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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No Coverage for Contractor's Faulty Workmanship
July 10, 2018 —
Tred R. Eyerly - Insurance Law HawaiiThe Kentucky Supreme Court determined there was no coverage for the contractor's faulty workmanship in digging the existing basement of a building to make it deeper. Martin v. Acuity, 2018 Ky. LEXIS 188 (Ky. April 26, 2018).
Martin Elias/Properties, LLC (MEP) purchased an older home to renovate and resell for profit. MEP hired Tony Gosney to renovate and expand the basement. Gosney agreed to dig the existing basement deeper, pour new footers and pour a new concrete floor. While performing his work, Gosney failed to support the existing foundation adequately before digging around it. Within days, the old foundation began to crack and eventually the entire structure began to sag. Gosney stopped work and notified his insurer, Acuity.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Idaho District Court Affirms Its Role as the Gatekeeper of Expert Testimony
March 15, 2021 —
Melissa Kenney - The Subrogation SpecialistMany subrogation claims involving fire losses rely heavily on expert testimony. Expert testimony is admissible under Federal Rule of Evidence 702 if it is both relevant and reliable. In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), whose standard has been incorporated into Federal Rule of Evidence 702, the Supreme Court instructed federal trial courts to act as a “gatekeeper” of expert testimony, giving them the power to exclude expert testimony that is not supported by sufficient evidence. In Maria Fernanda Elosu and Robert Luis Brace v. Middlefork Ranch Incorporated, Civil Case No. 1:19-cv-00267-DCN, 2021 U.S. Dist. LEXIS 14449 (D. Idaho Jan. 22, 2021) (Brace), the United States District Court for the District of Idaho exercised its gatekeeper role when it granted in part and denied in part the defendant’s motion to exclude expert testimony pursuant to Daubert and Federal Rule of Evidence 702.
Brace, involved a fire at a vacation cabin in McCall, Idaho. The cabin, owned by Maria Elosu (Elosu) and Robert Brace (Brace and collectively with Elosu, Plaintiffs) was part of a homeowner’s association called Middlefork Ranch, Incorporated (MFR). The cabin had a “wrap around” deck with a propane-fired refrigerator on the north side. On the day before the fire, Brace stained the deck using an oil-based stain. That night, Elosu smoked cigarettes on the deck. The next morning, Plaintiffs used rags to clean up excess oil from the deck and an MFR employee changed the propane on the refrigerator and relit the pilot light. At 4:00 p.m., a fire started in or around the cabin while no one was home. The fire was discovered by a group of contractors who testified that the fire was isolated to the east side of the cabin when they first arrived. Importantly, one witness testified that there was no fire and no flames around the propane-fired refrigerator. The fire destroyed the cabin and the contents within.
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Melissa Kenney, White and Williams LLPMs. Kenney may be contacted at
kenneyme@whiteandwilliams.com
South Africa Wants Payment From Colluding World Cup Builders
July 23, 2014 —
Kamlesh Bhuckory and Mike Cohen – BloombergSouth Africa’s government is putting pressure on construction companies to make further payments as punishment for rigging contracts to build stadiums for the 2010 FIFA Soccer World Cup and other projects.
Antitrust authorities fined 15 builders, including Murray & Roberts Holdings Ltd. (MUR) and Aveng Ltd., a total of 1.5 billion rand ($141 million) in June 2013, after a probe that spanned almost four years found they colluded to drive up prices.
“The 1.5 billion rand in penalties is not the end of the story with the construction industry,” Economic Development Minister Ebrahim Patel told lawmakers in Cape Town today. “We are now in discussion with the construction industry on a restitution package for their collusion and price fixing.”
Mr. Bhuckory may be contacted at kbhuckory@bloomberg.net; Mr. Cohen may be contacted at mcohen21@bloomberg.net
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Kamlesh Bhuckory and Mike Cohen, Bloomberg
Hurdles with Triggering a Subcontractor Performance Bond
April 05, 2017 —
David Adelstein – Florida Construction Legal UpdatesThere have been a couple of decisions as of late, particularly in federal court, that have gone in favor of a performance bond surety and against a general contractor’s claim against a subcontractor’s performance bond. These decisions have been so unfavorable that they may be swaying certain internal decisions to move to subcontractor default insurance with, perhaps, subcontractors that pose less risk. From the general contractor’s perspective, if they have to stop the management of the job and progress to jump through hoops to trigger the performance bond’s obligations, rightfully or wrongfully, the bond may not provide them the value they need. Performance bonds are an appropriate product in many instances, but there should be more consistency regarding the actual trigger of a subcontractor’s performance bond obligations. Project teams need to absolutely understand what efforts they need to take, and how they need to take such efforts, in order to properly trigger a performance bond’s obligations. This is a must (and I have presented many seminars on this very issue). Or, the general contractor should move away from the traditional AIA /standard performance bond form, which is the direction I always go when I am involved in the drafting of a performance bond.
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David Adelstein, Florida Construction Legal UpdatesMr. Adelstein may be contacted at
dadelstein@gmail.com
New York Nonprofit Starts Anti-Scaffold Law Video Series
February 10, 2014 —
Beverley BevenFlorez-CDJ STAFFAccording to readMedia, The Lawsuit Reform Alliance of New York (LRANY) has released “‘Victims of the Scaffold Law’ video series” that highlights “the impact of New York's ‘Scaffold Law’ on small businesses, taxpayers, and, specifically New York's Minority and Woman Owned Business Enterprises.”
The New York Scaffold Law “imposes total liability on contractors and property owners in lawsuits for gravity-related construction accidents, regardless of any contributing negligence by the worker,” reports readMedia. Furthermore, the law “is responsible for over half of the largest settlements in the state and dramatically increases the cost of liability insurance and construction in New York.”
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Insurer Must Pay Portions of Arbitration Award Related to Faulty Workmanship
October 21, 2019 —
Tred R. Eyerly - Insurance Law HawaiiThe court determined that portions of an arbitration award against the insured contractor based upon faulty workmanship were covered by the policy. Wallace v. Nautilus Ins. Co., 2019 U.S. Dist. LEXIS 122219 (D. N. H. July 23, 2010).
Plaintiffs, owners of adjoining homes, hired McPhail Roofing, LLC to replace the roofs of their houses. After installation, the plaintiffs found several problems with their roofs and withheld roughly a third of the agreed-upon contract price from final payments due to McPhail. A roofing consultant found evidence of water leaking through both roofs during rainstorms. Improper installation of the shakes on the roofs allowed rain to seep through to the roof decks (the plywood underneath the roofs) and eventually into the houses. The only way to cure the installation defects was to remove and replace the roofs entirely.
Plaintiffs and McPhail went to arbitration. Plaintiffs sought compensation for the damage caused by the leaking and for the replacement costs of the roofs. McPhail sought the remaining payment under the contracts. Nautilus defended McPhail under this CGL policy.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Call Me Maybe? . . . Don’t Waive Your Rights Under the Right to Repair Act’s Prelitigation Procedures
March 22, 2017 —
Garret Murai – California Construction Law BlogWe’ve written before about the Right to Repair Act (Civil Code Sections 895 et seq.). The Act, also commonly known as SB 800 after the bill that established it, applies to newly constructed residential units including single-family homes and condominiums (but not condominium conversions) sold after January 1, 2003.
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Garret Murai, Wendel Rosen Black & Dean LLPMr. Murai may be contacted at
gmurai@wendel.com
