By Deborah Goonan, Independent American Communities
The state of Colorado has been engaged in a political war over how to handle construction defects for the past several years. At issue: current state law allows a majority of the Owners Association Board to vote for litigation against developers.
Opponents of the current state law – backed mainly by home builders and affordable housing groups – claim that makes it too easy to bring expensive litigation against developers. They further claim that insurance costs for home builders and construction companies has skyrocketed, while construction defect attorneys have often exaggerated legal claims to their personal benefit.
That, they say, makes construction costs higher. Sale prices of condominiums and other multifamily housing would have to be increased, making them less affordable to first-time buyers. Developers say they cannot set prices at levels needed to create sufficient profit, therefore they have been building rental apartment communities rather than condominiums.
The Colorado Metro Mayors Caucus has sided with developers, pushing for reform of construction defects law. Typical of local governments these days, their primary concern is increasing housing density. After all, if condominiums are not built, how can cities increase property tax revenues? Mayors and Affordable Housing advocacy groups claim that, without condos, no one will have an affordable place to live.
Going around failed legislative proposals
Colorado Mayors and Home Builder lobbies have proposed legislative reform at the state level for three years in a row. They propose that Developers must have the absolute right to make repairs before a lawsuit is filed. They also propose that a majority of the entire association membership must vote to approve litigation against the developer.
All of those proposals have failed to garner enough support in the CO Legislature.
That’s because homeowners have testified before the Legislature about their terrible experiences coping with construction defects such as leaky windows and roofs, and dealing with uncooperative developers. They eventually obtained some relief after filing suit. They explained how it can be next to impossible to get 51% of membership to vote on any matter, let alone the decision to pursue construction defects litigation against home builders.
The truth is, in condominium structures, some unit owners will be directly affected while others will not. Those who are unaffected by water intrusion, mold, faulty electrical or plumbing work, and the like, are far less likely to vote in favor of litigation that will require them to disclose defects and pending lawsuits to buyers.
And Developer voting interests can easily block a lawsuit if many of the units remain unsold. After all, none of the legislative proposals have stated that only non-developer unit owners would be permitted to vote in matters involving legal actions against the developer.
But several cities in Colorado have decided to circumvent state law by passing their own ordinances with the very same requirements that have been rejected at the state level. Those cities are Lakewood, Lone Tree, Commerce City, and now Aurora.
Aurora council unanimously backs construction defects reform in favor of homebuilders
What does this mean for condo buyers and owners in Colorado?
If you reside in Aurora or one of the other cities that have sold out to developers, buyer beware. If you happen to end up with shoddy construction, the chance that those problems will be fully resolved is questionable, at best. And you can expect internal conflict within your association, pitting neighbor against neighbor on the matter of holding home builders accountable. If you’re one of the unit owners affected by defects, you will likely be thrown under the bus. Remember, as a unit owner, you will generally not be permitted to make any repairs to common elements, even if leaks are causing water damage to the interior of your unit, which you are responsible for maintaining. You will have to rely on your Condo Association, through the Board, to do the right thing. It’s entirely out of your control.
What about affordability?
Is it really more affordable to buy a condo than to rent an apartment? Well, that depends. It’s not just about the size of the mortgage payment on the unit. A buyer has to add in the cost of property taxes, insurance, regular assessments for maintenance, and costs to maintain and repair the interior of the unit. Now add in the unpredictable cost factors for condominium association owners: special assessments and repairs due to construction defects. As soon as defects become apparent, the value of units plummet. There goes the owner’s equity, which might have been limited to begin with, especially if the down payment was low.
Focus on prevention
Yes, sometimes attorneys can get a bit overzealous with construction defect claims. But there are ways to prevent frivolous claims without eliminating property rights of condo owners.
The state of Colorado – and other states for that matter – should be focusing their efforts on preventing construction defects in the first place. That means making sure building code inspections are unbiased, thorough, and reliable. That means creating better training for construction and trades workers at all levels, from laborers to construction managers.
Making it more difficult to hold developers accountable will hardly help to reduce the prevalence of shoddy workmanship, some of which results in unsafe structures.
Colorado lawmakers gear up for construction-defects reform in 2015
Colorado’s construction-defects bill dies in committee