national trends for new apartment construction and, as the influx of new residents continues, developers continue to build.  Those familiar with the real estate market predict that rental apartments will be converted to for-sale condominiums.  Our firm’s construction defect attorneys know that complicated issues arise when construction problems are discovered in condo conversations.  Here are six things you should know about construction defects in condo conversions:

  1. It’s Still Mostly the Wild West Here.There are very few Colorado laws or court decisions that regulate condominium conversions.  As a result, the discovery of defects in a condo conversion may raise questions that do not have clear answers.
  2. Beauty May Only be Skin Deep.  The conversion process may involve renovations that increase an older apartment building’s aesthetic appeal, but the components beneath the façade may have already lost a significant part of their useful life and may contain construction defects.  If a report on the building’s condition was generated during the conversion process, as some municipalities require and many new building owners obtain, request a copy.  Consider having a professional inspect the property to identify any construction defects and useful life concerns.  Also, evaluate whether the monthly assessments are appropriate. Because high monthly assessments are unattractive, a condo converter may set assessments at an artificially low number to generate initial sales and profits.
  3. There May be Growing Pains. Sometimes, the converter will retain ownership of units to rent.  When occupants are a mix of owners and renters, and when the landlord is the converter, complications can arise.  Some of these issues can be addressed through amendments to a community’s governing documents, if the converter does not prevent such efforts.
  4. The Clock May Be Ticking Attorneys who represent builders and developers have recently suggested that an ideal time to convert an apartment building to a condominium building is eight years after the building’s substantial completion.  This is because the statute of repose, which is an eight year time limit on construction defect lawsuits, may bar some claims that an owner could have otherwise asserted against those responsible for the building’s construction.  However, when a condo conversion involves significant construction work that alters or is integrated with original work, the statute of repose probably will not provide a complete defense to an association’s or owner’s claims based on the new work.  Also, the statute of repose may not apply at all to claims against a developer, including the building’s original developer, who owned the property when the defects caused damage.
  5. Honesty is the Best Policy.While the statute of repose may bar some claims, it likely will not affect claims that declarant-appointed board members breached their fiduciary duties or that the seller misrepresented or failed to disclose important facts about the building’s or unit’s construction during the sales process, including hidden defects and concealed costs.  This is because these claims are not based directly on construction defects, but rather are based on breaches of loyalty to the homeowners’ association, misrepresentations, and other types of wrongful conduct.  
  6. What You Don’t Know Can Hurt You.  Conversions raise complicated issues relating to who is responsible for investigating an already-constructed building and who is responsible for identifying problems and repairing them or fully disclosing their existence.  An association’s or owner’s rights and remedies in these situations will ultimately depend on the extent and type of investigation and work performed as part of the conversion process, the roles and extent of knowledge of various entities involved in the conversion, when and how the defects were created and discovered, whether the existence of defects was or should have been disclosed and many other issues, including whether the converted condo is located in a municipality that regulates conversions and requires compliance with applicable building and fire codes.  

If you would like more information about conversions or have questions about possible defects in your recently-converted condominium, call one or our attorneys at 303-792-5595 or reach out to Loura Sanchez at lsanchez@burgsimpson.com.

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