State law change could help rekindle Vail Valley condo construction
April 24, 2017
House Bill 1279
A “construction defects reform package” making its way through Colorado’s state legislature would require that, before the executive board of a unit owners’ association in a common interest community brings suit against a developer or builder on behalf of unit owners, the board must:
• Notify all unit owners and the developer or builder against whom the lawsuit is being considered;
• Get the approval of a majority of members of a homeowners association before the HOA board can initiate legal proceedings against a general contractor or subcontractor. Under current law, litigation can be initiated by an HOA board without polling the membership.
• Obtain the approval of a majority of the unit owners after giving them detailed disclosures about the lawsuit and its potential costs and benefits.
• Notify members that their ability to sell their property may be impaired for the duration of a lawsuit.
• The bill preserves protections for consumers to seek redress in court for construction defects.
Source: Colorado State House of Representatives
VAIL — Eagle County hemorrhaged more than 6,000 jobs during the Great Recession — many of those in the construction industry — but state lawmakers say a reform package could help jump-start Colorado's lagging condominium-construction business.
House Bill 1279 requires a majority of homeowners in a condominium complex — not only the homeowner association board — to agree to a faulty construction claim and sue a builder. Homebuilders and business leaders have insisted for years that Colorado's current law makes it too easy for homeowners associations and trial attorneys to sue builders, even years after the job was done.
Colorado's House of Representatives Monday morning voted unanimously, 64-0, to approve the bill. It now moves to the state Senate.
Could help workforce housing
Chris Romer with the Vail Valley Partnership is an outspoken advocate for workforce housing in Eagle County and said the reform bill could help.
"It's a good compromise," Romer said.
The threat of lawsuits about alleged construction defects is a "big, big deal," with builders across the state and in Eagle County, Romer said.
"The bill seems to be a good step," Romer said. "Anything that reduces the costs to developers can help create more affordable housing, and condos are certainly part of that mix."
Too easy to sue
Local land use attorney Tom Ragonetti with Otten, Johnson, Robinson, Neff & Ragonetti has been watching and working on the issue for years.
Essentially, the construction defects reform package shifts the right to sue from a homeowners' association board for a multi-family project, to the homeowners themselves.
"It makes it easier to sue a builder if the board alone has the authority to do it," Ragonetti said.
Under current state law, if a homeowners' association board consists of five members, then three can vote to sue a builder.
If the new bill becomes law, then suing a builder would require a 51 percent vote from the owners, and not a majority of the HOA board.
"There are plaintiffs' lawyers who target any project with for-sale units and an HOA that the lawyers can convince to take legal action," Ragonetti explained. "If they can find an excuse to sue a builder, they can create significant money for the HOA, and, of course, the attorneys."
The alleged defects can be very technical in nature and do not necessarily go to the livability of the condo, Ragonetti said.
"With all the development being discussed related to mass transit light rail, we're missing a golden opportunity," Ragonetti said. "It would be a perfect opportunity for young professionals or empty-nesters to purchase homes along those mass transit corridors."
Similar reform packages have died in the past five state legislative sessions.
Buyers need protections
Marilyn Hogan, executive officer of the Summit County Builders Association, was careful to try to tread middle ground.
Buyers need some protections because there can be some bad builders who cut corners and effect homeowners, Hogan said.
On the other hand, builders have been reluctant to build condos and townhomes to buy, instead opting to build rental apartments.
Multi-family owned properties have been hit the hardest, Hogan said.
"If one owner in a project is disgruntled, they can sue. There have been so many frivolous lawsuits," Hogan said.
Colorado's Homeownership Opportunity Alliance calls the legislation a first step toward encouraging builders and developers to start building again, while protecting the legal rights of individual homeowners.
"Nothing in HB 1279 stands in the way of individual owners who have a legitimate construction issue from seeking a legal remedy," the alliance said in a statement. "In 2005, condos comprised 20 percent of the metro Denver new housing market, while today it has plummeted to just 2 percent."
Staff Writer Randy Wyrick can be reached at 970-748-2935 and firstname.lastname@example.org.