Construction Defect Law Reaches First Anniversary

Attorneys say early signs suggest the law is beginning to have its intended effect

A year ago this month, a bill went into effect that was designed to make it more difficult for condominium associations to bring big-ticket construction-defect lawsuits. The question now is whether it’s had any impact.

“I think the early signs have been pretty good,” said Jonathan Pray, shareholder at Brownstein Hyatt Farber Schreck. “I’ve seen in my own practice a real market increase in developers who are not only talking about condos but are actually taking the plunge and going forward with the projects.” 

After years of interest, the bill, House Bill 1279, passed unanimously in the State House and Senate last year, and the governor signed it into law in May 2017. The law went into effect Sept. 1, 2017. Prior to the law’s passage, builders argued that the barrier to bring a multi-million-dollar class action lawsuit for construction defects in a condominium project was too low. Back then, three people on a five-person condo board could move forward with such a lawsuit on behalf of the entire building. The new law requires a majority of unit owners in a building to agree to pursue legal action and also states that that action can only be taken during a 90-day period in which attorneys and builders would have a chance to argue their case. 

In the past, builders contended that even just the threat of these lawsuits kept them from pursuing condominium development. Recently, condo projects in Denver had dropped to just 3 percent of the new construction market. Builders also said the construction defect lawsuits were a particular barrier to building more reasonably priced units, workforce housing for young professionals. Those who opposed the legislation argued developers were simply pursuing more lucrative projects, such as apartments owed to high Denver rents and luxury units. 

Amy Kiefer Hansen, shareholder at Polsinelli, who is also the firm’s real estate practice chair, said she’s also seen increased interest in the condo market since the legislation was signed into law. “There’s a real uptick in that — in and around Denver,” she said. “It’s certainly opened up condo construction in ways that we just hadn’t seen. We could still use more of it.” 

Hansen cited condo projects slated for Curtis Park, River North, Jefferson Park, and Sloan’s Lake, although she declined to give specifics on behalf of a developer.  

These early encouraging signs aside, one of the questions that remains is whether condo projects will materialize in an affordable price range. “Some developers are trying to deliver condos at an attainable price,” Hansen said. “Depending on location and land costs, that can still be challenging. But people are starting to build condos; we needed that to happen and that is happening.”

The construction defect lawsuits were one piece of this affordable housing condo puzzle. Another piece, said Brownstein Hyatt Farber Schreck shareholder Greg Vallin, is construction costs. “Construction costs have risen at an unbelievable pace — just crazy,” said Vallin, who works with national and local clients in real estate development. “Developers are having a heck of a time building a product that’s affordable. They end up building higher-end because there’s still a profit margin.” 

Pray noted a few projects in the River North and Sloan’s Lake areas. “Some of those are quite affordable — but they’re still in the 400s.” 

At the time the legislation was being debated, proponents had hoped to spark construction of units at an even lower price, in the $300,000 range.  

Hansen said some of these projects and discussions around affordable housing have also extended out to the suburbs. “It’s hitting every community; it’s on their minds as well,” she said. “I was just talking to a suburban mayor who was very proud of the fact that they are delivering a lot more affordable housing than anyone thought they could or would. I think it’s an issue on everybody’s mind.”

And in Denver, Pray is optimistic that trend will continue. “I think it is definitely paving the way for people to get into the market,” Pray said. “Obviously just because of the way projects work and defect lawsuits work it’s too early to tell what the effect on litigation will be — until those projects are complete and HOAs are taken over. We may not know the answer to that for six or seven or eight years.” 

Simply put, Hansen said, “Time will tell.” 

— Chris Outcalt

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