CONSTRUCTION DEFECT MUNICIPAL ORDINANCES: THE BALKANIZATION OF TORT AND CONTRACT LAW (PART 2)

• Jurisdiction: Colorado

Construction Defect Municipal Ordinances: The Balkanization of Tort and Contract Law (Part 2)

Reproduced by permission. ©2017 Colorado Bar Association 46 The Colorado Lawyer 31 (March 2017). All rights reserved.

CONSTRUCTION LAW

Construction Defect Municipal Ordinances: The Balkanization of Tort and Contract Law (Part 2)

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

This is Part 2 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 construction and application of the ordinances are noted.

At least 16 Colorado home-rule cities have adopted ordinances governing construction defect claims (CD ordinances): Arvada, Aurora, Castle Rock, Centennial, Colorado Springs, Commerce City, Denver, Durango, Fort Collins, Lakewood, Littleton, Lone Tree, Loveland, Parker, Westminster,¹ and Wheat Ridge. More cities are expected to pass similar ordinances in the future. Four general categories of CD ordinances have been adopted:

• notice-repair ordinances-comprehensive ordinances that include pre-suit notice to construction professionals, with rights of entry, inspection, and repair;²
• disclosure-voting ordinances-ordinances that mandate specified pre-suit disclosures to homeowner association (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;⁴ and
• plat note ordinances-ordinances that allow construction professionals to record plat notes generally mandating construction defect arbitration (CD arbitration).⁵

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

Part 2 of this article examines CD ordinance provisions concerning rights of entry and repair, including objections to repairs and monetary settlement offers in lieu of repair, and associated deadlines; statutes of limitation and repose; repair warranty and later-discovered defects; and common interest community (CIC) pre-suit disclosure requirements. Property owners, construction professionals, 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),⁶ Homeowner Protection Act (HPA),⁷ Common Interest Ownership Act (CIOA),⁸ Uniform Arbitration Act (UAA),⁹ and common law.

Claimants can be expected to argue that the CD ordinances' procedural, substantive, and evidentiary provisions expressly or impliedly conflict with CDARA, HPA, CIOA, and UAA, making them a challenge to harmonize and creating potentially inconsistent obligations.¹⁰ Potential 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.

Coordinating Editor

James W. Bain of Benjamin, Bain & Howard, L.L.C., Greenwood Village-(303) 290-6600, jamesbain@bbhlegal.com

About the Authors

Ronald M. Sandgrund is of counsel and Jennifer A. Seidman, Leslie A. Tuft, and Nelson Boyle are associate attorneys with the Sullan Construction Defect Group of Burg Simpson Eldridge Hersh Jardine PC. The group represents commercial and residential property owners, homeowner associations and unit owners, and construction professionals and insurers in construction defect, product liability, and insurance coverage disputes.

Construction Law articles are sponsored by the CBA Construction Law Section. They address construction-related issues. The coordinating editor and section encourage the submission of substantive law articles addressing issues of interest to practitioners in the field of construction law.

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As in Part 1, the CD ordinances are generally described in terms of common key features that are summarized, and some significant differences are compared. The CD ordinance comparison charts following the articles in this three-part series provide additional details.

Rights of Entry and Repair

Many notice-repair ordinances allow construction professionals a "right of repair" to remedy alleged defective construction.¹¹ For example, Aurora allows a construction professional to elect to repair the defect within the later of 14 days after the construction professional's defect notice acknowledgment or 30 days after the construction professional's initial inspection or testing.¹² Presumably, this includes repair of any consequential damage flowing from the defect, such as rotted drywall caused by a leaking window, but this result is uncertain because the definition of "construction defect" is unclear.

Practice Pointer: Failure to construe "construction defect" broadly to include all consequential damages may undermine a CD ordinance's purpose to "protect[] homeowners" with "legitimate construction defect claims."¹³ This could potentially remove an entire category of CD claim damages from the scope of these ordinances, which the cities likely did not intend.

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 Centennial Colorado Springs Commerce City Durango Lakewood Littleton Lone Tree Loveland 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 Centennial Colorado Springs Commerce City Denver Durango Fort Collins Lakewood Littleton Lone Tree Loveland Parker Westminster Wheat Ridge

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 Westminster

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

Duty to Cooperate

If the construction professional elects to make repairs, generally "the claimant may not, directly or indirectly, impair, impede or prohibit the [construction professional] from making repairs."¹⁴ The CD ordinances do not specifically address the effect on the rights of an HOA or unit owner if some unit owners do not cooperate with the inspection, or object to what may be perceived as an unconstitutional invasion of their private property. Generally, an HOA or unit owner has no right to control other unit owners.

If the claimant impairs, impedes, or prohibits the work, "the city or [construction professional] may enforce the claimant's obligations under the [CD ordinance] through court action, and the city may refuse to issue building permits to the claimant unless and until the claimant permits the [construction professional] to make repairs."¹⁵ Colorado Springs similarly authorizes construction professionals to seek relief available under Colorado law when the claimant or HOA impairs, impedes, or prohibits a construction professional from making repairs.¹⁶ Nearly all notice-repair ordinances require the claimants' prompt, good faith cooperation in scheduling the construction professional's repair work.¹⁷

Practice Pointers: These provisions may put a city in the awkward position of being asked by construction professionals to enforce an ostensibly unreasonable or inadequate repair plan- possibly at the city's cost. No specific private penalties are prescribed if the claimant does not cooperate. It is unknown whether a city might incur liability by facilitating a repair over a property owner's objection.
• If a city will not support a construction professional's repair effort, the construction professional may be left to assert such lack of cooperation as a "failure of condition precedent" defense in a later CD action. Conversely, the claimant may argue that allowing the construction professional to proceed with an inadequate repair is a "futile act," and that the law does not require such futility.¹⁸
• HOAs and unit owners may wish to seek declaratory relief to establish their rights and obligations, and to verify a CD ordinance's constitutionality and scope, before taking action that might hamper a construction professional's entry and repair rights under a notice-repair ordinance. Construction professionals may ask courts to determine what relief exists to enforce a city ordinance-imposed right of entry and repair and what rights, if any, are waived by private property owners refusing such entry.

Monetary Settlement in Lieu of Repair

In lieu of repair, some notice-repair ordinances allow construction professionals to offer to pay, and HOAs and claimants to accept, a sum certain to settle the claim.¹⁹ For instance, Lone Tree's ordinance states that it does not preclude a claimant and construction professional from reaching a mutual agreement for full or partial claim settlement.²⁰ Most CD ordinances require acceptance of a monetary offer "within 15 days . . . or such longer period, if any, stated in the offer as the time for acceptance," or it is deemed rejected. Acceptance of an offer made pursuant to a CD ordinance typically releases all claims arising out of the alleged construction defect.²¹ The Aurora, Centennial, Colorado Springs, Littleton, and Loveland notice-repair ordinances go further by allowing construction professionals to offer a settlement payment that can include within its scope defects first discovered after the settlement.²²

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