Construction Defect Municipal Ordinances: the Balkanization of Tort and Contract Law (part 1)

• Publication year: 2017
• Pages: 33
• Citation: Vol. 46 No. 2 Pg. 33

46 Colo.Law. 33 Construction Defect Municipal Ordinances: The Balkanization of Tort and Contract Law (Part 1) Vol. 46, No. 2 [Page 33] The Colorado Lawyer February, 2017

Construction Law

By Ronald M. Sandgrund, Jennifer A. Seidman, Leslie A. Tuft, and Nelson Boyle.

This is Part 1 of a three-part article discussing the many recently enacted construction defect municipal ordinances, including their "right-of-repair" and "consent-to-sue" procedures and arbitration provisions. Potential pitfalls in the application and construction of the ordinances are noted.

At least 15 Colorado home-rule cities have adopted ordinances governing construction defect claims (CD ordinances), with more cities expected to pass similar ordinances in the future. This article does not examine in detail the underlying reasons for these CD ordinances.[^1]

Generally, some cities have adopted CD ordinances solely to prevent common interest community (CIC) homeowner associations (HOAs) from amending their declarations of covenants, conditions, and restrictions (declarations) to delete arbitration requirements. Most cities, however, have adopted broad pre-suit claim notice procedures and unit owner disclosure and consent-to-sue provisions. A few have adopted ordinances that arguably change substantive construction defect tort and contract law. Four general categories of CD ordinances have been adopted:

(1) Notice-repair ordinances-comprehensive ordinances that include pre-suit notice to construction professionals, with rights of entry, inspection, and repair;[^2]

(2) Disclosure-voting ordinances-ordinances that mandate specified pre-suit disclosures to HOA members and lawsuit approval voting requirements;

(3) Substantive law ordinances-ordinances that may limit the type or scope of construction defect claims a claimant may assert;^[3] and

(4) Plat note ordinances-ordinances that allow construction professionals to record plat notes generally mandating construction defect arbitration (CD arbitration).^[4]

Many cities have adopted ordinances with a combination of these features.

Part 1 of this article examines the CD ordinances' main provisions, including defined terms, arbitration requirements, and claim notice and right of repair processes. Potential procedural pitfalls are highlighted under "Practice Pointers," which raise some issues litigators and courts should be prepared to address. Because ongoing legislative action at both the home-rule city and state levels may affect CD ordinances, practitioners should always check for relevant ordinance and statutory updates.

Threshold Considerations

The cities that currently have CD ordinances include Arvada, Aurora, Castle Rock, Centennial, Colorado Springs, Commerce City, Denver, Durango, Fort Collins, Lakewood, Littleton, Lone Tree, Loveland, Parker, and Wheat Ridge. (A proposed ordinance may be adopted by Westminster by or before this article's publication) Thus property owners, construction professionals (often referred to as "builders" or "development parties" in the CD ordinances), their attorneys, and judges must analyze the effects of applicable local ordinances on construction defect claims (CD claims) in conjunction with Colorado's Construction Defect Action Reform Act (CDARA),^[5] Homeowner Protection Act (HPA),^[6] Common Interest Ownership Act (CIOA),^[7] Uniform Arbitration Act (UAA),^[8] and the common law. Claimants can be expected to argue that the procedural, substantive, and evidentiary provisions of the CD ordinances expressly or impliedly conflict with CDARA, HPA, CIOA, and UAA-making them a challenge to harmonize and creating potentially conflicting obligations.^[9]

While these CD ordinances are generally described below, a complete analysis and comparison of each is not included. Instead, several common, key CD ordinance features are summarized, and some significant differences are compared. The CD ordinance comparison charts following each of this article's three parts provide additional details.

Practice Pointers: Consider the following threshold questions, which will be addressed in greater detail in Part 3:

• whether CD ordinances exceed the cities' home rule authority under the Colorado Constitution. Can Colorado home-rule cities pass their own tort, contract, or other laws to encourage condominium and multifamily dwelling development? Colorado courts will likely address this state-versus-local control question by asking, "Who's the boss: state legislators or local council members?";

• whether state statutes preempt some or all CD ordinance provisions;

• whether courts can harmonize a particular CD ordinance with state statutes; and

• whether some CD ordinance provisions violate the Colorado and U.S. Constitutions. For example, several CD ordinances purport to grant construction professionals (who are authorized to repair their own defective construction as they deem appropriate) the right to enter dwellings over homeowners' objections, and to perform destructive testing and invasive investigations. Do these actions implicate due process and property rights concerns? CDARA avoids such issues by affording construction professionals a statutory "opportunity to offer repair" rather than a "right of repair." Claimants could also argue that CD ordinances raise equal protection concerns because they affect residential property owners living within statutory CICs but exclude other residential property owners and all commercial property owners.

• Can cities use local CD ordinances to control access to state courts of general jurisdiction and the evidence state district court judges can admit at trial? Viewed another way, if cities can adopt local CD ordinances concerning the application of tort and contract law and limit access to state courts, does this create a patchwork of potentially conflicting laws?

The CD Ordinance Framework

Most CD ordinances contain provisions defining terms regularly arising in CD litigation (such as "construction defect") and requiring arbitration or other alternative dispute resolution (ADR), either through recording a plat note or by restricting declaration amendments. CD ordinances contain varying provisions regarding:

• their applicability;

• claimant construction defect notices;

• the construction professional's response to such notices (including inspection and testing, and notice of intent to repair);

• limitations on claimant interference with construction professionals' inspection and repair rights;

• claimant objections to construction professionals' repair notices;

• tolling of statutes of limitations and repose;

• repair warranty provisions; - settlement of claims by payment of a sum certain;

• pre-suit disclosure to CIC homeowners regarding CD claims, including estimated CD lawsuit costs, funding, duration, and ramifications;

• CIC homeowner voting procedures to approve CD lawsuits; and

• evidentiary provisions regarding the admissibility of building code violations and evidence spoliation during testing, among other things.

CD Ordinance Categories
Notice-Repair Ordinances
These ordinances include pre-suit defect notice to construction professionals, with rights of entry, inspection, and repair. Cities with notice-repair ordinances:
Aurora	Colorado Springs	Durango	Littleton	Loveland
Centennial	Commerce City	Lakewood	Lone Tree	Wheat Ridge
Disclosure-Voting Ordinances
These ordinances mandate specified pre-suit disclosures to HOA members and lawsuit approval voting requirements. Cities with disclosure-voting ordinances:
Aurora	Commerce City	Fort Collins	Lone Tree	Wheat Ridge
Centennial	Denver	Lakewood	Loveland
Colorado Springs	Durango	Littleton	Parker
Substantive Law Ordinances
These ordinances may limit the type or scope of construction defect claims a claimant may assert. Cities with substantive law ordinances:
Colorado Springs	Denver	Fort Collins	Parker
Plat Note Ordinances
These ordinances allow construction professionals to record plat notes generally mandating construction defect arbitration. Cities with plat note ordinances:
Arvada	Castle Rock	Parker	Wheat Ridge

Definitions

Nearly all CD ordinances describe their scope by defining the terms builder, claimant, common interest community, construction defect, construction defect claim, declarant, development party, homeowner, homeowner association, and respondent. Many definitions roughly parallel those contained in CIOA and CDARA, but several differences could lead to varying interpretations. For ease of reference, this article refers to anyone who may be potentially responsible for a CD claim as a "construction professional," a defined term under CDARA, but one that does not appear in many CD ordinances. Some CD ordinances extend their protections to a broader class of persons than this CDARA-defined term.

Practice Pointer: How will CD ordinances be applied if they arguably impede claimants from proceeding under CDARA, particularly if the claimant must satisfy stricter, or conflicting, city-imposed pre-suit requirements?

Construction Defects and Development Parties

Denver, Fort Collins, and Parker define a "construction defect claim" as a

civil action or an arbitration proceeding for damages, indemnity or contribution brought against a development party to assert a claim, counterclaim, cross-claim, or third-party claim for damages or loss to, or the loss of the use of, real or personal property or personal injury caused by a defect in the design or construction of an...