Chapter 14 - § 14.2 • OVERVIEW OF COLORADO LAW RELATING TO NEW HOME SALES AND CONSTRUCTION

• Jurisdiction: Colorado

§ 14.2 • OVERVIEW OF COLORADO LAW RELATING TO NEW HOME SALES AND CONSTRUCTION

Today, few homeowners have the skills necessary to meaningfully participate in a home's construction, other than choosing layouts and finishes. The typical homeowner depends on the developer's expertise to properly select and prepare raw land for development, and on the developer, the general contractor, and the various subcontractors, including design professionals such as engineers and architects, to properly design and construct a new home.¹ Most home construction contracts are written entirely by the developer or builder-vendor and are not greatly negotiated or modified in any substantive way.

Because most homes are the owner's single largest lifetime investment, courts seek to protect relatively unsophisticated homeowners from substandard construction, latent defects, and sharp sales practices. Various statutes and case law help homeowners obtain reasonably constructed homes that will serve their intended purposes over time. Post-2000 legislation has sought to impose reasonable limitations on residential construction defect claims and litigation while preserving basic rights and remedies. Home damage arising from Colorado's many geologic hazards, such as pervasive deposits of expansive and collapsing soils and unstable slopes, has led to well-developed case law regarding developer, builder, and vendor (seller) liability.² As "production" builders have come to dominate the new-home market, courts have recognized implied warranties of workmanlike construction and habitability in light of "the anachronism of the common law rule of caveat emptor."³

§ 14.2.1-Common Law

Generally, developers must exercise reasonable care in the selection, development, and sale of residential home sites.⁴ Similarly, builders and subcontractors owe duties of reasonable care in the construction of homes and related improvements, such as attached garages, lot grading, and drainage.⁵ The builder's duty of reasonable care extends to the first purchaser, and to subsequent purchasers if the defect complained of was latent at the time of the later purchase.⁶ What constitutes a "latent defect" may be a question of fact for the jury.⁷ In Park Rise Homeowners Ass'n v. Resource Construction Co., the Colorado Court of Appeals held that the trial court improperly dismissed a homeowners' association's claims for failure to apportion damages between latent and patent defects.⁸ The court found that the plaintiff homeowners' association "need only provide the fact finder with a reasonable basis for calculating actual damages using the relevant measure," and that expert testimony need not identify latent defects.⁹

Developers, builder-vendors, and sellers of homes owe common law duties to prospective purchasers to disclose known latent defects. An intentional failure to disclose such defects constitutes fraudulent concealment.¹⁰ Colorado courts have not yet addressed whether a "latent defect" includes the creation of material and unreasonable risks arising from the location of or methods chosen for constructing the home. For additional discussion of developers' and builders' duties to disclose, and their liability for misrepresentation, non-disclosure, and concealment, see § 14.5.2, "Misrepresentation and Concealment."

Builders, developers, and sometimes contractors and material suppliers may also owe express or implied contractual duties to homeowners. See § 14.4, "Contract Claims Arising from the Construction and Sale of a Home."

§ 14.2.2-Statutes, Ordinances, and Regulations

A number of state laws and local ordinances may apply to or influence the construction methods and disclosures required in new home construction. Colorado requires builders and developers to disclose a lot's soil conditions to prospective new home purchasers. If expansive soils are present, developers and builders must also disclose engineering recommendations regarding home construction, maintenance, and landscaping. Other state laws and local ordinances regulate development and construction in geologic hazard areas. Local building codes mandate minimum construction standards. Deceptive trade practice legislation prohibits sharp sales practices when marketing a home.¹¹ However, Colorado's Construction Defect Action Reform Act and the Homeowner Protection Act of 2007 have, by far, the greatest effect on residential construction disputes. Several Colorado home-rule cities have adopted their own ordinances governing construction defect claim procedures, but the validity of such ordinances is hotly disputed given Colorado's pre-existing, comprehensive statutory scheme. For further discussion of these ordinances, see § 14.2.8, "Construction Defect Municipal Ordinances."

§ 14.2.3-Colorado's Construction Defect Action Reform Act (CDARA)

Beginning in 2001, Colorado began adopting legislation regulating construction defect litigation in the form of the Construction Defect Action Reform Act (CDARA I).¹² The General Assembly significantly amended CDARA in 2003 (CDARA II),¹³ in 2007 with the Homeowner Protection Act (HPA),¹⁴ in 2010 with the Construction Professional Liability Insurance Act,¹⁵ and again in 2017 (CDARA III).¹⁶ Much of this legislation constitutes rough compromises between builder and homeowner interests, and includes last-minute amendments to proposed house and senate bills intended to supplant or supplement years of developed common law. Few appellate decisions interpret these laws, and they continue to raise many unanswered questions. Some home-rule cities have adopted local ordinances that may, if not preempted by state laws like CDARA, overlap and conflict with CDARA, especially its notice of claim process. See "Preemption Issues" in § 14.2.8.

For an extensive discussion of CDARA I, see Sandgrund, Sullan & Achenbach, "The Construction Defect Action Reform Act."¹⁷ Summaries of CDARA I and CDARA II follow immediately below. For a discussion of the HPA, see § 14.2.5, "Colorado's Homeowner Protection Act of 2007 (HPA)." At least 30 states have adopted construction defect "reform" measures similar to CDARA, and these states' developing case law may provide guidance when interpreting Colorado law.¹⁸

The Construction Defect Action Reform Act of 2001 (CDARA I)

In response to concerns over a spate of complicated multi-party lawsuits involving purely "technical," de minimus deviations from building codes without any resulting injury, builders, insurers, and homeowners negotiated and drafted the Construction Defect Action Reform Act (CDARA I). CDARA I applies to actions filed on or after August 8, 2001. CDARA I's purpose is "streamlining construction defect litigation" and limiting "shot gun" lawsuits.¹⁹

List of Defects, C.R.S. § 13-20-803

CDARA I requires claimants to file an initial list of construction defects within 60 days of bringing suit (longer, if the court allows).²⁰ A case cannot be set for trial until the claimant has filed and served the list.²¹ Third-party claimants must file a similar list.²² The list should contain a general, not detailed, summary of the alleged problems based on any information available before discovery begins, and may be amended to identify other defects as they become known.²³ This mandatory disclosure applies to both residential and commercial construction, and is not intended to be a trap for the dismissal of a valid lawsuit. There does not appear to be any impediment to satisfying the defect list requirement by describing adequately the defects within a pleading, such as a complaint, cross-claim, or third-party complaint, without filing a separate defect list.²⁴

Limits on Certain Negligence Claims, C.R.S. § 13-20-804

CDARA I prohibited a party from bringing a negligence claim arising solely from the failure to construct residential (but not commercial) property in substantial compliance with a building code or standard of care unless such failure results in (1) actual or probable damage to, or the loss of use of, property; or (2) bodily injury, death, or a risk or threat to the life, health, or safety of the occupants of the property. CDARA II expanded this limitation to include commercial property and requires actual, not merely probable, damages or loss of use.²⁵ This limitation on negligence claims, which does not apply to other tort claims (such as misrepresentation), contract or warranty claims, or claims arising from the violation of a law other than a building code, is narrowly focused on claims where the only wrong is the negligent violation of a building code with no actual loss or actual or threatened injury.²⁶ One Colorado district court held that CDARA's "actual damages" limitation did not bar a claim arising from an alleged negligent failure to build in accordance with the plans and specifications where expert testimony established that the failure impaired the structural capacity of the walls, raising a question of fact whether such defect presented a threat to the occupants' health and safety.²⁷ Another district court carefully parsed the plaintiff's claims, awarding damages only on negligence claims falling within C.R.S. § 13-20-804's exceptions, and on breach of warranty claims (which the statute also exempts from its limitations).²⁸

Practice Pointer: Expert Testimony Under CDARA
Prudent property owners should have their property damage experts causally connect any "defects" or "deficiencies" they observe to "resulting, actual damage to a part of a home" or to a "resulting, actual loss of the use of part of the home," or words to this effect.²⁹ Property owners may argue, in the alternative, that CDARA's "actual damage/loss of use" requirement is met if (1) the defect itself constitutes actual damage to or a loss of use of real property; (2) the claim relates to a failure to comply with the design professional's recommendations or plans and specifications, and not simply a failure to comply with an applicable building code or industry

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