City Ordinance Paves Way for New Condo Construction in Denver

On Monday, November 23, the Denver City Council voted 12-1 to approve an ordinance that significantly reduces risks to condo developers from lawsuits over potential defects. The ordinance takes effect on January 1, 2016.

The ordinance establishes the following guidelines for construction defect lawsuits brought by condominium residents:

  • Building code violations may be alleged in a lawsuit only if they have caused actual damage to real or personal property, actual loss of the use of real or personal property, bodily injury, wrongful death, a risk of bodily injury or death, or a threat to life, health or safety;
  • Any particular element, feature, component or other detail of any improvement to real property that is specifically regulated under the city’s codes and is constructed or installed in substantial compliance with such codes shall not be considered defective for purposes of proving any construction defect claim.
  • Neither strict liability nor negligence per se may be alleged based on a violation of the building code;
  • Before asserting a construction defect claim, the homeowner association (“HOA”) must provide certain information about the claim to all members and obtain the consent of a majority of the owners in a condo development to initiate a lawsuit for construction defects; and

If the contract between the developer and HOA contains an alternative dispute resolution provision covering the defect claims, the HOA cannot modify or eliminate that provision without the developer’s consent.

Notably, Denver did not implement a notice of claims process, similar to procedures required by SB800 in California and the 701 Notice required by Oregon (previously summarized here).

The ordinance was passed to encourage builders to construct condo projects in order to provide increased housing to all residents, especially as Denver is seeing unprecedented growth in the form of over 60,000 new residents in the last five years. Supporters of the ordinance maintain that recent condo construction in Denver has been slow in part because of increasing construction defect actions brought by condo homeowners. Denver’s Mayor has cited the increasingly litigious environment in Denver as a major discouragement to developers and insurers who have been faced with construction defect lawsuits. HOAs are purportedly taking extraordinary measures like videotaping all construction and holding litigation reserve funding to use in construction defect actions. Further, the condos that have been built are selling at an extremely high price point to overcome the high cost of insurance.

Opponents of the measure assert that it destroys the rights of homeowners and eliminates their ability to hold a builder responsible for defective work. Further, some residents claim that similar measures in neighboring communities have not led to any increased condo construction.

The Colorado Legislature has repeatedly rejected similar efforts to pass a provision that would affect the entire state; however, Denver’s passing of this ordinance may be a major step for proponents of a state-wide measure. The passing of this ordinance follows similar measures passed recently in neighboring Lakewood and Aurora. Before this recent Denver ordinance, eight other Colorado cities had passed measures allowing, for example, builders the right to repair defects and compel arbitration of claims instead of proceeding traditionally through the court system.

We will continue to keep readers updated on this and other new measures – both on the state and local level – and provide insight into the background and potential implications of these ordinances.

Blog by: Katherine Pruitt, San Diego