Firm-Wide blog

Colorado Supreme Court Backs Arbitration over Litigation

By Burg Simpson
July 24, 2017
3 min read

When the housing market heats up, it is buyers of new homes who can really get burned – at least when it comes to the quality of their homes. As builders scramble to keep up with Colorado’s hot housing demand, builders’ efforts to save either money or time can lead to defective construction. At a time when Colorado’s home buying consumers need protection the most, the Colorado Supreme Court recently let them down.

In June, in Vallagio at Inverness Residential Condo. Ass’n v. Metro Homes Inc., the court issued a ruling that allows developer-declarants to define dispute resolution rules, and potentially anything else, by imposing requirements in common interest communities’ governing documents and prohibiting their amendment without obtaining the declarant’s consent. This power to control continues indefinitely, even if the developer no longer has anything to do with the community.

In short, the court, in a 5-2 decision, ruled against a condominium and townhome homeowners association that sued the developer and builder, declaring the Association could not amend its governing documents to remove language that mandated binding arbitration in construction defect disputes. The association erred, the court ruled, in attempting to change its declarations to permit a jury trial without first securing the developer’s approval to that change, even though the developer completed the project and had sold all of the homes by 2011.

“Because the unit owners did not obtain the Declarant’s written consent to remove the declaration’s arbitration provision, the attempted amendment was ineffective,” the court ruled. “Consequently, the Association remains bound by the arbitration agreement ….”

The far-reaching effects of this ruling could, among other things, strip homeowners of their rights to pursue relief for construction defects in Colorado’s courts, forcing them to instead navigate cumbersome, and potentially biased, arbitration requirements. Unless the state legislature steps in, condominium and townhome owners face an uphill battle in terms of getting homebuilders to fix their mistakes.

This ruling comes on the heels of a legislative session that saw homeowners already lose some of their rights this year in HB 1279, which requires a majority of condominium and townhome owners to authorize a construction defects lawsuit before it can proceed. Gov. John Hickenlooper signed the legislation into law in May.

For a detailed interpretation of Vallagio, look for Burg Simpson’s analysis in the August/September issue of the Colorado Trial Lawyers Association’s Trial Talk, where our Colorado construction defect attorneys walk through the ruling and its possible implications.

Contact a Burg Simpson construction defects lawyer for more information today at 303-792-5595 or fill out a Free Case Evaluation form if you are a homeowner needing to discuss a construction case.

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