Last month the Colorado legislature took a big step toward construction defect litigation reform with the passage of House Bill 1279.  The bill, signed into law May 23rd, requires HOAs suing developers and builders for construction defects to obtain consent by the majority of homeowners before commencing the lawsuit.

Proponents believe the law will curtail certain lawsuits making it more financially feasible for builders and developers to build more condominium projects — housing that is desperately needed in the Denver area.

Yesterday, with its ruling in Vallagio at Inverness Residential Condominium Association v. Metro Homes, Inc., the Colorado Supreme Court opened the door much wider for condo builders and developers. In Vallagio, the developer drafted the condominium declaration with a requirement of binding arbitration for resolution of any construction defect claim.  The HOA members attempted to amend the declaration to delete the arbitration requirement, and then bring the claims in court.  The developer argued that the HOA could not unilaterally amend the declaration because the developer had included language in the declaration that the arbitration clause could not be removed without the developer’s written consent. In a 5-2 vote, the Colorado Supreme Court affirmed the lower courts decision enforcing the developer’s right to consent.

Over the past few years builders have blamed the declining growth of new condo projects on the high costs associated with construction defect litigation.   Yesterday’s ruling, combined with HB 1279, are likely to encourage more developers (and their insurance companies) to invest in more condominium projects.

Greg Parham, Attorney and Operations Manager for First Alliance Title