Colorado Legislature Considering Construction Defect Litigation Reform | Rocky Mountain Real Estate Law
Senator Ulibarri’s Homeownership Opportunity Act (SB 14-220) was finally introduced Wednesday evening. This much anticipated bill represents a moderate compromise with bipartisan support to address construction defect litigation in condominium projects. As has been widely reported in the media, there are very few condominiums being constructed in Colorado, an issue that has the metro area mayors and other leaders concerned. According to many experts, the primary contributing factor is the pervasive nature of construction defect litigation aimed at Colorado’s condominium projects. The bill covers two topics related to construction defect litigation – alternative dispute resolution and meaningful disclosure followed by owner consent.
Alternative Dispute Resolution
The Colorado Common Interest Ownership Act (CCIOA) governs the creation and operation of condominium communities in Colorado. CCIOA encourages the use of alternative dispute resolution such as mediation and arbitration in a variety of places, and CCIOA Section 124 specifically provides that the governing documents for a project may specify situations that must be submitted to binding arbitration. Consistent with CCIOA’s current provisions, Senator Ulibarri’s bill provides that if the governing documents require that construction defect actions be submitted to mediation or binding arbitration, the developer is entitled to rely on those provisions. And, therefore, per SB 14-220, if there are allegations of construction defects, those allegations would be resolved through the process set forth in the governing documents (i.e., mediation or binding arbitration), unless those responsible for construction consented to a different process.
The bill also requires
– potential arbitrators make disclosures about potential conflicts of interest and be neutral parties
-all buyers of units in these projects be notified in their sales contracts that the governing documents may require certain disputes be resolved by binding arbitration.
– the arbitration be held in the same judicial district where the project is located, unless the parties agree otherwise.
This bill represents a more thorough implementation of CCIOA’s existing provision allowing the use of binding arbitration, while putting in safeguards for the owners to help ensure that they are aware of any requirement for binding arbitration and the arbitration is not stacked against them by the use of an inconvenient location or arbitrators who have inherent conflicts of interest.
Senator Ulibarri’s bill does not represent a novel approach on this issue. In a recent decision, the California Supreme Court held that if the governing documents for a condominium project require construction defect claims be resolved in binding arbitration, that requirement will still apply even if an owners association amends the governing documents to remove the binding arbitration requirement.
via Colorado Legislature Considering Construction Defect Litigation Reform | Rocky Mountain Real Estate Law.