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Polsinelli PC. In California, Polsinelli LLP

Construction Defects and the

Aftermath: Is there any Hope?

October 14, 2015 Housing Colorado Now!

Conference

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Introductions

Amy Hansen – Polsinelli PC

Ryan Warren – Polsinelli PC

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Today’s Discussion

Construction Defects: A Brief History

Past Efforts; Future Expectations

Villagio at Inverness

Strategies for Condo Development &

Construction

Q&A

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History of Construction Defect

Litigation in Colorado

Expansive soils – basement slabs

(Mission Viejo/Ryland, 1996)

• Mr. Sullan was the driving force behind Colorado's

slab-on-grade flooring system class actions involving

Richmond Homes, Mission Viejo, Falcon Homes,

Ryland Homes, Village Homes, Merit Homes, and

Centex Homes.

CO Defect Action Reform Act (CDARA) (2001 & 2003)

• Attempt to curb frivolous lawsuits

• Notice of Claim process

• Worked … for single family houses.

But not condos.

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History of Construction Defect

Litigation in Colorado

Homeowner Protection Act - 2007

– Obtained by the plaintiff’s bar

– Passed in 44 days

– Waivers in builder/vendor contracts for

negligence & implied warranty of habitability

void.

HB 10-1394 – CDARA Notice

Automatically Triggers Duty to Defend

– Insurers unhappy

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A Quick Legislative Overview

Three Years of Unsuccessful Attempts to

Pass Construction Defect Reform:

– SB 052 (2013)

– SB 220 (2014)

– SB 177 (2015)

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Legislative Overview - SB 052 (2013)

Tied to “Transit Oriented Development”

Right to Repair

Mandatory, Binding Arbitration

Protection for claims based on noise,

vibration and similar disturbances

Clarified Statute of Repose

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Legislative Overview – SB 220 (2014)

If governing documents call for arbitration

of a construction defect claim, that is

binding – even if there is an amendment

Meaningful notice to owners of pros and

cons of construction defect litigation

Owner vote before filing suit

Disclosures in purchase contracts

regarding arbitration

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Legislative Overview – SB 177 (2015)

Same basic elements as 2014, plus

mediation requirement as a prerequisite to

filing suit

Refined list of disclosures

Modified owner consent requirement

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The Local Response

Lakewood Ordinance

– Combination of 3 years of state legislation

Right to Repair

Meaningful Notice to Owners & Vote

Arbitration Can’t be Amended Out

Douglas County Plat Note

– Requires Arbitration

Aurora, Arvada, Littleton, Lone Tree

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The Villagio Case

– AGC

– Metro Denver EDC

– Denver Metro Chamber of Commerce

– Mechanical Contractors Assoc of CO

– Plumbing-Heating-Cooling Contractors

– National Certified Pipe Welding Bureau

– Colorado BUILDS

– Colorado Concern

– NAIOP

– Colorado Contractors Association

– Berkeley Homes

– Front Range Land & Development Co.

– Colorado Competitive Council

– Mechanical Service Contractors

Assoc

– Plumbing-Heating-Cooling

Contractors

– Colorado Association of Home

Builders

– Downtown Denver Partnership

– D.R. Horton

– Housing Colorado

– Ryland Group, Inc.

– Hyder Construction, Inc.

– TreeHouse Brokerage & Development

– Koelbel and Company

– Colorado Assoc of

Mechanical & Plumbing

Contractors

Amicus Brief

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The Villagio Case

Basic Facts:

– Governing documents required arbitration for

construction defect cases

– Provision provided it could not be amended

without developer consent

– Owners voted to remove the arbitration

provision and did not get developer’s consent

– Sued in court with a jury

– Developer moved to compel arbitration

– District Court sided with Condo Association

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The Villagio Case

Colorado Court of Appeals overturned

If governing documents say that arbitration

is required and the provision can’t be

amended without developer consent, that

will be upheld

There can be 3rd party beneficiaries of

these clauses

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The Villagio Case – What’s Next?

Petition for Writ of Certiorari Filed with the

Colorado Supreme Court by Plaintiff

Supreme Court does not have to take the

case

Until it is final, developers may be

reluctant to rely upon it (with good reason)

Opposition likely to pursue a legislative

overturn of this case

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Risk Mitigation Strategies

Pick you location carefully

– Local ordinance and/or plat note

Protect Arbitration & Jury Waiver

– Separate Covenant

– Sales Contract

– Deeds

– Condo Declaration

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Risk Mitigation Strategies

Arbitration Clause Specifics

– Build in SB177 Process

Meaningful Notice & Vote

– Name Third Party Beneficiaries

General Contractor

Design Professionals

Subcontractors

– Amendment Requirements – Who has to

consent

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Risk Mitigation Strategies

Jury Waiver Specifics

– Kicks in if Arbitration Fails

– It’s not effective unless it is in there

– But, may not be effective against subsequent

buyers

Design & Construction Contracts w/ Owner

– GC require arbitration & jury waiver in

governing documents/Owners should want this.

– Require that design & construction

professionals are 3rd party beneficiaries

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Risk Mitigation Strategies

Insurance

3rd Party Review

Warranty Administration

Customer Service

HOA Management

HOA Board Members

Strategic Record Keeping (Its gonna be

seen aka the phone still works)

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Q&A

Amy Hansen – [email protected]

Ryan Warren – [email protected]