After four years of failed negotiations, business leaders and Democratic Colorado legislators finally have reached an agreement to move forward a bill that will reform construction-defects law with the aim of jump-starting what is largely a non-existent condominium construction market.
The compromise, which will be announced at a news conference early this afternoon, will allow members of the Legislature to get behind a bill that will require the approval of a majority of condominium owners before any legal action can be filed against builders.
It also will require that those homeowners are informed more thoroughly about both the benefits and the drawbacks of such a lawsuit before any action is taken. It will, not, however, require that legal disputes go to binding arbitration.
Just three weeks ago, Rep. Alec Garnett, the Denver Democrat leading negotiations with reform backers, announced that talks had hit a major impasse over demands from business leaders that the statute of limitations on discovering purported defects not be extended by as much as six months while condo owners vote on whether to proceed with a lawsuit.
However, a variety of interest groups agreed late Tuesday to reduce the time frame for extending the statute of limitations by just 90 days while narrowing the types of homeowners that could not vote in the election and defining more specifically how that election will occur, said Mike Kopp, the president and CEO of Colorado Concern who had a lead role in the negotiations.
“We’ve achieved an important reform and look forward to seeing an up-tick in new condo starts in the state of Colorado as a result,” Kopp said Wednesday.
Added Garnett: “With this groundbreaking consensus bill, we are protecting consumers, empowering homeowners and balancing risk in the marketplace for developers to break ground on attainable multi-family homes across the state. I want to thank everyone from all sides for staying at the table.”
Condominiums now make up less than 3 percent of the new housing stock in Colorado, and builders say they are unwilling to build because current law makes it too easy for just a small group of homeowners association board members to file multi-million-dollar defects lawsuits.
The dearth of entry-level housing worries business leaders who say young professionals are forced to rent rather than buy, and it worries metro mayors who have been unable to develop condominium communities around the FasTracks rail system for millennials and downsizing baby boomers.
Former Republican Sen. Mark Scheffel offered the first bill making it harder to file defects lawsuits in 2013, then joined the next year with former Democratic Sen. Jessie Ulibarri in a bipartisan effort aimed at helping both builders and lower-income Coloradans.
However, bills that made it successfully out of Senate committees in 2014 and 2015 died on the clock in the Senate or got sent to the House “kill committee” because two Democratic leaders in particular — former Senate President Morgan Carroll and former House Speaker Dickey Lee Hullinghorst — felt they would unfairly limit access to the courts by aggrieved home owners.
In 2016, supporters did not introduce a bill because the gulf with the two main opposition groups — trial lawyers and homeowners associations — became too large.
One of the keys to the success this year was the new leadership in the Democratic-majority House. While House Speaker Crisanta Duran, D-Denver, has remained firmly against any provisions that require binding arbitration, she was willing to pass what many have termed the “informed consent” bill involving the homeowner-vote and pre-lawsuit-information provisions. And Garnett, elected in November as assistant House majority leader, always has been one of the biggest champions in his party for a comprehensive construction-defects reform bill.
House Bill 1279 — sponsored by Garnett and Republican Rep. Lori Saine of Dacono — hit a roadblock, however, when the two sides could not reach an agreement on the “tolling” provision in the bill that would give HOAs 180 days to take homeowner votes on whether to file a lawsuit. Business leaders did not like the fact that the provision extended the two-year statute of limitations on discovering defects another half a year while the voting occurs, they did not like the sweeping prohibition on anyone associated with the builder being barred from voting, and they were worried by the lack of definition over how the election would work.
At a March 29 news briefing, Garnett and Duran lashed into the policy committee of the business-led Homeownership Opportunity Alliance, which had recommended opposing HB 1279 without the addition of the changes they were seeking. After that, the two sides went back to the table. And all participants, including trial lawyers and homeowners-association groups, came to agreement on the final package late Tuesday.
The main compromise extends the statute of limitations for finding defects only 90 days during the voting period, Kopp said. After that time frame runs out, homeowners still have six more years before they have to file the lawsuit.
But the two sides also agreed to narrow the scope of who could not vote on the lawsuit to the builders and direct relatives, replacing the broadly worded language that tagged any associates of contractors as being ineligible to have a say on lawsuits. And they defined how the election would work.
Reform proponents also gained a concession that stipulates that legal action regarding defects in common areas of the properties also must go to a vote unless the defects are worth less than $50,000, which is a common figure for deductibles on condominium insurance policies. While this might seem a minor point, it is key because actions over those alleged defects also can cloud the title of any condominiums in a development, Kopp explained.
Members of the reform coalition, which also includes a number of affordable-housing groups, applauded the compromise.
“We have worked on passing an informed-consent bill for three years, and we are very pleased that this appears to be headed to a vote in the full Legislature,” said Kathie Barstnar, co-chair of the Homeownership Opportunity Alliance coalition and executive director of NAIOP Colorado, an association of commercial real estate developers. “This bill is not a magic bullet, but it will help provide attainable housing options to millennials, seniors, public servants such as firefighters and teachers, and other Coloradans struggling to buy a home. Not only is this good policy for all Coloradans, it safeguards – and in some instances expands – consumer protections.”
The Community Associations Institute, an organization of homeowners associations that had opposed all efforts in the past, also called the compromise bill a reasonable deal for builders and condo owners.
“The bill will give homeowners in common-interest communities increased access to information about what filing a lawsuit means for them and their communities, while also giving owners a say in whether to bring claims for defects,” said Suzanne Leff, a spokeswoman for the organization. “The bill is not our ideal solution, but we do believe it strikes a balance that is fair to homeowners, their communities, builders and developers.”
And while the bill does not address the issue of binding arbitration, a coming court decision may make that a moot point. The Colorado Court of Appeals ruled in 2015 that if builders require alternative dispute resolution as part of their contracts with condominium buyers, the homeowners association can not remove that requirement unilaterally. The Colorado Supreme Court is expected to weigh in on an appeal of that decision in the coming months; if it agrees with the appeals court, binding arbitration essentially becomes the law of the land.
Agreement on HB 1279 does little to clear up the fates of three other construction-defects bills still pending before the Legislature, however.
Senate Bill 156, a Republican-sponsored comprehensive reform bill that includes a mandate for alternative dispute resolution, is scheduled to be heard Thursday morning in the House State, Veterans and Military Affairs Committee and still is extremely likely to die in the so-called kill committee for minority-party bills.
But Senate Bill 45 — a bipartisan measure from Duran and Senate President Kevin Grantham, R-Cañon City, that attempts to bring down the cost of insurance for condo builders — remains in limbo in the Senate without a scheduled hearing date before the appropriations committee. Builders complained that rather than helping them, the proposal opens them up to even greater financial and legal liability and needs major changes before they will support it.
And SB 155, which defines a construction defect narrowly as something that causes personal injury or actual damages to a property, is scheduled for its first vote later this afternoon in the Senate Business, Labor and Technology Committee. While Republicans and reform backers have offered support for that bill, Democrats have shown little interest in passing something that likely would restrict lawsuits even further.
Still, the major piece in the long-sought construction-defects reform package is free and clear to move ahead, and the news is welcome to legislators and others who have been working on the issue for five years now.
“After years of unsuccessful attempts to pass construction-defect reforms, I am pleased our efforts culminated in a historic collaboration to solve Colorado’s attainable housing crisis and produced an agreement to give transparency and fairness to hundreds of thousands of Colorado residents and homeowners,” Saine said. “HB 1279 is a product of certainty for homebuilders to build, homeowners to have a voice and future homeowners to build their future in Colorado.”
Article from Denver Business Journal.