In the last blog post, we started talking about the Colorado Dream Act and it’s impact on construction defect claims in Colorado. The legislature passed the bill hoping that it would incentivize more building in Colorado to help ease housing affordability problems. To the extent that some construction defect claims will probably now be barred because the defects didn’t actually injure anyone (e.g., the shingles were the wrong color) and some unwary plaintiffs will lose their claims for failing to comply with new, stricter requirements concerning certificates of review, perhaps builders will benefit.
Limits on the Act’s Reach
I am skeptical that the bill will have a huge impact, though. To begin with, as we talked about before, these protections only apply to multifamily development and only if the builder opted into the Multifamily Construction Incentive Program (MCIP). Single family home construction or work to maintain and repair may not qualify.
Additional Procedural Hurdles
Many of the protections for builders in the Act amount to procedural roadblocks and traps for the unwary plaintiff. The last blog post explored the new requirements to file certificates of review, but there are other requirements, too. A plaintiff suing an MCIP builder must include a certification in the complaint that the plaintiff satisfied its duty to mitigate the damages, for example.
Expanded Defenses for Builders
The Act purports to add new defenses for MCIP builders, too, but these largely already existed. For example, while being forced to certify mitigation is new, homeowners already had a general duty to mitigate under the law before the Act. If a builder makes a reasonable offer to cure, the Act says they are not liable for damages caused by weather events, war, terrorism, vandalism, failure to mitigate, failure to maintain, wear and tear, misuse, neglect, non-intended use, and some other causes. It remains to be seen whether listing other possible causes of damage to the structure in the statute matters; lawyers could already argue all of these things in lawsuits to show that the damage had not been caused by a construction defect. Similarly, while the Act provides an affirmative defense if a builder got a release and cured the defect, releases were probably already enforceable.
Cure Offers and New Disclosure Obligations
Perhaps more meaningfully, the Act does give the builder a way to threaten the plaintiff with having to pay its attorney fees and costs. In Colorado, other law requires a homeowner to provide written notice of the alleged defects and give the builder a chance to inspect and offer a cure in advance of any lawsuit. Normally, the builder is free to ignore this process and the homeowner is free to reject the cure, both reserving arguments about whether or not the rejection should be held against them.
MCIP makes a cure offer or rejection mandatory, but extends the builder’s deadline to comply. Within ninety (90) days of inspection (or longer, if the builder opts to extend it), the builder has to respond to the defect notice by either (1) paying money or agreeing to remedy the defect or (2) explaining why it is not a defect or why it is outside of their scope of work. The builder also has to provide various documents to the plaintiff, including a soils report, maintenance recommendations, a list of subcontractors, inspections, and other details. If the contractor doesn’t disclose another professional or subcontractor, then they’re not allowed to name them as a non-party at fault in a subsequent action. And, if the contractor fails to give this information, the homeowner is exempt from the enhanced certificate of review process discussed in the last blog post (but, presumably, not from the normal process required by other law).
If a cure is rejected, then the homeowner has another obligation to send a written proposal to have the defect cured by someone else at the builder’s expense (including the homeowner’s attorney fees). If the homeowner “unreasonably rejects a reasonable written offer of settlement” then the builder gets a new right to recover attorney fees and costs from the homeowner. Additionally, the builder may have damages reduced to the delta between the reasonable offer and a larger final judgment if the rejection was unreasonable.
Fee-Shifting Provisions
While I tend to view the new defenses in the Act as marginal changes at best, the new fee shifting provision is very meaningful. Even though Colorado courts technically could always award fees against homeowners for frivolous or groundless claims, in practice this is an extremely high bar and the new right to fees in the Act is probably very meaningful. The Act also cuts the other way, too, allowing homeowners to recover their fees and costs if the builder fails to make a reasonable written offer of settlement.
Additional Provisions in the Act
There are other portions of the Act that I have not covered in these posts, including a requirement that 65% of the unit owners in multiunit housing vote to proceed with a construction defect claim. The effect of these provisions is less obvious to me as a litigator in the construction defect space. Where this bill applies, I suspect the main impact is going to be on adding additional burden, expense, and detail to the pre-complaint notice of claim process. Perhaps that will reduce overall exposure for builders by diverting more claims into resolution or by causing plaintiffs to stumble on procedural requirements.
Why Legal Guidance Matters
The only thing that is certain is that this new law makes it even more important that anyone dealing with construction defect actions consult with an attorney right away to help navigate an increasingly complicated process.
The Denver business attorneys at Moriarty Underhill LLC can help you navigate these changes and protect your interests. Contact us today for practical guidance on your construction defect matter.