Multifamily builders should consider creating a common interest community
One of the biggest problems for Colorado builders dealing with construction defect litigation is the breach of implied warranty claim. In short, when a builder builds and sells a home, it impliedly warrants that the home is built in a good and workmanlike manner, that it is fit for its intended purpose, and that it complies with the applicable building codes. Colorado courts have likened the breach of implied warranty claim to strict liability for construction defects. It does not matter whether the builder acted in a non-negligent manner or whether the alleged defect impacts the performance of the home, or ever will; if the construction violates the applicable code, the owner or association is entitled to the cost of repair needed to bring the construction into conformance with the building code. Since 2007, with the enactment of the Homeowner Protection Act, any disclaimers of implied warranties were rendered void as against public policy.
To bolster multifamily construction in Denver, the City Council passed a specific ordinance in 2015 dealing with construction defect claims in common interest communities (see Ordinance No. 15-811, § 1, Nov. 23, 2015). As it pertains to implied warranty claims, the ordinance states:
(a) In general. A violation of any city building code …, or a failure to substantially comply with any such code shall not create a private cause of action. A violation of any city building code …, or a failure to substantially comply with any such code may not be used to support or prove any construction defect claim, regardless of the statutory or common law theory under which the claim is asserted, unless the violation or failure to substantially comply results in one or more of the following:
(1) Actual damage to real or personal property,
(2) Actual loss of the use of real or personal property;
(3) Bodily injury or wrongful death; or
(4) A risk of bodily injury or death to, or a threat to the life, health, or safety of, the occupants of residential real property.
(b) No strict liability for building code violations. Under no circumstances shall a violation of any city building code …, or a failure to substantially comply with any such code, support or prove a construction defect claim based upon a theory of strict liability, or under the common law doctrine of negligence per se.
(c) Code compliant improvements shall not be considered defective. The building codes … are intended to establish a minimum standard for safe and sound construction in Denver. Therefore, any particular element, feature, component or other detail of any improvement to real property that is specifically regulated under the city’s codes and is constructed or installed in substantial compliance with such codes shall not be considered detective for purposes of proving any construction defect claim.
It remains to be seen whether Denver’s construction defect ordinance will be preempted by state law. If not, the positive impact of being able to avoid strict liability cannot be overstated. If you are a builder planning to build a multifamily project in Denver, consider creating a common interest community, as defined in Colorado’s Common Interest Ownership Act. If you avoid creating a common interest community, relying instead on party wall agreements, you may not be eligible to rely on Denver’s construction defect ordinance and you may continue to face strict liability for construction defect claims.