Colorado's housing market is currently a battleground for legislative proposals aimed at addressing affordability challenges while balancing construction industry concerns. Amid the state's affordable housing shortfall and prospective buyers contending with stubbornly high interest rates and escalating borrowing expenses, the state is exploring diverse avenues to combat the state's housing challenges. As part of this push for reform on both sides, two competing bills are currently pending in the General Assembly, SB 24-106 and HB 24-130. Each have the potential to significantly alter the landscape of construction industry operations in Colorado.
While many Colorado residential builders appear to support SB 24-106, construction professionals have voiced concern over the HB 24-1230 as it favors consumers and largely ignores concerns posed by construction thought leaders who fear it could increase construction defect litigation significantly. The potential cost involved in defending against construction defect claims as well as the increasing costs of insurance are contributing to the rise in housing prices, which is the precise reality that the new law seeks to address. In addition, added regulatory limits have essentially halted new condominium development in the state.
The Colorado General Assembly did not heed these concerns, however, as the House of Representatives approved HB 24-1230 on April 4, 2024. It will now go to the Colorado Senate for consideration. If it passes, it will nearly double the timeframe within which consumers can file construction and design defect claims and may also impose additional penalties on designers and builders. SB 24-106 was approved in early February by the Colorado Senate and has moved to the House for consideration. This bill is well regarded by those in the construction industry who value quality and accountability while also seeking protection from the increasing number of frivolous lawsuits.
This article will delve into the details of the two bills as well as their potential impact on the construction industry if approved. Whatever the outcome, these competing pieces of legislation could shape the future of property development and consumer protections in Colorado.
HB24-1230, the Construction Defect Action Reform Act (CDARA) and the Statute of Repose
Colorado passed the Construction Defect Reform Act (CDARA) in 2001 and instituted new regulations governing construction and design defect actions across the state. The underlying policy of the statute was to balance the rights of homeowners to pursue a valid claim for construction defect while also protecting the construction industry from claims without legal merit. CDARA contains both a statute of limitations and a statute of repose for construction defect claims.
The statute of limitations begins to run on the date the physical manifestation of a construction defect is discovered or reasonably should have been discovered regardless of whether the underlying cause is known. The statute of repose provides a firm time limit as to when a litigant may bring a claim, regardless of when the defect is or may reasonably be discovered. In addition, CDARA requires claimants to provide a notice of a claim to the construction professional and allow time to remedy the issue or make an offer of settlement before filing suit.
CDARA currently allows potential litigants up to six years to file a construction defect action pursuant to the statute of repose, with a possible extension up to eight years if the physical manifestation of the defect is discovered in year five or six. The statute begins to run upon substantial completion of the property and expires six years from that date. If HB 24-1230 passes, however, the statute of repose would increase to ten years, with a potential for twelve years, if the physical manifestation of the defect is discovered in years nine or ten.
While proponents argue that this extension would provide homeowners with more time to identify and address construction defects, critics fear that it could lead to an increase in construction and design defect litigation, resulting in longer exposure for developers, builders, and construction professionals. The potential consequences could include higher development costs, such as increased damage claim payouts and skyrocketing insurance premiums, which could negatively impact housing prices as the increased costs are inevitably passed on to the consumer.
New Penalties for Violations
Currently, CDARA limits a prevailing claimants' monetary damage to actual damages, except in limited circumstances. Under HB 24-1230, not only is it illegal to attempt to waive, limit, or curtail the rights, remedies, or damages available under CDARA, but it will also now be considered a violation of the Colorado Consumer Protection Act (C.R.S. 6-1-101 et seq.) In effect this means that waivers are no longer only unenforceable, but also will also be characterized as a deceptive trade practice and come with steep penalties including treble damages and attorney fees.
Prejudgment Interest
HB 24-1230 provides that a successful plaintiff is entitled to prejudgment interest at a rate of 6% from the date the work is finished to the date it is sold to an occupant, and 8% thereafter. This new remedy is in addition to any actual damages awarded. Currently, the law permits pre-judgment interest accruing from the date repairs were made.
Class Actions or Group Claims
HB 24-1230 prohibits any contract term in the purchase and sale agreement, declaration of covenants, conditions or restrictions, or other governing documents that prohibits or limits class or group action claims. It also does not permit any provision that increases the requirements necessary for a homeowner's association to file a construction defect claim.
Key Takeaways
If passed in its current version, HB 24-1230 would result in the following changes:
- Increase the statue of repose from six to ten years, with the possibility of up to twelve years to bring a claim if a defect is discovered in years nine or ten.
- Claim would arise only when both the physical manifestation of the defect and the underlying cause are discovered. This allows litigants more time to discover defects and file their claims. The law currently does not require the underlying cause to be discovered to trigger the statute of limitations period.
- New penalties under the CCPA for any attempts to waive, limit, or curtail the rights, remedies, or damages available under CDARA. Not only are such attempts unenforceable, but they will now be characterized as deceptive trade practices and come with a minimum $500 fine and may result in treble damages and reimbursement of attorney fees.
- Prejudgment interest in the amount of 6-8% added as a remedy.
- Purchase and sale contracts may not limit or restrict class actions or group claims. Also prevents any expansion of limits on a homeowner's association's ability to bring a claim.
Opposing Legislation: SB 24-106 "Right to Remedy Construction Defects Act"
The competing bill, SB 24-106, is known as the "Construction Defect Reform Act" and it establishes procedures for bringing a construction defect claim. It was passed by the Colorado Senate in early February 2024 and is currently under House review.
Voting Threshold
SB 24-106 increases the voting threshold from a simple majority to 60% of unit owners in a condominium/townhome complex who must vote to proceed with a defects lawsuit. The consent must be written and contain the required statutory notices, signed by owner and with certain attestations. Also, it would require that condo owners are informed of the consequences of filing such lawsuits, including the inability in most cases to refinance or sell a unit that’s involved in litigation.
Definition of Claimant
The bill clarifies that a person that has had a claim brought on their behalf is also considered a claimant, and the therefore, the act applies to the person for whom the action is brought as well.
Code Violation Clarification
The bill would prohibit recovery for code violations unless actual property damage results and/or the violation creates a danger to life, health, and/or safety.
Alternative Dispute Resolution
A claim may be held in abeyance if the parties have agreed to mediation. The bill also adds other forms of alternative dispute resolution for which the claim would be held in abeyance. Any completed ADR is binding. If a settlement offer is made and accepted, the payment constitutes settlement of the claim and the cause of action released. An offer of settlement is not admissible in any later proceeding unless it is for the purpose of enforcing settlement.
The Matter at Issue
The matter at issue in any lawsuit brought under SB 24-130 must involve real estate that is owned by the association or by all members of the association. If the association makes a claim on behalf of unit owners that does not involve real estate owned by the association the following applies:
- The association and each claim are subject to each defense, limitation, claim procedure, and alternative dispute resolution procedure that each unit owner would be subject to if the unit owner had brought the claim, and
- The association has a fiduciary duty to act in the best interest of each.
Key Takeaways of SB 24-130
The main takeaways from SB 24-106 are as follows:
- Voting threshold change from a simple majority of association members to 60% to bring a claim for construction defects.
- New definition of claimant.
- Claims involving code violations are not actionable unless the violation causes property damage and/or endangers the life, safety or health of residents.
- Claim may be held in abeyance while alternative dispute resolution takes place.
- Matter at issue must involve real estate owned by the association or be subject to each defense claim, procedure, and alternative dispute resolution procedure that each unit owner would be subject to.
Moving Forward
Colorado's housing market faces pivotal changes that could reshape industry practices and consumer rights. The proposed legislation has the potential to significantly impact the construction and development landscape in the state. If HB 24-1230 passes, the extension of the statute of repose and other changes could have far-reaching effects, potentially raising construction and development costs and impacting housing prices and rents. It is vital for all parties involved to stay informed and actively participate in shaping legislation that ensures a fair and sustainable housing market for all Coloradans.
The team at WSHB is following the progression of both of these bills. We are available to answer any and all questions regarding this legislation and its potential implications. Please do not hesitate to reach out to a member of our team for assistance.