What about construction defects?

Construction defect suits still a concern for builders in 2019
Construction defect suits are still a concern for builders in 2019. (Photo: Wave Break Media, Dreamstime)

In May 2017, Gov. John Hickenlooper signed a bill that ostensibly made it harder for homeowners associations to file construction defect suits against builders. Since then, condo construction has started to tick up from its low of 3% of permits, but David McLain of Higgins Hopkins McLain & Roswell had a different explanation for the loosening market.

“It’s only changed because of the market and [because] nobody has been building that many condominiums and townhomes lately,” McLain said, “but that litigation is still there.”

Because there were so few condos and townhomes being built, he said, “plaintiffs’ attorneys have had to change tactics a little bit.”

For example, McLain has seen an increase in construction defect cases involving single-family homes that are part of an association or retirement communities.

In November, the Colorado Supreme Court settled a construction defect suit between a Broomfield retirement home and Brinkmann Constructors by declining to hear the decision from the Court of Appeals.

The case centered on a dispute over a claim accrual provision in the contract between the facility owner and Brinkmann. Broomfield’s initial claims were dismissed so the company appealed, arguing that the provision violated the Homeowner Protection Act.

“Essentially, it was the first time that the appellate courts expanded the Homeowner Protection Act to something that’s owned by an institutional owner not a homeowner,” McLain said.

This could mean that in the future, “homeowners” won’t just include individuals in single-family homes, but institutions that own buildings previously thought of as commercial, like dormitories, senior living facilities or apartment buildings.

[Related: Pressure points—What builders can expect in 2019]

The decision likely won’t impact home builders because “we never viewed that home builders were outside the purview of the Homeowner Protection Act,” McLain said. However, commercial builders who thought they could rely on the limitation of liability in their contracts when taking on multifamily or other large housing projects may find themselves more at risk for construction defect claims.

Danielle Andrus

Danielle Andrus was previously the managing editor for Colorado Builder, and is currently Editor for the Journal of Financial Planning.

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