Construction Defect Municipal Ordinances: The Balkanization of Tort and Contract Law (Part 3), 0417 COBJ, Vol. 46 No. 4 Pg. 27

AuthorRonald M. Sandgrund, Jennifer A. Seidman, Leslie A. Tuft, Nelson Boyle, J.

46 Colo.Law. 27

Construction Defect Municipal Ordinances: The Balkanization of Tort and Contract Law (Part 3)

Vol. 46, No. 4 [Page 27]

The Colorado Lawyer

April, 2017

Construction Law

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

This is Part 3 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 17 Colorado home-rule cities have adopted ordinances governing construction defect claims (CD ordinances): Arvada, Aurora, Broomfield,1 Castle Rock, Centennial, Colorado Springs, Commerce City, Denver, Durango, Fort Collins, Lakewood, Littleton, Lone Tree, Loveland, Parker, Westminster,2 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;3

• disclosure-voting ordinances-ordinances that mandate specified pre-suit disclosures to homeowner association (HO A) members and lawsuit approval voting requirements;4

• substantive law ordinances-ordinances that may limit the type or scope of construction defect claims a claimant may assert;5 and

• plat note ordinances-ordinances that allow construction professionals to record plat notes generally mandating construction defect arbitration (CD arbitration).6

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

This Part 3 examines multifamily development pre-suit unit owner approval requirements and surveys substantive and evidentiary issues that CD ordinances implicate, including building codes, strict liability, negligence per se, standards of care, and evidence spoliation Part 3 also addresses liability insurance complications, preemption issues, and state and federal constitutional concerns. A streamlined practitioner’s issues checklist for claimant and 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),7 Homeowner Protection Act (HPA),8 Common Interest Ownership Act (CIOA),9 Uniform Arbitration Act (UAA),10 and common law. Claimants can be expected to argue that many CD ordinances expressly or impliedly conflict with CDARA, HPA, CIOA, and UAA, making them a challenge to harmonize and creating potentially conflicting obligations.11

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. This Part 3 contains an extensive sidebar highlighting various bills pending in the Colorado legislature at the time of this article’s submission, many of which, if adopted, may preempt significant parts of the CD ordinances.

Pending Construction Defect Legislation

As in Parts 1 and 2, the CD ordinances are generally described in terms of common key features that are summarized, and some significant differences are compared. An ordinance comparison chart providing additional details, encompassing all 17 ordinances adopted to date, and incorporating and updating the charts published with the first two parts of this series is available at www.burgsimpson.com/wp-content/uploads/sites/9/2017/01/Burg-Simpson-CD-Municpal-Chart.pdf.

Pre-Suit Unit Owner Approval Requirements

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Most CD ordinances require HOAs to provide specified pre-suit disclosures to their unit owners. Additionally, HOAs must obtain at least a majority of the homeowners’ written consent to bring a CD action or to start the CDARA notice of claim procedure (NCP).12

Practice Pointer: These provisions impose preconditions not found in CIOA or CDARA and create the potential for limitations and repose periods to expire before suit can be authorized. Moreover, because most ordinances apply to all CD claims, even small claims are subject to potentially expensive and onerous suit-approval procedures.

While most CD ordinances exclude the declarant from their definition of homeowner, fewer CD ordinances exclude declarant-owned units from the calculation used to determine the majority.13 The vote may be held directly or through a signed written ballot and must be obtained within 60 days after the required notice or the unit owners will be deemed not to have given their consent. If approval is not obtained, later unit owner votes to commence CD legal action—perhaps due to changed circumstances—appear permissible as long as the disclosure requirements are again met.

Practice Pointer: The CD ordinances’ “consent to sue” requirements potentially conflict with CIOA’s limited pre-suit disclosure scheme, executive board litigation powers, and unit owner vote approval percentages. CIOA generally allows a democratically-elected HOA executive board to act representatively on behalf of the HOA and its unit owners in deciding to file a lawsuit or initiate arbitration.14 CIOA sets some maximum unit owner vote approval percentages depending on the action contemplated.[15]

The CD ordinances’ unit owner informed consent requirements are also much more extensive than, and thus may conflict with, the pre-suit notice and unit owner voting requirements of CDARA, Colorado’s Revised Nonprofit Corporation Act (CRNCA), and especially CIOA. For instance, CIOA simply requires that before a CD lawsuit is served, the HOA send written notice to each unit owner generally describing the nature of the suit and relief sought, and the kind, but not the specific amount, of lawsuit expenses that may be incurred.16

Wheat Ridge includes the potentially problematic requirement that if the HOA governs units that are located in more than one building, written consent must be obtained from a majority of the unit owners with voting rights only in the buildings in which the construction defect is alleged to be present.17

Practice Pointer: Wheat Ridge’s requirement may conflict expressly with, and arguably undermine, CIOA’s mandatory common interest community (CIC)-wide voting process.18 It also does not appear to consider the facts that all unit owners own an undivided interest in the common elements contained in all buildings in a condominium development, and that, typically, each is individually liable pro rata for the cost of necessary common element repairs through assessments.19

It is unclear whether some CD ordinances intend to preclude proxy voting, which CIOA expressly allows, and where it is not expressly prohibited, whether an implied prohibition on proxy voting would be valid. The Lakewood, Lone Tree, and Wheat Ridge ordinances expressly allow proxy voting,[20] while the Aurora, Littleton, and Commerce City ordinances expressly do not prohibit it.21

Some CD ordinances exclude the declarant from voting (Denver, Fort Collins, Lone Tree, and Parker), while others exclude the declarant from the definition of “homeowner” (Aurora, Centennial, Colorado Springs, Commerce City, Durango, Lakewood, Littleton, Lone Tree, Loveland, and Wheat Ridge). Lone Tree does both. Some CD ordinances provide for a simplified unit owner consent, assuming all necessary pre-suit unit owner disclosures have been made.[22]

Practice Pointer: For expediency purposes, an HOA board might consider simultaneously supplying the requisite pre-suit notice with its consent-to-sue and proxy forms (if proxy voting is permitted). Also, the board might consider delivering an explanatory notice ahead of that paperwork advising unit owners to expect the disclosure and consent forms, warning them of the narrow time limits most notice-repair CD ordinances impose for obtaining suit approval, and cautioning owners about potentially applicable suit filing deadlines. Careful, timely, and personal follow-up with unit owners may be critical to obtaining effective and timely consent, particularly if the ordinance requires disclosure of potentially incomplete or confusing information.

Substantive and Evidentiary Issues

Several CD ordinances contain substantive law limitations different from those in Colorado state statutes and the common law, as well as unique evidentiary rules.

Building Code Violations

The Broomfield, Denver, Fort Collins, Parker, and Westminster ordinances provide that with respect to multifamily developments, local building code violations shall not “create a private cause of action” or

be used to support or prove any construction defect claim, regardless of the statutory or common law theory under which the claim is asserted, unless the violation or failure to substantially comply results in one or more of the following: (1) Actual damage to real or personal property; (2) Actual loss of use of such property; (3) Bodily injury or wrongful death; or (4) A risk of bodily injury or death to, or a threat to the life, health or safety of, the occupants of residential real property.23

Fort Collins adds to this list, “(5) To the extent permitted under Colorado law, other financial losses or damages directly caused by the violation or substantial failure.”24 Colorado Springs has adopted a similar provision.25

Parts (1) through (4) of this provision roughly track CDARA’s four alternative evidentiary preconditions to establishing a negligence claim founded on a...

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