A solution to reviving the condominium market is finally at hand

BY FREDA MIKLIN
GOVERNMENTAL REPORTER

When SB24-106 Right to Remedy Construction Defects was introduced in the general assembly on February 5, the legislative heavyweights who were its prime sponsors, Senators Rachel Zenzinger and James Coleman, along with Representative Shannon Bird, were a hint that this was an important piece of legislation.

The proposed bill is a response to issues that have arisen since the Construction Defect Action Reform Act (CDARA), as amended, became law in 2003. CDARA established procedures for bringing a lawsuit for a construction defect. 

SB24-106 passed the Senate Committee on Local Government & Housing on March 21, 4-3. Three of the four Democrats on the committee voted no, while the fourth joined the Republicans to pass the bill on the full Senate. The proposal has wide bipartisan support with its 12 Senate and 11 House co-sponsors coming from both sides of the aisle, including, from south metro Denver, Reps. Lisa Frizell (R) and Chad Clifford (D).

On March 25, SB24-106 was heard by the full Senate, which laid it over for second reading on April 1 without amending it. 

An important new rule set out in SB24-106 is that a claimant (a person who alleges a construction defect) cannot seek damages from a construction professional for failing to comply with building codes or industry standards unless the failure to do so results in:

Actual damage to real or personal property;

Actual loss of the use of real or personal property;

Bodily injury or wrongful death; or

A risk of bodily injury or death to, or a threat to the life, health, or safety of, the occupants.

The proposed new law also “creates a right for a construction professional to remedy a claim made against the construction professional by doing remedial work or hiring another construction professional to perform the work.” If the work is done by a third party, the original construction professional is to make sure that the work is performed correctly. Once it’s done, the claim is considered settled, unless the work is not properly completed.

The bill also adds methods for binding alternative dispute resolution that would end a claim once a settlement is agreed to and executed.

Under SB24-106, a homeowners’ association would be required to get the written consent of at least two-thirds of the actual owners of homes in the common interest community before it could bring a claim or related action. 

The Economic Development Council of Colorado (EDCC) held a program on the topic, “The Unintended Consequences of Construction Defects: An Economic Development Perspective,” on March 20, featuring experts in economics, law, and homebuilding. Their goal was to explain the fallout of CDARA on the homebuilding industry and the Colorado economy.

Moderator Charlie Smith, a shareholder at Brownstein Hyatt Farber Schreck (BHFS) and EDCC 2024 Special Appointment to the Board of Directors for Commercial Real Estate and State Government Relations, opened the panel discussion with, “Before CDARA, Colorado had a thriving condo market. Between 2018 and 2022, it was 72% lower than between 2002 and 2008,” adding that housing is a major economic development issue that “has an impact on employee attraction and retention.”

Chris Brown, VP of policy and research at the Common Sense Institute, added, “The last few years, the number one economic issue that cities are facing is how to change the underlying housing supply. Affordability of housing in Colorado is at an all-time low in communities across our state. Condos can play an important role in getting us out of that deficit…Prior to 2008, we were developing over one condo per apartment. Since then, it’s 14 apartments per condo…The market for condos has essentially evaporated in new housing construction, even though the demand for condos remains strong.” 

Asked to describe how the lack of condos impacts housing costs overall, Brown said, “Studies show that an increased supply of housing, including condos, drives down the cost… Land is somewhat scarce but it is always possible to build upwards.”

Smith explained that CDARA had driven insurance costs for building condos to a prohibitive level, resulting in them falling out of the progression of new homeowners from apartments to condos to single-family homes. He said there were only 866 condos built in all of 2023 and the number of condo builders across Colorado has declined from 145 to 23.

Insurance for condo construction, is “almost nonexistent,” he said, but, “When the frequency and magnitude of claims goes down, more underwriters will come back to the market. The belief now is that if you build a condo, you will be sued and litigations costs are prohibitive…The deficit of condos has contributed to the deficit of housing.”

Ted Leighty, CEO, Colorado Association of Home Builders/Home Builders Association of Metro Denver, pointed to SB24-106 as a bill that “encourages construction professionals and homeowners to fix problems without litigation.” 

One problem with CDARA he noted is, “Everyone involved in the construction gets named in claims.” The proposed new law “would provide real pathways for homeowners to settle the claim through the proper party remedying the problem.”

Kevin Walsh, shareholder at BHFS, pointed to the incentive for each party in the litigation process to maximize damages under current law (CDARA). He said that some plaintiffs’ lawyers “actually solicit HOAs or homeowners to try to find construction defects because they get paid a percentage of the amount of money they recover, so, as the cost goes up to settle the lawsuit, so do the attorneys’ fees.”

Walsh noted he has represented parties on both sides of construction defects cases but always works on an hourly rate, never a percentage of money won or saved.