Colorado Court of Appeals holds that statute of repose and limitation does not begin to run until a contractor finishes repair efforts

In Sierra Pacific Industries, Inc. v. Bradbury, ___ P. 3d ___, 2016 WL 4699116 (2016), Sierra Pacific had settled with the homeowners’ association and the general contractor with regard to water intrusion at a condominium building. Sierra Pacific then brought suit against its subcontractor Jason Bradbury.

Bradbury moved for summary judgment arguing that the six-year statute of repose had expired – therefore the claims were too late. The undisputed facts relevant to the motion were:

• On June 11, 2004, the City and County of Denver issued a certificate of occupancy for all units.
• At the HOA’s direction, the general contractor and Sierra Pacific attended to the reported leaks and water damage between 2004 and 2011, including two substantial retrofit repairs in January 2005 and March 2011;
• Bradbury participated in some repair efforts in 2004, but none thereafter.

Applying those facts to the statute of repose, the Sierra Pacific court ultimately held that Sierra Pacific’s claims were barred by the statute of repose.

The court recognized that statute of repose commences upon “substantial completion of the improvement to the real property.” However, the court explained that “substantial completion of the improvement to the real property” is not necessarily the date of a certificate of occupancy, but instead the court concluded “that a subcontractor has substantially completed its role in the improvement at issue when it finishes working on the improvement.”

Applying the court’s interpretation of the statute of repose, the court ultimately concluded that because Bradbury finished its repair work on the windows and doors in 2004, the the statute of repose commenced, at the latest, in 2004.

This decision makes sense in the context of the law and social policy. It allows homeowners to hold off of suing contractors if the contractor is still willing to make reasonable repairs. That is obviously beneficial to homeowners and contractors, who will be involved in fewer lawsuits in situations where good contractors are willing to make reasonable repairs to their work.

Under Sierra Pacific, Homeowners, HOAs, and other property owners are now clearly afforded their full statute of limitations and repose to determine if a contractor’s’ repairs are successful before taking next steps.

Douglas County District Court Rejects Builder’s Argument That Economic Loss Rule Applies to Original Homeowners

In light of the Colorado Supreme Court’s “subsequent homeowner” analysis in S K Peightal v. Mid Valley, 342 P.3d 868 (Colo. 2015), questions remain as to how courts will interpret the term in deciding whether or not the independent tort duty to act non-negligently in the construction of a home is barred by the economic loss rule. Construction litigators must now define who is and who is not a “subsequent homeowner” in bringing and defending negligence claims for construction defects.

In S K Peightal, the court refused to extend the judicially recognized independent tort duty to act non-negligently in the construction of home to a third-party beneficiary of a commercial entity whose claims rested purely on economic damages under a negligence theory. Id. at 870-71. The “subsequent homeowner” analysis hinged on “whether a party who stands in the shoes of one of the parties to a Construction Loan Contract that financed the construction of the home in question can properly be considered a subsequent homeowner of the property.” Id. at 876. The court held the third-party beneficiary was not a “subsequent homeowner” and within the class of plaintiffs to whom the duty was owed because the third-party beneficiary was able to and did negotiate the construction contracts outlining the duties and liabilities during construction of the home. Id. at 876-77.

Despite the fact the court responded narrowly to the specific and unique facts of S K Peightal, construction professionals have started to argue an original purchaser’s negligence claims should be barred by the economic loss rule. Construction professionals have argued an original homeowner is analogous to the third-party beneficiary in S K Peightal because original purchasers are at “arm’s length” in negotiating construction contracts during construction of the home.

This argument falls short because it makes the assumption original purchasers of newly constructed homes are involved in negotiating the duties and liabilities in the contracts for construction of the home. Quite the contrary; homeowners are rarely involved in the negotiating the means and methods involved in constructing a new home. Homeowners rely on the builder’s expertise, which is why the court has judicially recognized a construction professional’s independent duty to act non-negligently in the construction of homes.

Vision Homes recently argued this in a case where Johnson Law and co-counsel represented eleven homeowners against it in Castle Rock Colorado. Douglas County District Court Judge Shaw Whitaker did not reach defendants’ “subsequent purchaser” arguments. Instead, Judge Whitaker relied on Colorado precedent in Town of Alma v. AZCO Constr. Inc., 10 P.3d 1256, 1259 (Colo. 2000) and held the economic loss rule did not apply because plaintiffs alleged more than purely economic loss. In citing to Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159, 1172 (Colo. App. 2010), Judge Whitaker held the “Construction Defect Action Reform Act allows claims for personal and bodily injury including noneconomic loss or injury such as pain and suffering, inconvenience, emotional stress, and impairment to the quality of life.” James Coates, et al. v. Vision Development Group, Inc., et al., No. 14 CV 30372 (Douglas County Dist. Ct. February 16, 2016). Therefore, Judge Whitaker denied the builder defendants argument the economic loss rule barred the homeowner plaintiffs’ negligence claims because plaintiffs plead non-economic damages and a jury could award such damages.

Construction professionals will likely attempt to use the dicta from S K Peightal as an opportunity to chip away consumer rights. Judge Whitaker’s ruling is correct, but the District Court’s ruling could be narrowly read to only protect individual homeowner purchasers, and not HOAs or other corporate entities that hold title to homes because such entities cannot suffer non-economic losses. Further clarification of S K Peightal is still required, including how the Homeowner Protection Act of 2007 would trump any application of the common law economic loss rule.

This issue is of greatest importance in Colorado’s booming housing market where rapid growth of new developments leads to high numbers of original purchasers contracting with builders for newly constructed homes. There is no good reason (legal, policy, or otherwise) that Courts should exclude original homeowners from the ability to hold builders liable for their negligence.

If you have any questions about the S K Peightal decision, or the Douglas County District Court ruling interpreting it, please contact construction defect lawyer Chad Johnson at Chad@chadjohnsonlaw.com or 303.586.4829.

City of Denver adds new electrical building codes – including mandatory electric car charging stations

On Monday March 7th, the city of Denver voted unanimously to adopt supplemental building codes to require builders of new homes to include rough electrical work for an electrical car charging station in garages.  This change puts Denver at the forefront of the sustainable building codes and on par with Boulder and several California cities. Building codes often prescribe the minimum standard for builders to meet in Colorado. Cost estimates for this minor change in the building code range from negligible to $300 per home depending on the garage location. Although homebuilders fought this amendment, it passed 12-0. The new building code will take effect in six months and will not affect plans and work already in progress.

https://www.denvergov.org/content/dam/denvergov/Portals/696/documents/BuildingCode/2015_public_amendment_proposal_IRC_SectionR324_2_ElectricVehicleChargingOptions.pdf

Denver passes condominium construction defect reform

On November 23, 2015, the Denver city counsel passed an ordinance on condominium construction defects. Under the ordinance, a project cannot be called defective in a civil action if it was built and maintained in conformance with the building code, and building codes violations can only be cited in a lawsuit only if they can be linked to damage or injury.

While the apartment boom bloomed, the condo construction has lagged over the past decade. Officials are hopeful that this new ordinance will tackle the accessible and affordable housing challenge in Denver and help to jump-start more condo construction. Some individual condo owners opposed the new ordinance. The owners are understandably afraid that it will burden homeowners with correcting mistakes made during construction.

The ordinance goes into effect Jan. 1.

Denver is not the first municipality that passed a construction defect reform. While Lakewood was the first to pass such legislature, Lone Tree, Aurora, Littleton, Parker and Commerce City soon followed. And it does not stop with Denver. Only one day after Denver passed the defect ordinance, Colorado Springs’ city counsel unanimously approved a construction defect ordinance on first read.

The legality of municipalities passing ordinances that conflict with current state law on construction defects will be a major hurdle in actually enforcing these ordinances.

Sources:

http://www.denverpost.com/news/ci_29157220/denver-council-votes-12-1-favor-condo-defects

http://www.coloradoindependent.com/156338/denver-tries-to-spur-condo-construction-by-limiting-homeowners-right-to-sue

http://gazette.com/colorado-springs-city-council-votes-unanimously-on-construction-defects-ordinance/article/1564272

Real Estate Shell Companies Scheme to Defraud Owners Out of Their Homes

 

The New York Times recently reported on real estate companies that hide behind shell companies to commit fraud against owners of their homes. The article reveals how various homeowners were told unsatisfied promises that resulted in the homeowners losing their homes. In one case, the real estate company promised to refinance two Brooklyn homeowners’ back mortgage payments but the refinancing never occurred and the homeowners realized that they just signed their home over for free. In another case, a woman was left essentially homeless, residing in an illegally converted garage with no heat.

Once the fraud materializes, it is often a challenge to find these real estate companies because they hide behind shell LLC. Even in cases where homeowners do not sign over their property, scammers have reverted to simply forging signatures on deeds.

This is a reminder that you should be represented by either a real estate agent or a real estate attorney in any transaction that involves your home or other real estate holdings. The language and documentation used in transferring real estate is not always so clear. Be 100% sure you understand it, otherwise, you may be literally giving your home away to unscrupulous companies.

Source:

http://www.nytimes.com/2015/11/08/nyregion/real-estate-shell-companies-scheme-to-defraud-owners-out-of-their-homes.html?smid=fb-nytimes&smtyp=cur&_r=1

Hancock proposes Denver construction-defect reform

Denver Mayor Michael Hancock proposed his Bill (BR15-0811) to the Denver City Council. According to the memorandum accompanying the Bill, condominium construction in the Denver metropolitan area comprises less than 4% of all new owner-occupied housing. While high-rise apartment construction in Denver is booming, very little high-rise condominium construction is occurring. Mayor Hancock believes that the dearth in condominium construction is a direct result of recent trends in construction defect litigation brought by some condominium homeowners associations against homebuilders.

According to Hancock and his homebuilder supporters, the costs and risks associated with high-rise condominium projects have made the construction of these projects prohibitive, except at the very highest price point. Thus, the availability and the affordability of condominiums in Denver has been dramatically impacted, and potential home buyers seeking to invest in a new home in Denver’s urban environment are left with few choices in the market place. Hancock’s bill was heard and adopted by the Business Development Committee on October 27, 2015.

If passed when the full council meets on November 16th, the Bill amends the Denver Revised Municipal Code by adding a new Article XII to Chapter 10 concerning construction defect claims in common interest communities.

In a nutshell, the amendment limits the manner in which technical building code violations can be used in construction defect litigation, it supports covenants that require alternative dispute resolution of construction defect claims and requires informed consent of a majority of condo owners before construction defect litigation.

If the measure passes on November 16th, the City of Denver would join Aurora, Commerce City, Lakewood, Littleton and Lone Tree with local ordinances that conflict with state law.

State lawmakers have repeatedly denied such legislation because, unlike local city councils, the State Legislature often listen to the policy arguments from both builder’s lobbyists and homeowner advocates. Mayor Hancock, instead, has closed the doors of public comment on this controversial local ordinance that is backed by his biggest donors, Colorado homebuilders.

More detail:

1. Limits the manner in which technical building code violations can be used in construction defect litigation.

• Address the manner in which Denver building codes may or may not be used in construction defect claims arising under any statutory or common law cause of action.
• Building code violations may only be cause for action if linked to actual damage or injury or risk thereof. No “strict liability” claims.
• Denver’s codes represent the standard for construction. Other codes/standards may not be applied in litigation

2. It supports covenants that require alternative dispute resolution of construction defect claims

• Codify the holding in Vallagio: where covenants in a common interest community require Alternative Dispute Resolution (arbitration or mediation) for construction defect claims, the covenant cannot be unilaterally eliminated by the Home Owners Association.
• Advises a buyer of the terms under which a builder was willing to build and sell product and holds that the covenant permanently governs procedure for future claims

3. It requires informed consent of a majority of condo owners before construction defect litigation

• Informed consent of a majority of homeowners in a common interest community and majority vote requirement before litigation can be pursued.
• Similar to a component of SB 15-177 that enjoyed bipartisan support in the Colorado Senate
• Excludes developer-owned units in the vote

Source: https://www.denvergov.org/sirepub/mtgviewer.aspx?meetid=2580&doctype=AGENDA

Colorado Senate Passes Modified Bill To Shorten Time Homeowners Can Sue Builders Of Defective Homes

http://www.denverpost.com/news/ci_27881047/colorado-senate-passes-bill-reducing-time-file-defects

As reported by the Denver Post, the Colorado Senate approved SB91, a bill that seeks to shorten the construction defect statute of repose to five years in Colorado. If a defect is noticed in the fifth year, a homeowner would have one year to sue.

Currently the statute of repose is six years, and provides a homeowner two years to file suit if discovered in the fifth or sixth year.

The vote was 18-17. All Republicans voted in favor and all Democrats voted in opposition.

The bill’s sponsor (Sen. Ray Scott, R-Grand Junction) states that the bill stops builders from being held accountable for normal wear and tear and acts of god. With all due respect, that statement makes no sense.

If a condition is caused by wear and tear or an act of god, that alone is a defense to a construction defect lawsuit. No judge, arbitrator, or jury would award damages for such claims. And if wear and tear was clogging the courts, then the bill should address it directly, not by adjusting the time limit to bring cases for legitimate defects. Instead, this is clearly just a ruse to protect shoddy builders from homeowners seeking the cost to repair their defective homes.

The bill still must pass the democratic controlled House before becoming law.

 

Lumber Liquidators Investigated for selling formaldehyde-tainted laminated flooring from China

http://www.cbsnews.com/news/lumber-liquidators-linked-to-health-and-safety-violations/

Lumber Liquidators will undoubtedly be facing numerous class action and individual lawsuits from homeowners all over the country for its involvement in selling laminate flooring from China with unacceptable levels of formaldehyde. After reading about this issue, the first thing I did was double check that the flooring in my own home came from a reputable source. If you believe you may have Lumber Liquidators laminate flooring in your home and want to get it tested, contact Johnson Law for a laboratory recommendation.

The other side of the Colorado “condominium crisis”

A wonderful realtor and friend of mine sent me an email yesterday asking my opinion about SB 15-177. The Colorado Association of Realtors strongly supports this bill and sent an email blast to all realtors providing its support of the bill. The email to the realtors, in turn, requested that the realtors send an email to their representatives and senators supporting the bill. I can certainly understand why the CAR’s business interests are served by such a proposed law, but unfortunately at the expense of the homeowner clients they purport to serve.

I gave her a quick summary of the reasons why SB-15-177 is wrong for Colorado. Then today I read an article that did it even better.

http://www.thepoptort.com/2015/02/colorados-manufactured-condo-crisis.html

I have some more criticism of the bill, but this article hits the main points very well. Colorado has some of the most builder-friendly laws in the country. The condo market was oversaturated in the housing boom of 2003-07, and for various reasons, demand for condos has dwindled.

The solution to the “problem” of builders getting sued for defective construction is to stop building defective homes. Taking away homeowners’ rights once they have purchased a defective home does not benefit anyone except the builders.  It is very disheartening to see now that the Colorado Association of Realtors have seemingly  chosen profit over the rights of the Colorado homeowners they purport to represent.

2015 Colorado Construction Defect Reform

In January 2015, we really didn’t know what bills the builders would try to pass in the legislative session. One idea that was wisely rejected was a “right to repair.” I wrote about this on the firm’s facebook page on January 5, 2015 with the following:

Below is a recent Denver Post article illustrating [edit: Denver Post article can be found here] a few of the many sides to the complicated issue of Colorado construction defect litigation and reform. I can’t help but weigh in that a “right to repair” would be a horrible solution.

I have been retained in many situations where, following a homeowner complaint about a serious construction defect, builders make a temporary repair and tell the homeowner it will be fine. When the temporary repair fails 2 years later and the homeowner sues, the builder and its insurers hire lawyers to argue (under the current construction defect laws that builders advocates argue spur lawsuits) that the homeowner failed to sue within 2 years of noticing the construction defect.

In the end, the homeowner is left with a six-figure repair cost and possibly life-safety issues with their home, and the builder and its insurers walk away with six figures in undeserved profit for cutting corners. A “right to repair” will force more homeowners to accept these corner-cutting temporary repairs.

In addition, a homeowner will be forced to allow a person or company to make repairs to their home that has already conned them once. The builder may not have the necessary experience to make such repairs. For many, that is an invasive scenario that could lead to additional stress and confrontations to an already tension-filled situation. In sum, Colorado law should not require a homeowner to give the keys to his or her castle to a builder because he or she was unlucky enough to have purchased a defective home from that builder.

Under current Colorado law, a builder has a right to inspect and offer a repair or money before it can be sued. If the homeowner accepts the proposed repair or money, the builder does not get sued and the issue is resolved with very little or no attorney involvement. In my experience, only about 5% of builders even make an offer before getting sued. Consistent inaction by builders is what leads to more lawsuits. And builders of defective homes only have themselves to blame.

Thankfully a right to repair bill is not being forced on homeowners. However, the current bill proposed by builders, SB 15-177, still seeks to erode away homeowners rights in exchange for more profit for the builders. More on that soon.