House Bill 17-1279: New Prerequisites to Homeowner Association Construction Defect Lawsuits, 0917 COBJ, Vol. 46, No. 8 Pg. 36
| Author | RONA LD M. SA NDGRUND, JENNIFER A . SEIDM A N, AND LESLIE A. TUFT, J. |
August, 2017
CONSTRUCTION LAW
RONA LD M. SA NDGRUND, JENNIFER A . SEIDM A N, AND LESLIE A. TUFT, J.
This article summarizes the provisions of Colorado House Bill 17-1279, which amends Colorado law regarding homeowner association construction defect lawsuits.
Consistent with the Colorado Common Interest Ownership Act’s (CCIOA) charge to establish “a clear, comprehensive, and uniform framework for the creation and operation of common interest communities,”1 the Colorado General Assembly recently adopted House Bill 17-1279 (HB 1279), which significantly amends CRS § 38-33.3-303.5[2] and requires homeowner association executive boards to satisfy new disclosure, meeting, and voting requirements before commencing a construction defect action (CD action).3 Governor Hickenlooper signed HB 1279 into law on May 23, 2017.
The Scope of HB 1279
HB 1279 applies to any “construction defect action” instituted by an association’s executive board.4 “‘Construction defect action’ . . . [m]eans any civil action or arbitration proceeding . . . brought against a construction professional to assert a claim . . . for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in the design or construction of an improvement to real property, regardless of the theory of liability.”5 “Construction defect action” also includes any related claim, including a claim for breach of fiduciary duty, that arises from an alleged construction defect or that seeks the same or similar damages.6 While HB 1279 defines “construction defect action” slightly more broadly than Colorado’s Construction Defect Action Reform Act (CDARA),7 the new law adopts CDARA’s definition of “construction professional.”8
Pre-CD Action Notices and Meeting
Before commencing a CD action, the executive board must “mail or deliver written notice” (the meeting and disclosure notice) of the anticipated CD action to each owner at the owner’s address described in the association’s records and to the last-known address of each construction professional against whom a CD action is proposed.9 Five business days before sending the meeting and disclosure notice, the executive board must also mail to each construction professional against whom a CD action is proposed a separate notice (the advisory notice) advising the construction professional of the new law’s statutorily-required meeting (the CD action meeting).10
The advisory notice need not be sent to any construction professional identified after the advisory notice is mailed or to a party later joined in a CD action, if commencement of the CD action was previously approved by owners in accordance with the statute.11 The advisory notice requirement may be intended to ensure that construction professionals have adequate time to prepare a presentation, a proposed repair, or a monetary settlement offer for the CD action meeting. Also, by exempting parties identified or joined after the notice is mailed, HB 1279 may recognize that associations may not have full information regarding various parties’ roles and potential liabilities when they first consider bringing a CD action.
The meeting and disclosure notice must include certain “disclosures,” described in more detail below, and must also call the CD action meeting to consider whether to bring the CD action.12 The CD action meeting must be held between 10 and 15 days after the meeting and disclosure notice’s mailing date and does not require a quorum.13 Failure to hold the CD action meeting within the required time voids a later vote regarding the proposed CD action described in the meeting and disclosure notice.14 The time for providing the meeting and disclosure notice, holding the CD action meeting, and voting is limited to 90 days.15
As a related matter, associations likely will begin CDARA’s pre-suit, statutory notice of claim process (NCP) before sending either the meeting and disclosure notice or the advisory notice. During the NCP, an association typically works with potentially liable construction professionals to informally resolve issues. By exploring informal resolution through the NCP, associations may avoid incurring the time, effort, and expense of later asking unit owners to vote whether to pursue a CD action. If the NCP is in process or has already occurred, the advisory notice will provide construction professionals additional time to prepare for the CD action meeting, because CDARA’s NCP will apprise them of the alleged construction defects.
As a practical matter, the new law’s requirement that the CD action meeting occur within 10 to 15 days of the meeting and disclosure notice may not provide some unit owners with enough advance notice to arrange to attend. Therefore, associations and their counsel may seek to communicate with owners in advance about the community’s construction defects, the history of efforts to resolve the issues (including any repair offers or refusals to offer adequate repairs), potential legal options, and any upcoming disclosure and voting periods, well before sending the statutorily required meeting and disclosure notice.
Because misconceptions may exist regarding unit owners’ shared responsibility for common element defects—each condominium unit owner owns an undivided interest in the common elements16 and a corresponding financial responsibility for any assessments levied to repair common element defects17 —associations and their counsel may seek to explain these matters to owners before sending the meeting and disclosure notice to help them make an informed decision when casting their votes. Similarly, construction professionals may seek to communicate directly with unit owners about alleged defects or the options available to unit owners and the association to address those defects, before the association disseminates a meeting and disclosure notice or before the CD action meeting, so that owners have adequate time to consider these issues before the voting period begins immediately after the CD action meeting.
Information that must be provided in the meeting and disclosure notice is not protected from disclosure by the attorney–client and common interest privileges or by the work product doctrine because associations must send the meeting and disclosure notice to potentially liable, adverse parties. However, associations are not required to disclose any information in the meeting and disclosure notice that is protected by the attorney–client or other applicable privilege, nor may the meeting and disclosure notice serve as waiver of any applicable privilege or confidentiality.18 Other communications between and among association counsel, association agents (such as property managers), the executive board, and/or unit owners that contain legal advice should remain subject to such privileges and confidentiality.19 Communications between construction professionals and unit owners or the association generally are not protected from disclosure in a lawsuit between an association and construction professionals, but settlement offers and demands and related communications may be inadmissible at trial.20
Meeting and Disclosure Notice: Required Meeting
As it relates to the CD action meeting, the meeting and disclosure notice must state the following:
1. The voting period to approve a CD action begins upon the conclusion of the CD action meeting, during which time the association will accept votes for or against proceeding with the CD action.21
2. The disclosure and voting period ends at the earlier of 90 days after the meeting and disclosure notice’s mailing date, or when the association determines that the unit owners have either approved or disapproved the CD action.22
3. All construction professionals against whom a CD action is proposed will be invited to attend the CD action meeting and will have the opportunity to address the owners concerning the alleged construction defects, at which time the construction professionals or their designees may, but are not required to, offer to remedy any defect in accordance with CDARA’s NCP.23
Although the conclusion of the CD action meeting begins the voting period, during which time votes may be accepted, HB 1279 does not prohibit associations from distributing information or ballots to owners before the CD action meeting, nor does it prohibit construction professionals and their counsel from communicating directly with unrepresented owners outside of the CD action meeting.
Meeting and Disclosure Notice: Required Disclosures
The meeting and disclosure notice must include a description of the “nature of the construction defect action, which description identifies alleged defects with reasonable specificity, the relief sought, a good-faith estimate of the benefits and risks involved, and any other pertinent information.”24 Because the meeting and disclosure notice must be sent to construction professionals, general statements about commonly recognized benefits and the risks of litigation, as well as pertinent information unrelated to privileged legal advice, should satisfy these obligations without waiving applicable privileges or disclosure protections.25 The bill does not expressly impose a remedy or sanction for failure to comply with its disclosure requirements.
The meeting and disclosure notice must also include the following 10 disclosures:
1. The alleged defects may result in increased maintenance or repair costs or an increase in assessments or special assessments to cover repair costs.26
2. The CD claim will expire if the association...
To continue reading
Request your trial