*Originally posted in November 17th, 2014 edition of Law Week Colorado
Homeownership is a cherished American value. There has been much concern recently about the lack of affordable condominiums in our communities for the young adults and empty nesters who want to buy them. Even though developers, builders and others would like to blame construction defect litigation as a significant factor leading to lower condominium construction and supply, this is simply a red herring.
Economists have concluded that the Great Recession’s unstable job market, stagnant wages, tight lending and rental demand took its toll on condo development. While a temporary slowdown in multifamily development occurred during the last few years, homebuilders pulled nearly 1,300 permits for townhomes last year, a 39% increase over 2012. The rebound appears to be continuing this year. The free market is solving the problem. As economic conditions continue to improve, condo building will rise.
As for construction defects, there is a very simple way to prevent litigation: Build homes right. No defects, no lawsuits.
Every homebuyer should expect that his new home is built right. Unfortunately, some builders cut corners during construction, resulting in cracking or shifting foundations, leaking roofs and windows and dangerous structural problems.
Contrary to popular belief, almost twenty years of statutory and judicial action has left Colorado with a builder-friendly and homeowner-hostile legal environment. Owners of new homes with construction defects in Colorado have less time than owners in nearly any other state to identify defects and take action against a builder. Homeowners are required to take specific steps to work with builders to try to resolve disputes before they may pursue legal action. While there are honest developers who fix their mistakes, there are just as many who try to get away with a lick and a promise, or as it is called in the construction industry, a “caulk and walk.”
Despite these facts, legislation that will gut homeowners’ rights and remedies will likely be introduced during the next legislative session. The legislation will likely include the following provisions discussed recently in Law Week Colorado’s article, “State Faces Obstacles to Some Homebuilding.”
- Majority Owner Vote Before Litigation. Under current law, the elected members of a homeowner association board may make decisions that affect condominium communities, including whether to pursue litigation. Because a developer typically owns a majority of units for a significant period of time following construction, requiring a majority of unit owners to vote in favor of pursuing litigation would require that a developer vote in favor of suing itself, which it obviously will not do. If an association cannot sue to recover damages to repair construction defects, it must impose the cost of repairing expensive construction defects on unit owners.
There is simply no evidence that homeowner association boards are routinely acting against the interests of a majority of homeowners. Instead, the proposed voting requirement is a cleverly-crafted obstacle that will ultimately insulate builders from liability for their own mistakes and make homeownership a nightmare for owners.
- Alternative Dispute Resolution. Recent proposals would allow a developer, without any input from homeowners, to choose who decides construction defect disputes and to write the rules according to which these disputes are decided. Given this opportunity, developers write the rules in their favor, infringing on rights of homeowners. The proposed arbitration requirement will ultimately relieve builders from liability for their own mistakes and unfairly take away condominium owners’ right to a jury trial.
The solution to the problem of construction defects is for developers to build homes right the first time, not to victimize homeowners by passing another builder-friendly law that will tie homeowners’ hands if they have a serious problem. Colorado laws should not make it easier for builders to cut corners, but making it harder for homeowners to hold builders accountable for their mistakes will do just that.
There is a real need for condominium development in Denver, but construction defects are not the problem, and more builder-friendly construction defect legislation is not the answer. A perfect storm of economic factors has caused the decline in condominium development and as economic conditions improve, condominium development will increase.