By Christopher D. Yost
Adams & Reese
On May 12, Gov. Jared Polis signed House Bill 25-1272, a significant piece of legislation aimed at reforming the construction defect process, particularly for middle market housing (multifamily, attached housing of two or more units), to promote the construction of affordable homes in Colorado. This bill introduces several changes that will impact developers, builders, and other stakeholders in the construction industry. Below are the key provisions and their potential effects on projects.
Key Provisions of the Bill
- Multifamily Construction Incentive Program
Builders can opt into this program by providing the specified warranty (1-2-6), conducting third-party inspections, and recording a notice of election in the property records. Participants benefit from limitations on damages and defenses to liability provided for by the Multifamily Construction Incentive Program.
For example, claims against MCIP participants are limited to specific types of damages (e.g., actual damage/loss, substantial system functionality or safety issues), and there are defined statutes of limitations (six years post-completion if claim is against architect or engineer or a construction professional that provides a warranty). If a construction professional provides the specified warranty, the claimant must pursue all remedies available under the warranty before initiating a lawsuit.
- Affidavit Requirement for Defect Claims
When filing a construction defect action against an architect or engineer that has opted into the MCIP, claimants must now include an affidavit from a third-party licensed professional detailing the alleged negligence or error. This measure ensures that unsubstantiated and frivolous claims will be dismissed by the court.
- Executive Board Approval
An executive board may not initiate a construction defect action without obtaining authorization from unit owners holding at least 65% of the votes in the association (up from a simple majority). Any monetary damages recovered must first be used to repair the construction defect. This decreases the likelihood that a condo association would be able to obtain the votes necessary to initiate litigation, especially when the claim is specious.
- Mandatory Disclosures
A construction professional must provide certain documents, including plans, specifications, maintenance recommendations and insurance policies related to the claimed defects either when the offer of settlement is made or 60 days after the professional receives notice of the claim, whichever comes first.
- Mitigation
Claimants must mitigate damages caused by the alleged defects before filing a complaint and cannot recover damages that were caused by the claimant’s unreasonable failure to mitigate. This protects construction professionals from liability for damages caused by a homeowner’s failure to take adequate measures upon discovery of a defect.
- Attorneys’ Fees and Costs
If a claimant rejects a reasonable offer of settlement and sues the construction professional, the court may award attorneys’ fees and costs to the professional. On the flip side, if the professional fails to make a reasonable written offer, the court cannot rely on the limitations of damages and defenses to liability and may award attorneys’ fees and costs to the claimant.
- Insurance Protections
Insurers cannot cancel or deny liability insurance based on offers to repair or settle, providing stability for developers.
- Fast-Track Approvals
Local governments must establish fast-track approval processes for multifamily condominium projects receiving state affordable housing fund assistance, streamlining development.
Impact on Developers
- Reduced Litigation Risk
The requirement to provide a certificate of review and the threat of liability for the builder’s attorneys’ fees if an offer is unreasonably rejected may deter baseless lawsuits and encourage settlement, saving developers time and resources on legal battles.
- Quality Incentives
The MCIP encourages higher construction standards through warranties and inspections, potentially enhancing project quality and developer reputation. However, participating in the program requires additional upfront costs and effort.
- Market Opportunities
With legal safeguards in place, developers may find it more attractive to invest in middle market housing, particularly affordable housing, knowing there are protections against frivolous claims.
- Compliance Considerations
Developers must ensure their projects meet the new standards, especially if opting into the MCIP. Additionally, the higher threshold for executive board approval may make it harder for condo owners to pursue legitimate claims, but it also protects developers from overzealous boards.
Effective Date
The bill will take effect on Aug. 6, with the MCIP coming into effect after Jan. 1, 2026. Developers should begin preparing now to understand how these changes will affect their current and future projects.
Conclusion
HB25-1272 represents a significant shift in how construction defects are handled in Colorado, particularly for multifamily housing. By understanding and adapting to these new regulations, developers can position themselves to take advantage of the incentives and protections offered while ensuring their projects meet the highest standards of quality and compliance.
Possible Next Steps for Developers
- Review current practices and contracts to ensure alignment with the new requirements.
- Consider participating in the MCIP for eligible projects to gain additional legal protections.
- Stay informed about local government fast-track approval processes for affordable housing projects.
– Chris Yost is an associate at Adams & Reese, practicing in the firm’s construction and commercial litigation practices. He can be reached at [email protected].