Are Construction Defect Laws Inhibiting the Development of Attached Ownership Housing in Colorado?
October 29, 2014 —
James M. Mulligan, Esq. – Snell & Wilmer, LLPThis article responds to the article published in the September 18, 2014 issue of the Construction Defect Journal. It provides a different perspective to this issue, based on the author's experience with these matters during the past decade of attention to this specific challenge.
During recent years, there has been much discussion about the lack of attached ownership housing construction in Colorado. The main culprit, according to several sources within the community, seems to be our state's construction defect laws.
Since 2001, there has been a periodic series of legislative fixes to our construction defect laws that saw the pendulum swing back and forth between the interests of the consuming public who purchase the homes and certain protections of the developers and homebuilders from excessive and unnecessary litigation. Some say that the current state of the law is more onerous than necessary on the developers and homebuilders and it is artificially inhibiting the development of multifamily ownership housing in a time of high demand and low supply.
A recent opinion article in the September 29th, 2014 issue of the Denver Post stated, in part:
"No one is suggesting that developers escape liability for construction defects or that homeowners be denied the right to sue. But under the state's current defect laws, the scales have tilted too far in favor of litigation as the default tool for resolving disputes. And this appears to be the biggest reason for the collapse in the number of new multifamily [ownership] dwellings in recent years."
Rather than the typical conflict between the plaintiffs’ bar (representing the homebuyer) and the homebuilding industry that has produced the "back-and-forth" nature of our construction defect laws in the past, this 2014 legislative session found new constituents and a different perspective on the issue. A broad ranging coalition that included the Metro Mayors Caucus, major segments of the affordable housing community, and the general business community came together to address what their research showed as an astonishing lack of construction of ownership attached housing. There was a continuing boom going on in the development of multifamily "rental" housing, but an even more unusual deficit in multifamily "ownership" housing. Research apparently showed that, although about 20% + of construction of attached housing was in the ownership format throughout the Rocky Mountain West, Colorado was only producing about 2%. Interviews conducted by the research group that was retained by this coalition revealed that the development and homebuilding community were not willing to commence construction of ownership attached housing because of the continuing threat of litigation available under current interpretations of our state's construction defect laws. Lenders were also reluctant to provide financing for such projects faced with the apparent real threat of litigation that could shut down their projects and materially impact their loan viability and the value of the loan's collateral. Moreover, insurance premiums to cover such claims were so high, and many times unavailable, as to make such projects unfeasible.
This lack of available multifamily ownership housing was creating an ever-increasing concern over the resulting imbalance of housing options in and around the metro area, where the urban character of the metro region would need such ownership options in the attached housing format in order to address the more dense character of the urban setting. This imbalance of ownership attached housing was thwarting the advancement of "community" in the context of creating opportunities for all options of housing so important for a community balance. This included ownership options in this format that address the need for the younger professionals entering the workforce, newly forming households, seniors desiring to scale down their housing size and location, as well as the segment of the market who have limited means and need to address the affordability of homeownership. This was being most clearly felt along the FasTracks lines where attached ownership housing was an important element in originally advancing the TOD communities that are expected to be developed around these transit stops.
Rather than engage the battle of creating more contention in the various aspect of construction defect legislation per se, this coalition attempted to temper their approach and address specific issues that seemed to advance protection of the consuming homeowner while, at the same time, advocating a method of dispute resolution encouraged in the state's laws regarding such issues.
Normally, attached ownership housing is developed under our state laws governing the creation of Common Interest Communities ("CIC's"), including those communities where there are units that are attached and contain common elements. These CIC's will be encumbered by certain recorded documents (normally referred to as "Declarations") that structure the "community" within which the units are located and set up certain rules and restrictions that are intended to respect the common interests of the unit owners within that community. There is also a Homeowners Association ("HOA") organized for the common interest community that is charged with the management of the common elements and the enforcement of the rule and regulations governing the community.
The coalition chose to address their concerns through a bill including a couple of changes in the state laws governing CIC's, which would provide further protection to the homeowner and advance alternative dispute resolution as an expedient approach to resolving disputes should they arise. Those changes included:
1. Majority Owner Vote Re: Litigation -Rather than allowing two owners plus a vote of the HOA Board to determine whether or not to file litigation alleging construction defects in a CIC, the proposed change would require a simple majority vote of the unit owners who are members in the respective HOA where the alleged defect occurred. This approach addressed the increasing concern of unit owners whose homes are unmarketable and not financeable during the course of any such litigation.
This does not prevent an aggrieved owner from pursuing claims regarding that person's own unit, it just requires a majority of the owners to vote for litigation that affects the entire CIC in such litigation. This approach also included a provision for advance notice to the owners of such pending litigation accompanied by several disclosures regarding the potential litigation and its potential impact on the respective owner. This approach to protecting the rights of homeowners in a CIC seemed to be in line with everyone's interests, while not preventing an individual consumer/unit owner to advance its own claims.
2. Alternative Dispute Resolution -This proposal clarified the stated intent of the CIC statutes that advances alternative dispute resolution by providing that any mandatory arbitration provisions that are already contained in the Declaration that encumbers the respective unit in a CIC shall not be changed or deleted without the permission of the Declarant (e.g.; the developer of the CIC). This provision was to affirm a provision that the purchasing unit owner was aware of at the time of purchase and that it follows the spirit and intent of the state statutes governing such CIC's.
Notwithstanding the curative nature of these proposals, the legislation did not address the issue because a legislative maneuver was employed that did not allow for its consideration during the waning days of the session.
More recently, one of Colorado's municipalities, the home rule city of Lakewood, passed a local ordinance addressing this issue in a similar fashion, with a few more definitive suggestions regarding how to alleviate the lopsided nature of our current state of law. Without going into detail at this time with that specific ordinance, or the issue of its ability to address matters of a state-wide concern at the local level, the point is that several of Colorado's local communities, frustrated with the inability of the state legislature to deal with the issue are, at the very least, sending a signal that something must be done and, if the state is unwilling to lead on this matter, local communities will have to act.
This issue has not receded into the back room, and we will see a continuing crusade from an updated coalition to address these reasonable modifications to our state laws that will at least provide some protections to the CIC homeowner regarding unwanted litigation and some relief to the homebuilding industry from excessive litigation.
James M. Mulligan is a partner in the Denver office of Snell & Wilmer, LLP, a full-service commercial law firm located in nine cities throughout the Western United States and in Mexico. The firm’s website is http://www.swlaw.com.
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Architect Norman Foster Tells COP26: Change 'Traditional' City Design to Combat Climate Change
November 19, 2021 —
James Leggate - Engineering News-RecordRegaining control over the climate crisis will require a change in the way cities are designed and built, noted British architect Sir Norman Foster told global attendees at the
COP26 summit in Glasgow, Scotland, in a presentation with John Kerry, President Joe Biden's special climate envoy.
Reprinted courtesy of
James Leggate, Engineering News-Record
Mr. Leggate may be contacted at leggatej@enr.com
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Ohio Supreme Court Case to Decide Whether or Not to Expand Insurance Coverage Under GC’s CGL Insurance Policies
August 14, 2018 —
David Suggs – Bert L. Howe & Associates, Inc.According to W. Matthew Bryant of Saul Ewing Arnstein & Lehr LLP, the Ohio Supreme Court will be deciding whether or not a general contractor's commercial general liability ("CGL") insurance policy may provide coverage for damage caused by a subcontractor's defective construction work.
Bryant explained the status quo in Ohio: “Since 2012, Ohio has followed the rule that a CGL policy would not cover damage caused by a contractor to the contractor's own work.” That could change depending on how the Ohio Supreme Court rules in an upcoming case: “The Ohio Supreme Court will decide whether to affirm or overturn Ohio Northern University v. Charles Construction Services, Inc., 77 N.E.3d 538 (Ohio Ct. App. 2017) ("ONU"), an Ohio Court of Appeals decision holding that CGL coverage may exist for property damage caused by faulty work performed by the subcontractor of an insured general contractor.”
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Update: New VOSH Maximum Penalties as of July 1
July 26, 2017 —
Christopher G. Hill - Construction Law MusingsAs those who read Construction Law Musings know, as a construction attorney, I want to assure that not only are my clients successful in their litigation/dispute resolution endeavors, but that they stay out of trouble. I take my problem solving and advising roles quite seriously.
As part of this role as advisor, I want to let those that read Musings know that as of July 1, 2017 the Virginia Occupational Safety and Health Administration increased their maximum penalties for safety violations.
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Christopher G. Hill, The Law Office of Christopher G. HillMr. Hill may be contacted at
chrisghill@constructionlawva.com
Owners and Contractors Beware: Pennsylvania (Significantly) Strengthens Contractor Payment Act
June 13, 2018 —
Wally Zimolong – Supplemental Conditions Yesterday, Governor Tom Wolf signed into law House Bill 566 which make major changes to Pennsylvania’s Contractor and Subcontractor Payment Act. Owners and General Contractors that fail to take head of the changes could face significant financial consequences.
The Pennsylvania Contractor and Subcontractor Payment Act, known as CAPSA or simply the Payment Act, was passed into law in 1994. The intent was “to cure abuses within the building industry involving payments due from owners to contractors, contractors to subcontractors, and subcontractors to other subcontractors.” Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 500 (Pa. Super. Ct. 2009). In reality, abuses still occurred. While the Payment Act purportedly dictated a statutory right to payment within a certain amount of time and imposes stiff penalties for failure make payment, including 1% interest per month, 1% penalty per month, and reasonable attorneys fees, the language of the Payment Act left recalcitrant contractors with wiggle room. Particularly, the Payment Act allowed owners and higher tier subcontractors to withhold payment “deficiency items according to the terms of the construction contract” provided it notified the contractor “of the deficiency item within seven calendar days of the date that the invoice is received.” 73 P.S. Section 506. The problem was that the Payment Act did not expressly state where the notice must be in written, what it must say, and what happened if notice was not given.
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Wally Zimolong, Zimolong LLCMr. Zimolong may be contacted at
wally@zimolonglaw.com
CDJ’s #3 Topic of the Year: Burch v. The Superior Court of Los Angeles County, 223 Cal.App.4th 1411 (2014)
December 31, 2014 —
Beverley BevenFlorez-CDJ STAFFIn 2013, the case Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC received a great deal of attention for its possible ramifications to how California’s Right to Repair Act (also known as SB 800) could be applied. However, 2014 had its share of SB 800 policy trends, most notably caused by the ruling in Burch.
In their article, “Construction Law Client Alert: California’s Right to Repair Act (SB 800) Takes Another Hit, Then Fights Back,” authors Steven M. Cvitanovic and Whitney L. Stefco, of Haight Brown & Bonesteel, analyzed Burch as well as KB Home Greater Los Angeles v. The Superior Court of Los Angeles County, et al., both cases that had ramifications on how California’s Right to Repair Act is applied.
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Karen L. Moore of Low, Ball & Lynch discussed the Liberty Mutual and Burch cases in her article, “California’s Right to Repair Act is Not a Homeowner’s Exclusive Remedy when Construction Defects cause Actual Property Damage.”
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Excess Insurer On The Hook For Cleanup Costs At Seven Industrial Sites
August 28, 2018 —
Lorelie S. Masters & Geoffrey B. Fehling - Hunton Insurance Recovery BlogA New York district court has held that an insurer must provide coverage under three excess insurance policies issued in 1970 for defense and cleanup costs incurred by Olin Corporation in remediating environmental contamination at seven sites in Connecticut, Washington, Maryland, Illinois, New York, and Washington. Seven of the remaining sites at issue presented questions of fact for trial, with only one site being dismissed due to lack of coverage.
Reprinted courtesy of
Lorelie S. Masters, Hunton Andrews Kurth and
Geoffrey B. Fehling, Hunton Andrews Kurth
Ms. Masters may be contacted at lmasters@HuntonAK.com
Mr. Fehling may be contacted at gfehling@HuntonAK.com
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No Coverage for Faulty Workmanship Causing Property Damage to Insured's Product Only
October 07, 2016 —
Tred R. Eyerly – Insurance Law HawaiiThe Nebraska court found there was no coverage for rebar that did not meet specifications and did not cause property damage to other portions of the construction project. Drake-Williams Steel, Inc. v. Cont'l Cas. Co., 2016 Neb. LEXIS 116 (Neb. Aug. 5, 2016).
The general contractor was hired by the city to build an arena. Drake-Williams Steel, Inc. (DWS) was hired to supply rebar for the arena. The rebar was improperly bent when it was fabricated by DWS and did not conform to the terms of the contract. The rebar was incorporated into three components of the arena: the columns, the grade beams, and the pile caps. The pile caps were made of concrete with reinforcing rebar and were installed below ground level on top of the concrete piles that extended to the bedrock. The grade beams were also made of concrete and rebar. The beams formed an oval around the arena and connected different pile caps together and were also installed below ground level. No corrections were made to the grade beams.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
