Construction Defects and the Aftermath: Is there any Hope?

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Frank Howard
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1 Construction Defects and the Aftermath: Is there any Hope? October 14, 2015 Housing Colorado Now! Conference Polsinelli PC. In California, Polsinelli LLP

2 Introductions Amy Hansen Polsinelli PC Ryan Warren Polsinelli PC 2

3 Today s Discussion Construction Defects: A Brief History Past Efforts; Future Expectations Villagio at Inverness Strategies for Condo Development & Construction Q&A 3

4 History of Construction Defect Litigation in Colorado Expansive soils basement slabs (Mission Viejo/Ryland, 1996) Mr. Sullan was the driving force behind Colorado's slab-on-grade flooring system class actions involving Richmond Homes, Mission Viejo, Falcon Homes, Ryland Homes, Village Homes, Merit Homes, and Centex Homes. CO Defect Action Reform Act (CDARA) (2001 & 2003) Attempt to curb frivolous lawsuits Notice of Claim process Worked for single family houses. But not condos. 4

5 History of Construction Defect Litigation in Colorado Homeowner Protection Act Obtained by the plaintiff s bar Passed in 44 days Waivers in builder/vendor contracts for negligence & implied warranty of habitability void. HB CDARA Notice Automatically Triggers Duty to Defend Insurers unhappy 5

6 A Quick Legislative Overview Three Years of Unsuccessful Attempts to Pass Construction Defect Reform: SB 052 (2013) SB 220 (2014) SB 177 (2015) 6

7 Legislative Overview - SB 052 (2013) Tied to Transit Oriented Development Right to Repair Mandatory, Binding Arbitration Protection for claims based on noise, vibration and similar disturbances Clarified Statute of Repose 7

Legislative Overview SB 220 (2014) If governing documents call for arbitration of a construction defect claim, that is binding even if there is an amendment

8 Legislative Overview SB 220 (2014) If governing documents call for arbitration of a construction defect claim, that is binding even if there is an amendment Meaningful notice to owners of pros and cons of construction defect litigation Owner vote before filing suit Disclosures in purchase contracts regarding arbitration 8

9 Legislative Overview SB 177 (2015) Same basic elements as 2014, plus mediation requirement as a prerequisite to filing suit Refined list of disclosures Modified owner consent requirement 9

10 The Local Response Lakewood Ordinance Combination of 3 years of state legislation Right to Repair Meaningful Notice to Owners & Vote Arbitration Can t be Amended Out Douglas County Plat Note Requires Arbitration Aurora, Arvada, Littleton, Lone Tree 10

11 The Villagio Case AGC Metro Denver EDC Denver Metro Chamber of Commerce Mechanical Contractors Assoc of CO Plumbing-Heating-Cooling Contractors National Certified Pipe Welding Bureau Colorado BUILDS Colorado Concern NAIOP Colorado Contractors Association Berkeley Homes Front Range Land & Development Co. Colorado Competitive Council Amicus Brief Mechanical Service Contractors Assoc Plumbing-Heating-Cooling Contractors Colorado Association of Home Builders Downtown Denver Partnership D.R. Horton Housing Colorado Ryland Group, Inc. Hyder Construction, Inc. TreeHouse Brokerage & Development Koelbel and Company Colorado Assoc of Mechanical & Plumbing Contractors 11

12 Basic Facts: The Villagio Case Governing documents required arbitration for construction defect cases Provision provided it could not be amended without developer consent Owners voted to remove the arbitration provision and did not get developer s consent Sued in court with a jury Developer moved to compel arbitration District Court sided with Condo Association 12

13 The Villagio Case Colorado Court of Appeals overturned If governing documents say that arbitration is required and the provision can t be amended without developer consent, that will be upheld There can be 3 rd party beneficiaries of these clauses 13

14 The Villagio Case What s Next? Petition for Writ of Certiorari Filed with the Colorado Supreme Court by Plaintiff Supreme Court does not have to take the case Until it is final, developers may be reluctant to rely upon it (with good reason) Opposition likely to pursue a legislative overturn of this case 14

15 Risk Mitigation Strategies Pick you location carefully Local ordinance and/or plat note Protect Arbitration & Jury Waiver Separate Covenant Sales Contract Deeds Condo Declaration 15

16 Risk Mitigation Strategies Arbitration Clause Specifics Build in SB177 Process Meaningful Notice & Vote Name Third Party Beneficiaries General Contractor Design Professionals Subcontractors Amendment Requirements Who has to consent 16

17 Risk Mitigation Strategies Jury Waiver Specifics Kicks in if Arbitration Fails It s not effective unless it is in there But, may not be effective against subsequent buyers Design & Construction Contracts w/ Owner GC require arbitration & jury waiver in governing documents/owners should want this. Require that design & construction professionals are 3 rd party beneficiaries 17

18 Risk Mitigation Strategies Insurance 3 rd Party Review Warranty Administration Customer Service HOA Management HOA Board Members Strategic Record Keeping (Its gonna be seen aka the phone still works) 18

19 Q&A Amy Hansen Ryan Warren 19

Construction Defect Action Reform Act of 2003, as amended in 2010 (CDARA) , et seq. Local Ordinance Comparison

Construction Defect Action Reform Act of 2003, as amended in 2010 (CDARA) 13-20-801, et seq. Local Ordinance Comparison Subject CDARA and Colorado Case Law Local Ordinances 1 Comments Construction Defect