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Consultants in Risk Management |
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I. INTRODUCTION The following is a summary of the
applicable Colorado laws and guidelines regarding construction defect
and residential construction law for new home construction.
This summary includes current Colorado legislation and pending
legislation associated with construction defect law. A. Construction
Defect Defined Under Colorado Law There is no specific definition found in
Colorado law for a “construction defect". However, construction
defects usually include any deficiency in the performing or furnishing
of the design, planning, supervision, inspection, construction or
observation of construction to any new home or building, where there is
a failure to construct the building in a reasonably workmanlike manner
and/or the structure fails to perform in the manner that is reasonably
intended by the buyer. Examples include, but are not limited to, defects
from expansive soils, substantial cracks, unstable foundations,
defective roofs, insufficient water supply, heating system problems, and
plumbing leaks. B. Construction Defect Responsibility The associated causes of construction
defects can be grouped into four (4) main categories: design, materials,
workmanship, and soil conditions. In many cases, the responsibility for
defective conditions falls on the builder, developer or general
contractor, sometimes for the project’s design, work performed by
subcontractors, or even if materials used in the construction process
were manufactured by someone else and found to be defective. Typically a
builder/developer is liable for his/her own acts and the acts of his/her
subcontractors, vendors, and consultants.
However, these other professionals, e.g., architects,
contractors, builder vendors, engineers, inspectors, etc., may be held
responsible through privity of contract, indemnification provisions,
and/or the coverage in their GL insurance policy and subrogation
clauses. C. Construction Defect Claims Any individual or entity that is the
“real party in interest” (Colorado Rules of Civil Procedure, Rule
17). The real party in interest has to be recognized in the law as
having sufficient interest in the litigation to assert a claim.
Homeowners, either individually or in a class-action lawsuit, usually
involving homeowners’ associations (HOAs), are viewed as the real
party in interest for the purpose of asserting their own construction
defect claims. This includes condominium associations, which have been
found to be the real party in interest and also have “standing” to
assert a claim on behalf of the individual condominium unit owners in
the association in connection with construction defects. D. Construction Defect Damages Damages resulting from construction
defect need to be proven in order to warrant consideration for recovery
in construction defect claims. Recoverable damages can include cost of
repairs, reduction in market value, loss of intended use of residence
and lost profits, expenses for temporary housing during repairs,
prejudgment interest, and in some cases, emotional distress and punitive
damages if the buyer has a sympathetic jury or arbitrator and can
establish fraud, malice or willful and wanton conduct on the part of the
builder/developer or vendor. However, this is a stretch, since most
reputable builders/developers business is derived from their reputation
for quality construction and meeting the reasonable expectations of the
home owner/buyer. Rework, maintenance and claims are not profitable
business processes. E. Construction Defect Statute Of
Limitations Builders/developers normally provide a
1-year express warranty to the home owner/buyer. However, various
Colorado statutes can extend the time in which a homeowner can make a
claim depending on the specific claim or cause of action. These statutes
are complicated and triggered by specific facts. It is highly recommend
that each affected party consult an attorney on the specific conditions
of each case. More detailed information on the specific Colorado statute
of limitations and statute of repose will be covered further in this
summary. F. Construction Defect Litigation Colorado law allows homeowners’ to file
lawsuits directly upon learning of a defect in his/her home. However,
the Colorado Association of Home Builders (CAHB) recently introduced a
House Bill (HB-1166), which requires that homeowners comply with certain
time requirements before they can file a lawsuit. Although this bill has
not been passed as yet, it was introduced for review at the end of
January 2001, and will be an agenda item for the next legislative
session in the Colorado legislature. Additional information on HB-1166,
as well as prior bills, such as Senate Bill (SB-147) and
HB-1125, that
were previously reviewed by the Colorado legislature will be addressed
later in this summary. G. Construction Defect Disclosure
Requirements Each significant defect “alleged” to
exist within a property by a homeowner must be later disclosed to a
would-be buyer under Colorado law. The intent of Colorado law is to
allow homeowners some type of recourse against builders/developers when
a homebuyer’s/owner’s quality of life is disrupted by construction
defect-related issues. II. CONSTRUCTION DEFECT AND COMMONLY ASSERTED CAUSES OF ACTION Traditionally, buyers of homes had little
or no recourse against the builder/developer or seller as a result of
the doctrine of caveat emptor, i.e., "Let the buyer beware".
However, Colorado courts have led the country in eroding the caveat
emptor doctrine and have permitted buyers to recover damages for a
variety of construction problems under various legal theories, which
include: A. Contract Liability 1. Breach of Contract Most residential purchase contracts
contain an express contractual warranty for workmanship and materials,
which typically lasts for approximately 1 year. If any defects in the
house appear during this warranty period, buyers may have a breach of
contract action against the builder/developer. Therefore,
builder/developers may be held liable for defects in constructing a new
home based on oral representations, which specifically guaranteed the
quality of the workmanship and materials. However, in a breach of
contract claim, the builder/developer can expressly disclaim and limit
any potential remedies or put conditions in the contract that can
significantly minimize and/or eliminate the remedy completely. An owner may sue the builder/developer
for breach of the construction contract. Third parties may not sue on
the contract unless they are in privity with one of the parties to the
contract or are intended third-party beneficiaries. However, if the
contract is terminated before the third-party seeks to enforce it, the
third-party has no rights in the contract, unless the third-party has
justifiably changed positions in reliance upon the promise. See Bain
v. Pioneer Plaza, 894 P.2d 47, 50 (Colo. App. 1995). Contract damages are limited to those
that are “foreseeable” at the time of the contracting. See BA
Mortg. Co. v. Unisal Development, Inc., 469 F. Supp. 1258 (D.C.
Colo. 1979) (applying Colorado law). A contractor is responsible for the
natural, probable, and foreseeable consequences of his failure to
perform the contract, including foreseeable damages caused by natural
obstacles. See Olson Plumbing & Heating, Inc. v. Douglas Jardine,
Inc., 626 P.2d 750 (Colo. App. 1981). 2. Breach of Warranty a) Implied Warranty: Colorado courts have led the nation in
judicially implying warranties in home sales. Colorado implies in the
sale of every new home that (a) the builder-vendor has complied with the
applicable building codes; (b) that the home was built in a workmanlike
manner and (c) that the home is suitable for habitation. The Colorado
Supreme Court has explained that the implied warranties are necessary
because the builder/developer presents himself/herself as having the
ability to construct a habitable home and the buyer does not have the
knowledge or access to inspect the home's underlying structural,
mechanical or electrical work. Colorado recognizes implied warranties of
workmanlike construction and habitability. See Carpenter v. Donohue,
154 Colo. 78, 388 P.2d 399 (1964) (extending implied warranties of
workmanlike construction and habitability in unfurnished homes to sale
of newly constructed buildings, completed at the time of contracting);
see also Wall v. Foster Petroleum Corp., 791 P.2d 1148 (Colo.
App. Div 4 1989). Colorado courts have likened the warranty
of habitability to strict liability for construction defects. See Wall
v. Foster Petroleum Corp., (“[P]roof of a defect due to improper
construction, design, or preparations is sufficient to establish
liability in the builder-vendor”). Colorado courts have limited implied
warranties to first purchasers of homes. See Cosmopolitan Homes, Inc.
v. Weller, 663 P.2d 1041 (Colo. 1983); H.B Bolas Enterprises,
Inc. v. Zarlengo, 156 Colo. 530, 400 P.2d 447 (1965) (Claim for
breach of implied warranties for basement wall cracks rejected because
“it was not a new house permitting reliance upon any implied warranty
of fitness for habitation”); Gallegos v. Graff, 32 Colo. App.
213, 508 P.2d 798 (1973) (Implied warranties do not extend to purchasers
of a used home from persons who were not the builders of it). An
exception to the implied warranty rule applies in certain unique
instances, such as where a builder sell to a realty company, knowing
that the realty company will resell to consumer. See Utz v. Moss,
31 Colo. App. 475, 503 P.2d 365 (Colo. App. Div 1 1972) (“where ***the
construction company knows, or should know, that the intended purchaser
and first occupant will not be the realty company***the implied warranty
of workmanlike construction extends to the first purchaser”). b) Express Warranty: To obtain financing insured by the
Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), houses must have a one-year warranty of
completion in construction in substantial conformity with approved plans
and specifications. Courts have recognized that this warranty gives
right to a cause of action for breach of express warranty by a
builder/developer or other vendor when substantial defects appear within
the one-year warranty period. However, this cause of action is very
limited in nature because homeowners typically do not discover
construction defects within the first year of buying a home. Therefore,
builders/developers may erode a lot of the protection afforded by the
warranty by including express disclaimers and limitations. Colorado law is similar to California
law; a party to an express warranty may enforce the warranty according
to its terms. However, if the party seeking to enforce the warranty did
not rely on the representations in the warranty, but rather, performed
its own inspections and relied on those, the party may not enforce the
warranty. See Associates v. San Lazaro Park Properties, 864 P.2d
111, 115 (Colo. 1993). 3. Breach of Subcontract – Indemnity
Provisions Under Colorado law, indemnity agreements
that purport to indemnify for the negligent conduct of an indemnitee
must be strictly construed. See Public Service v. United Cable,
829 P.2d 1280, 1284 (Colo. 1992). However, in a commercial setting,
Colorado courts will interpret “broad, all inclusive”
indemnification language to indemnify the indemnitee from its own
negligence. Id. (holding that the indemnification agreement’s
indicated an intent to cover claims and liabilities of indemnitee
arising from indemnitee’s own negligence). B. Tort Liability 1. Common Law Negligence Negligence claims potentially give buyers
the broadest scope of relief. The greatest advantage of a negligence
claim is that buyers may sue parties with which they have no contractual
relationship. Buyers often need this advantage when the party with whom
they contracted has declared bankruptcy or is otherwise insolvent. Also,
buyers have a further advantage of being able to avoid contractual
limitations of liability and contractual defenses if they proceed under
a negligence cause of action. The gist of the action is that the
builder/vendor has a duty to perform construction with reasonable care
and skill. If the builder/developer does not perform with reasonable
care/skill, he/she has acted negligently and may be liable for damages. A Colorado homebuilder is liable in
negligence to subsequent purchasers. No privity is required. However, it
is limited to latent defects that the subsequent purchaser is not able
to discover prior to purchase. See Cosmopolitan Homes v. Weller,
663 P.2d 1041 (Colo. 1983); see also Johnson v. Graham, 679 P.2d
1090 (Colo. App. Div. 1 1983) (citing Cosmopolitan, absence of
drain and improper compaction of soil could be considered latent defects
undiscovered prior to purchase), rev’d on other grounds, Tri-Aspen
Construction Co. v. Johnson, 714 P.2d 1090 (Colo. 1986); Howard
v. Wood Bros. Homes, Inc., 835 P.2d 556 (Colo. App. 1992). In Cosmopolitan, the plaintiffs were the
forth owners of a house designed, built and sold by the defendants. Id.
The complaint alleged
various theories of negligence for cracks in the foundation from
settling of the house that had occurred at the time plaintiffs made
their purchase. Id. The
trial court dismissed the complaint for the lack of privity, but the
appellate court reversed, noting that regardless of lack of privity, the
purchaser of a used home could recover for negligence. Id.
The Supreme Court affirmed, but limited such negligence claims to
latent defects “which the purchaser was unable to discover prior to
purchase.” Id. The court based its decision in part on
the following rationale: “An obligation to act without negligence in
the construction of a home is independent of contractual obligations
such as an implied warranty of habitability.” Id.
However, in limiting such a duty to latent defects, the court
stated: “The reason for allowing recovery only for latent or hidden
defects, which have been defined as ‘those manifesting themselves
after purchase and which are not discoverable through reasonable
inspection,’…is to prevent an action where mere deterioration or
loss of a bargain is claimed.” Id.
Finally, the court noted the language of section 13-80-127 of the
Colorado code, which allows for subsequent purchasers to bring tort or
contract actions against a builder, in support of its decision. Id. In Colorado, a contractor may be liable
to injured persons under a negligence theory for injuries or death
occurring after the completion of the work and after acceptance by the
owner in cases “where the completed work is reasonably certain to
endanger third persons if negligently constructed.” Wright
v. Creative Corp., 30 Colo. App. 575, 498 P.2d 1179 (1972)
(Adopting Justice Cardozo’s views in MacPherson v. Buick Motor Co.,
217N.Y. 382, 111N.E. 1050 (1916)). 2. Strict Liability This theory ensures that the cost of the
injury or damage resulting from the defective home is borne by the
builder who put the home on the market rather than by the buyer of the
home. Courts in other states have allowed buyers to use this remedy,
reasoning that builder/developers are in a better position to bear the
risk of defects than are homebuyers. However, the Colorado Supreme Court
has disallowed strict liability claims by buyers, which are subject to
dismissal in Colorado. At the time this research was conducted
on Colorado construction defect law, there was only one case that has
addressed the issue of strict liability in Colorado in the construction
context. (See section II. A. 2. a), above on Implied Warranty.) In Enright
v. City of Colorado Springs, 716 P.2d 148 (Colo. App. Div. 1 1985),
the court held that a glass company hired to install a glass vestibule
was a contractor erecting an improvement to real property, not a
manufacturer. Id. As
a result, the glass company could not be found liable under any theory
of product liability. Id. In making the determination, the court noted
that the principal factor in making a determination of whether something
is an improvement to real property is the retention of the owner. Id.
In finding that
the intent in this case was such an improvement, the court noted that:
1) the vestibule was added to provide permanent relief, and 2) there
were no instances in which the vestibule was removed or replaced. Id.
As a result, the
court concluded, “the City cannot be found liable under any theory of
products liability.” Id. 3. Builder/Developer Liability a) Fraudulent Concealment: In Colorado, a seller of real estate has
an affirmative duty to disclose known, discoverable (patent) defects. In
addition, a fraudulent concealment action arises when a seller fails to
disclose facts that greatly affect the value of the property and which
are not known or discoverable by the buyer (latent defects). However,
the builder/developer can defend against this cause of action by a
general discussion of potential problems, an inspection revealing the
defect or an "as is" sale. b) Violation of Disclosure Law: Colorado Revised Statute (C.R.S. §
6-6.5-101) mandates that at least fourteen days prior to closing the
sale of any new house, every developer or builder or their
representatives must provide the purchaser with a copy of a summary
report of the analysis and the site recommendations for that property.
For sites having a significant potential for expansive soils, the
builder must supply each buyer with a copy of a publication detailing
such soil problems, the building methods to address those problems
during construction, and suggestions for care and maintenance to
minimize such problems. Failure to disclose can subject the
developer/builder to a civil penalty of five hundred dollars ($500.00)
payable to the purchaser in addition to any other liability or penalty. Under Colorado law, a developer may be
liable for various practices concerning the sale of subdivision units,
in accordance with C.R.S. §
12-61-405.
Such practices include using false or misleading advertising;
misrepresenting or concealing any material fact from the purchaser;
employing a scheme to defraud a purchaser; converting funds of a
purchaser or homeowner’s association; failing to comply with
registration requirements; refusing to cancel a contract for the
purchase of a unit within the statutorily allowed time; violating
Colorado’s Consumer Protection Act (CCPA); and failing to disclose
encumbrances to prospective purchases. Id. Developers
found to have committed one or more of these practices may be fined,
admonished, be placed on probation, or have its registration revoked or
suspended (after notice and a hearing). Id. (1). Additionally, the real estate commission may apply to
the court for an injunction, enjoining any act or practice in violation
of the relevant statutes. C.R.S. §
12-61-406(1). III. STATUTES OF LIMITATIONS / REPOSE
In most construction defect cases, an
analysis must be made as to potential statute of repose and statute of
limitation issues because builders/developers often use these statutes
as defenses. The State of Colorado has both statutes of repose and
statutes of limitation applicable to construction defect cases. Statutes
of repose are distinguishable from statutes of limitation because
statutes of repose specify the time period within which a cause of
action can arise at all. Under these statutes, the limitation period may
expire before the plaintiff's cause of action has arisen. Conversely,
statutes of limitation foreclose suits after a fixed period of time
following occurrence or discovery of an injury. Colorado has a specific statute of
limitations and repose provision, “Limitation of actions against
architects, contractors, builders or builder vendors, engineers,
inspectors, and others,” which governs construction defects. See C.S.R.
§ 13-80-104. Specifically, C.S.R. § 13-80-104 provides for a two-year
statute of limitations and a six-year statute of repose. C.S.R. §
13-80-104(1)(a). A. Summary of Colorado Statute of
Limitations 1. Two Years a) Any action against an architect,
contractor, builder, builder-vendor, engineer, or inspector, involved in
the actual planning or construction of the home, must be brought within
2 years after the homebuyer discovers, or should have discovered the
defect (but no more than 6 years after substantial completion of the
house - see statute of repose mentioned below). C.R.S. §
13-80-102. b) An action for negligence against a
party not listed above. An example would be a seller of property who did
not build/construct the property. The action must be brought within 2
years from when damage due to negligence was or should have been
discovered (C.R.S. §
13-80-102(1)). 2. Three Years The following are the most common
construction defect actions, which are time-barred if not brought within
the three year statute of limitations. Note: three-year statutes only apply to actions brought against
parties other than architects, contractors, builders or builder-vendors,
engineers, inspectors (e.g. a non-builder vendor of property): a) Breach of contract/warranty - must be
brought within 3 years from when breach is or should have been
discovered (C.R.S. §
13-80-101(a)). b) Fraud/Mistake - must be brought within
3 years from when fraud or mistake is discovered or should have been
discovered (C.R.S. §
13-80-101(c)). c) Breach of Fiduciary Duty - 3 years
from when the breach was or should have been discovered (C.R.S. §
13-80-101(f)). c) Action against a Land Surveyor for a
negligent or defective land survey must be brought within 3 years after
the homebuyer either discovered or should have discovered the negligence
or defect (C.R.S. §
13-80-105(1)). B. Summary of Colorado Statute of Repose 1. Six Years a) No action can be brought against an
architect, contractor, builder or builder-vendor, engineer or
inspectors, involved in the actual planning or construction of the
house, can be brought more than six (6) years after substantial
completion of the house, unless the cause of action arises during the
5th or 6th year after substantial completion of the house (C.R.S. §
13-80-104(1). b) Exception: If the homeowner discovers,
or in the exercise of reasonable diligence, should have discovered the
defect during the 5th or 6th year after substantial completion of the
house, the buyer has two additional years after the date to bring the
action. This extends the statute of repose to either seven or eight
years (C.R.S. §
13-80-104(2). c) Statute of Repose applies to any and
all actions (e.g. contract, tort, etc.) in which damages are claimed
for: i. The construction defect itself; ii. Injury to real and personal property
caused by the defect; or iii. Injury to or wrongful death of a
person caused by the defect. Colorado
Statute of Limitations / Repose “At-A-Glance”
C.S.R. § 13-80-104(1)(a)
provides as
follows: “Notwithstanding any statutory
provision to the contrary, all actions against any architect,
contractor, builder or builder vendor, engineer, or inspector performing
or furnishing the design, planning, supervision, inspection,
construction, or observation of construction of any improvement to real
property shall be brought within the time provided in C.S.R. §
13-80-102 [2 years] after the claim for relief arises, and not
thereafter, but in no case shall such an action be brought more than six
years after the substantial completion of the improvement to the real
property…” C.S.R. §
13-80-104(1)(a). However,
if any cause of action arises during the fifth or sixth year after
substantial completion of the improvement to real property, then such
cause of action must be brought within two years after the date upon
which the cause of action arises. C.S.R. §
13-80-104(2).
The claim arises when the claimant or claimant’s
predecessor in interest discovers or in the exercise of reasonable
diligence should have discovered the physical manifestations of a
defect. C.S.R. §
13-80-104(1)(b).
Note that the statute of limitations begins to run when the
defect is discovered, rather than when the injury occurs. See Criswell
v. M.J. Brock and Sons, Inc., 681 P.2d 495 (Colo. 1984) (“[T]he
General Assembly has distinguished discovery of the defect which
‘causes’ the injury from the injury itself;” holding trial court
erred in concluding there was no genuine issue of material fact as to
when plaintiffs knew soil conditions defect); see also Wood Bros.
Homes, Inc. v. Howard, 862 P.2d 925 (Colo. 1993) (citing Criswell). Prior to 1979, the predecessor section to
C.S.R. § 13-80-104
was given narrow interpretation. See Tablyn v.
Mickey and Fox, Inc. 578 P.2d 637 (Colo. 1978); Duncan v.
Schuster-Graham Homes, Inc., 578 P.2d 637 (Colo. 1978).
The revised section is significantly broader in its application,
and the Supreme Court of Colorado has recognized such. See Homestake
Enterprises v. Oliver, 817 P.2d 979 (Colo. 1991); see also Bush
v. Roche Constructors, Inc., 817 P.2d 608 (Colo. App. Div. 3 1991)
(Statute “specifically includes actions for breach of contract or in
tort to recover damages for any deficiency in the construction, or
observation of construction, of the improvement itself, in addition to
collateral damages caused by the defective construction”); Mohawk
Green Apts. v. Kramer, 709 P.2d 955 (Colo. App. 1985) (applying act
to warranty and breach of contract claims, recognizing that the plain
language of the statute supports a broad interpretation). The statute focuses on “persons whose
activities relate to the construction of a building or other structure,
or to the development of such a structure, in contrast to those who
design, manufacture, supply or service particular items that are placed
within the building or are made part of it through the efforts of
others.” See Stanske
v. Wazee Electric Co., 722 P.2d 402 (Colo. 1986) (electrical system
installed by defendant is an improvement to real property, not a
product, so the statute focuses on improvements to real property rather
than products applied.) In Homestake, the Supreme Court
addressed the issue of whether the two-year statute of limitations
applied to the plaintiffs negligence claim. Id.
The plaintiff slipped and fell on an icy sidewalk caused by a
sprinkler system functioning in the winter. Id.
Plaintiff alleged that the defendant contractor negligently
operated a sprinkler. Id. The
court held that the statute
did apply, based on part on the following rationale: “[T]he
legislature intended that section 13-80-127 provide comprehensive
coverage to builders, contractors, and other construction-industry
professionals.” Id.
The court noted that the legislature made such changes to section
13-80-127 (which was repealed and reenacted in 1986 as section 13-80-104) in response to how the court had interpreted 13-80-127. Id. Specifically, “[t]he statute was
intended to apply only to negligence in planning, design, construction,
supervision or inspection that results in an improvement to real
property that causes an injury, and to limit actions against building
professionals only for claims of injury arising from defects in the
improvement they create. [Citation omitted].”
Two Denver Highlands Limited Partnership v. Dillingham
Construction N.A., Inc., 932 P.2d
827, 829 (Colo. App. 1996). In determining what constitutes an
improvement to real property, the principal factor which the courts will
examine is the intention of the owner. For example, a vestibule attached
to an airport terminal was considered to be an improvement because the
owner intended the vestibule to provide permanent relief from high
winds. Two Denver
Highlands at 829 (citing Enright v. Colorado Springs, 716
P.2d 148 (Colo. App. 1985)). The courts also consider whether the
activity is essential and integral to the function of the construction
project. The Two Denver
Highlands court also noted decision in which Colorado courts found
the following to be improvements to real property: an electrical system
in a grain elevator (Stanske v. Wazee Electric Co., supra); a C-7
conveyor improvement to real property (Anderson v. M.W. Kellogg Co.,
766 P.2d 637 (Colo. 1988); and lot grading (Embree v. American
Continental Corp., 684 P.2d 951 (Colo. App. 1984). Id. at
829-830. In Two Denver Highlands, the court
concluded that activities in preparing and installing concrete to build
a parking garage are part of the improvement to real property because
the concrete is an essential part of the garage. Id. at 830.
Thus, the court ruled that the entity that the general contractor
hired to install and supply the concrete used to build the parking
garage was a subcontractor whose activities related to the building of a
structure. As such, C.S.R.
§ 13-80-104 applied to the subcontractor. One final note to keep in mind with
respect to the statute of repose – it must be pleaded and proved as an
affirmative defense in any action; otherwise, a court still has subject
matter jurisdiction. See Dunton
v. Whitewater West Recreation, Ltd., 942 P.2d 1348 (Colo. App. Div.
2, 1997) (“We conclude therefore, that C.S.R. § 13-80-104 has no
effect upon a court’s jurisdiction; it must be pleaded and proved as
an affirmative defense.”); see also First Interstate Bank v.
Central Bank & Trust Co., 937 P.2d 855 (Colo. App. 1996)
(addressing C.S.R. § 11-51-128(8), a similarly worded statute and
holding as in Dunton). 3. Colorado Legislative Proposals Regarding Construction Statute of Limitations Colorado House Bill
1125, pertaining to
the statute of limitation for actions involving construction of
improvements to real property, was introduced in the Colorado
legislature on January 7, 1998. The bill would have amended the 2-year
statute, codified in C.R.S. § 13-80-102 (please see above), which
applies to claims against architects, contractors, builders, builder
vendors, engineers and inspectors involved in the planning and
construction of a house. Specifically, the bill would have provided that
if a claim arises prior to substantial completion of construction, the
2-year statute of limitations is tolled (suspended) until substantial
completion of construction. However, this bill was not passed during the
1998 legislative session nor was it carried over for review into the
following session. On February 9, 1998, the House Judiciary Pi’s
HB-1125.
IV. TOLLING AND ESTOPPEL Currently, there are no tolling or
estoppel legislative issues under Colorado law related to the
performance of repair work that is associated with construction
defect-related issues as in other States, particularly, California.
Hopefully, there this will remain unchanged in the future. California case law has long since held
that ordinary statutes of limitations may be tolled (suspended or
frozen) while repairs are actually attempted by a defendant. This
means that if the builder or developer attempts repairs of the defects,
the applicable statute of limitations period will be extended for the
period of time that the developer attempts repairs. If the repairs
prove unsuccessful, the association's later lawsuit will not then be
barred because the association relied on the repair efforts of the
developer and the applicable statute of limitations expired, i.e.,
depending on the plaintiff’s proof of facts, the plaintiff’s time to
sue will also be extended beyond the statutory period. Estoppel means that a party is prevented
by his/her own acts from claiming a right to detriment of another party
who was entitled to rely on such conduct and has acted accordingly.
Estopple is a bar or impediment which precludes allegation or denial of
a certain fact or state of facts, in consequence of a final adjudication
of the matter in a court of law. It operates to put the party entitled
to its benefits in the same position as if the acts and/or declarations
represented, on which they relied and induced their decision to alter
their position, were true. V. PROPOSALS TO REFORM COLORADO
CONSTRUCTION DEFECT LAWS
Senate Bill 147, (SB-147) introduced on
January 22, 1998, and passed by the Senate, hit a roadblock in the House
of Representatives on February 26th, 1998. The House Business Affairs
and Labor Committee heard nearly 3 hours of testimony, largely from
buyers stuck with defective homes, and voted 8-4 to postpone action on
the bill indefinitely. Subsequently, on June 18, 1998, the House refused
to pass the bill and denied it review in the following legislative
session. SB-147, backed largely by the Colorado
Association of Home Builders CAHB), would have required new homeowners
to file a written complaint and give builders a chance to correct
defects before filing a lawsuit. It would apply to single-family houses
as well as condominium/cooperative units and would require homeowners
and builders to try to work out a repair plan before a lawsuit is filed.
Proponents of the bill claimed that it was designed to eliminate costly
court battles and fix problems sooner by increasing communication
between builders and homeowners. Critics of the bill, on the other hand,
argued that the litigation process already calls for such communication
and that the bill only adds more paperwork for the homeowners. The
specific procedural requirements of SB-147 can be reviewed and/or
downloaded on the state of Colorado General Assembly website. However, there is currently a new bill, HB-1166, that was introduced into the Colorado House on January 17,
2001, which addresses some of the same issues. Representative Joe
Stengel (R-Littleton, CO) will be the House sponsor on this legislation.
HB-1166 is a Bill for an Act concerning actions asserting construction
defect claims for property loss and damage. The following summarizes
HB-1166: “Creates
the "Colorado Construction Fair Remedy Act".
Defines "construction professional" to mean an
architect, engineer, builder, builder vendor, or contractor.
Defines "claimant" to mean a homeowner, owner of a
commercial structure, or construction professional who asserts a
construction defect claim for property loss or damage against a
construction professional. Requires a claimant, prior to bringing an action against a
construction professional asserting a defect in the construction of a
residence or commercial structure, to serve the construction
professional with a notice of claim.
Encourages the claimant and construction professional to explore
methods of resolving the claim prior to litigation of the claim.
Requires a claimant who files a construction defect action to
file a certified list of construction defects with the court.
Establishes the measure of damages for a construction professional found
liable on certain construction defect claims.
Precludes treble damages under the "Colorado Consumer
Protection Act" from being awarded against construction
professionals under certain circumstances.
Limits the liability of construction professionals and homeowners
to subsequent purchasers of residences for construction defects under
certain circumstances. Provides the officers and members of a unit owners'
association executive board with immunity concerning the institution of
class action construction defect litigation under certain
circumstances.” The
Colorado Association of Home Builders (CAHB) is supporting HB-1166,
sponsored by Representative Joe Stengel (R-Littleton, CO) and Senator
Jim Dyer (D-Durango, CO), that seeks to address the general liability
insurance crisis that is unfolding throughout Colorado. At
this time, a number of Colorado insurance companies, Professional
Independent Insurance Agents, the Colorado Civil Justice League (a
chapter of the American Tort Reform Association), the National
Federation of Independent Business, and the Colorado Association of
Commerce and Industry have all voted to make construction defects one of
their priority issues for the next legislature. The legislation
includes sections that would allow a re-purchase exemption under the
Colorado Consumer Protection Act that would protect builders and
developers from treble damages if they choose to re-purchase the
home/property. The second principle involves plaintiff
certification of construction defects to address defense costs.
Such a provision would require that plaintiffs file a certified list of
defects with any lawsuit so that it would clarify which subcontractors
should be drawn into litigation. A number of insurance companies
maintain that such legislation would reduce their defense costs and help
their companies remain in the builder/contractor market. A third
provision would offer incentives for homeowner associations to notify
and receive 51% approval from their members prior to entering into
litigation. The legislation has been assigned to the House
Business Affairs and Labor Committee, which is expected to review the
bill in upcoming legislative sessions. The Colorado Revised Statutes that will
be affected the proposed legislation of HB-1166 are: the addition of a
new Part 8, Actions Against Architects, Engineers, Builders, Builder
Vendors, and Contractors; C.S.R.
§ 13-20-801 through C.S.R. § 13-20-807, the addition of a new
paragraph on Damages; C.S.R. §
6-1-113(2), and a new paragraph on
Executive Board Members and Officers – Immunity; C.S.R. §
38-33.3-303(2). The
specific details of HB-1166 can be reviewed and/or downloaded on the
state of Colorado General Assembly website,
or here by clicking HB-1166: "Colorado Construction Fair Remedy
Act". VI. COLORADO COMMON INTEREST OWNERSHIP
ACT (CCIOA) The Colorado Common Interest Ownership
Act (CCIOA), C.R.S. §§ 38-33.3-101 – 38-33.3-319, specifically gives
common interest developments, and condominium associations the power to
institute and defend litigation in its own name on behalf of itself and
its members (C.R.S. §
38-33.3-302(d)). This provision enables the
association to effectively represent its homeowners in construction
defect matters and eliminates the problems each individual homeowner
would have in trying to instigate costly and complicated litigation.
Alternatively, homeowners can file a class action lawsuit against the
builder/developer. Colorado law has long recognized class or
representative actions, in which one or more plaintiffs sue on behalf of
others. Class-action lawsuits involving any number of plaintiffs are
allowed after a judge certifies that they all share a common and typical
grievance and seek similar relief. By joining together, they can afford
to pursue cases far beyond the financial reach of any single plaintiff.
Therefore, a class-action lawsuit is a common vehicle for Colorado
homeowners who share a builder and are facing construction defect
litigation. See Villa Sierra Condominium Association v. Field Corp.,
787 P.2d 661 (Colo. App. 1990). The general provisions governing
Colorado’s “common interest communities” (CICs) are set forth in
the CCIOA, which was enacted in 1992.
These provisions govern the creation, regulation, and maintenance
of almost all new CICs. C.R.S. §
38-33.3-115.
Except as the CCIOA expressly provides, the terms of the CCIAO
cannot be varied by any agreement, and rights established under the
CCIAO cannot be waived. C.R.S. §
38-33.3-104. The Act defines a CIC as real property,
described in a declaration, for which an owner of a unit must make
payments fro property taxes, insurance premiums, maintenance or other
improvements as provided for in the declaration. C.R.S. §
38-33.3-103(8). Thus, a CIC
under the terms of the CCIAO includes: 1.
condominiums; 2.
cooperatives; and 3.
planned communities The CCIAO is very careful to distinguish
among the various recognized types of CICs based upon the ownership of
the common elements. “Condominium” refers to a CIC in which parts of
the real estate are owned separately, and the owners of the separate
declarant rights reserved,” the real estate to which such rights
apply, and the time limit within which rights may be exercised. The Act
defines “development rights” to include any of the following rights
that the declarant reserves in the declaration, including: 1.
the addition of real estate to the CIC; 2.
the creation of units, limited common elements, or common
elements in the CIC; 3.
the subdivision of units; 4.
the conversion of units into common elements; or 5.
the withdrawal of real estate from a CIC. C.R.S. § 38-33.3-103
(14). The
“declarant” is defined to mean “any person or group of persons
acting in concert who *** offer to dispose of to a purchaser such
declarant’s interest in a unit not previously disposed of to a
purchaser” or one to whom “special declarant rights” are reserved
or one who assumes such rights. C.R.S. §
38-33.3-102(12). The Act defines “special declarant
rights” as rights reserved to the declarant to: 1.
complete all improvements outlined on the plats and maps filed
with the declaration; 2. exercise development rights; 3. maintain sales and management offices, models, and signs
advertising the CIC; 4. utilize easements through the common elements to make
improvements within the CIC or property which may be added to the CIC; 5. make the CIC subject to a master association; 6. to merge/consolidate a CIC of the same form of ownership; 7. appoint or remove any association officer or executive board
member during the period of declarant control. C.R.S. §
38-33.3-103(29).
Thus, the Act mandates that these “special declarant rights’
be outlined and listed in the declaration at the time of its recording.
When these reserved development rights are exercised, the
declarant must prepare, execute and record an amendment to the
declaration in accordance with C.R.S. §
38-33.3-209(6).
The declaration may be amended by the vote of the unit owners.
See C.R.S. §
38-33.3-217. The Act mandates additional information
that must be included in the declaration and attached plat or map.
Additionally, the Act provides that “[t]he declaration may contain any
other matters the declarant considers appropriate.”
C.R.S. §
38-33.3-205(2). Under the CCIAO, all rights and
obligations established under the ACT are enforceable by judicial
proceedings. C.R.S. § 38-33.3-114(2).
Currently, there are no statutory or judicial interpretations of
this provision, and there is nothing in this provision prohibiting the
use of a mandatory arbitration provision that a builder/ developer could
include in there contract language with the CIC and related homeowners
association. VII. ARBITRATION A. Uniformed Arbitration Act The State of Colorado favors
arbitration. See Hughley v. Rocky Mountain Health Maint. Org.,
927 P.2d 1325 (Colo. 1996) (“As determined by our General Assembly,
the public policy of Colorado encourage resolution of disputes through
arbitration.”) Because of this policy, courts may utilize the
Uniformed Arbitration Act, C.R.S. §§ 13-22-201 and
13-22-223, to
“compel a party to honor an agreement to arbitrate.” Id.
“A valid, enforceable arbitration provision divests trial
courts of jurisdiction aver all questions that are to be submitted to
arbitration, pending the conclusion of arbitration.” Id. Not only does the state of Colorado have
a specific arbitration act, but it also has provisions in its
Constitution for arbitration. Specifically , Article XVIII., Section 3
of the Constitution provides: “It shall be the duty of the general
assembly to pass such laws as may be necessary and proper to decide
differenced by arbitrators, to be appointed by mutual agreement of the
parties to any controversy who may choose that mode of adjustment. The
powers and duties of such arbitrators shall be as prescribed by law.” Colo. Const. Art . XVIII § 3. The Uniform Arbitration Act was enacted
“pursuant to the mandate contained in section 3 of article XVIII of
the state constitution.” C.R.S. §
13-22-202.
The purpose is to validate voluntary written arbitration
agreements. Id. Agreements
to arbitrate are valid, enforceable, and irrevocable, unless grounds
exist at law or in equity for the revocation of any contract. C.R.S. §
13-22-203. Such agreements have been upheld in a variety of contexts,
including in the insurance area. See Wales v. State Farm Mutual Auto.
Ins. Co., 38 Colo. App. 360, 559 P.2d 255 (1976). The key of course is mutual and voluntary
agreement of the parties, but mandatory, binding arbitration is not
expressly prohibited by this provision. See State Farm v. Broadnax,
827 P.2d 531 (Colo. 1992) (arbitration provisions of “no fault”
motor vehicle insurance law prior to that law’s revisions did not
contravene this section). Also, there does not appear to be any Colorado
law prohibiting or limiting arbitration provisions in real property
sales contracts. In fact, there is a statute that expressly allows
arbitration provisions in public works contracts. VIII. BUILDING CONSTRUCTION IN COLORADO Building construction is, for the most
part, not regulated by Colorado state legislature, but is addressed on
the local and municipal level by ordinance or regulation. However, the
legislature has authorized the promulgation of minimum standards for
electrical and plumbing work in residential housing, which standards
apply if any city or county fails to adopt its own standards having
equal or greater requirements. C.R.S. § 12-23-116
& § 12-58-114.5.
Additionally, the state of Colorado has authorized the Division
of Housing to implement standards for the construction of manufactured
housing. C.R.S. § 24-32-707(h). The
state of Colorado has mandated certain design requirements, regarding
accessibility, for facilities built with public funds. C.R.S. §
9-5-102. Finally, the state
of Colorado provides some regulation of the construction of facilities
for special populations, for example, group homes for the disabled.
C.R.S. § 30-28-15. The state of Colorado legislature leaves
almost all regulation regarding building construction to the counties.
The Division of Housing is mostly a pass-through agency for the
distribution of federal housing monies. The Division also implements the
state’s regulation of manufactured housing. The only residential
construction regulations adopted on a state-wide basis are electrical
and plumbing regulations. The Colorado Division of Real Estate regulates
real estate agents and brokers and the sale of new and used housing. The
Division does not administer anything dealing with the actual
construction of buildings. Builders are regulated by the counties in
which they are building. |
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