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Polsinelli PC. In California, Polsinelli LLP
Construction Defects and the
Aftermath: Is there any Hope?
October 14, 2015 Housing Colorado Now!
Conference
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Introductions
Amy Hansen – Polsinelli PC
Ryan Warren – Polsinelli PC
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Today’s Discussion
Construction Defects: A Brief History
Past Efforts; Future Expectations
Villagio at Inverness
Strategies for Condo Development &
Construction
Q&A
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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.
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History of Construction Defect
Litigation in Colorado
Homeowner Protection Act - 2007
– Obtained by the plaintiff’s bar
– Passed in 44 days
– Waivers in builder/vendor contracts for
negligence & implied warranty of habitability
void.
HB 10-1394 – CDARA Notice
Automatically Triggers Duty to Defend
– Insurers unhappy
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A Quick Legislative Overview
Three Years of Unsuccessful Attempts to
Pass Construction Defect Reform:
– SB 052 (2013)
– SB 220 (2014)
– SB 177 (2015)
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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
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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
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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
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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
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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
– 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
Amicus Brief
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The Villagio Case
Basic Facts:
– 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
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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 3rd party beneficiaries of
these clauses
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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
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Risk Mitigation Strategies
Pick you location carefully
– Local ordinance and/or plat note
Protect Arbitration & Jury Waiver
– Separate Covenant
– Sales Contract
– Deeds
– Condo Declaration
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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
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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 3rd party beneficiaries
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Risk Mitigation Strategies
Insurance
3rd Party Review
Warranty Administration
Customer Service
HOA Management
HOA Board Members
Strategic Record Keeping (Its gonna be
seen aka the phone still works)
