Many Colorado communities are in desperate need of affordable housing for their residents. Condominiums are an affordable alternative for homebuyers, but there is a shortage of such units across the state and new condominium developments are rare despite demand for them. Experts have identified the comparatively high insurance costs and risk of litigation associated with building condominiums as deterrents to new condominium construction. Some state legislators and industry groups, think Colorado’s Construction Defect Action Reform Act (CDARA) [1] needs to be amended to fix the problem. This article discusses these issues in more detail as well as recent failed efforts to amend CDARA during the 2024 Legislative Session.

Construction of new condominiums in Colorado has declined significantly despite demand for new units. According to Common Sense Institute (CSI), a non-partisan research organization:

Condominium development between 2018 and 2022, across 11 front range counties which collectively house over 80% of Colorado’s population, was 76% lower than between 2002 and 2008. This amounted to 14 new apartments for every 1 new condo in recent years, while there was 1 new condo for every 1.25 apartments in the 6 years prior to 2009. [2]

Experts have identified a variety of factors contributing to the scarcity of condominium projects but are particularly focused on comparatively high insurance costs associated with building condominiums which deter developers from starting new condominium developments. According to CSI:

The high frequency and high cost of construction liability litigation has driven insurance companies to raise insurance rates for developers. Notably, insurance costs for condominiums surged to 5.5% of the project’s hard costs. That was more than 233% higher than multifamily rental home projects, which had insurance costs as low as 1.1% to 1.65% of project hard costs. [3]

Members of the legislature as well as industry groups want to amend CDARA to hopes of addressing the problem.

In 2001, the General Assembly enacted CDARA. CDARA governs all actions for damages, indemnity, or contribution in connection with alleged construction defects. Under CDARA, property owners cannot file a lawsuit against a builder without first giving proper written notice to the builder. The builder then has the option to repair the defect or make a settlement offer. If that process does not resolve the issue, the property owner may then file a lawsuit or arbitration proceedings against the builder. CDARA restricts some (but not all) construction defect negligence claims related to the builder’s failure to construct an improvement in substantial compliance with an applicable building code or industry standard. It also includes a six-year statute of repose that limits the time in which construction defects action may be brought against the builder. CDARA also limits the amount of certain damages that a property owner may claim and includes provisions governing insurance policies issued to construction professionals.

Two competing bills were introduced during the 2024 Legislative Session aimed at amending CDARA in hopes of jump-starting condominium construction. Although lawmakers killed both bills, they identify issues that the legislature may address in the future:

• Among other things, SB 24-106 proposed amendments: (1) creating a right for a construction professional to remedy a claim made against it by doing remedial work or hiring another construction professional to perform the work after notifying the claimant and diligently performing the remedial work; (2) providing that upon completion of the remedial work the claimant is deemed to have settled and released the claim and limiting any subsequent claims to improper performance of the remedial work; (3) requiring a unit owners’ association (association) to obtain the written consent of at least two-thirds of the actual owners of the units in a common interest community before bringing a claim against a construction professional; and (4) placing additional requirements and limitations on associations asserting claims on behalf of unit owners.
• SB 24-112 proposed amendments: (1) prohibiting construction professionals from being held vicariously liable for the acts or omissions of a licensed design professional for any construction defects; (2) setting a detailed process for obtaining approval of a majority of the unit owners before initiating a construction defect action on behalf of the association; and (3) raising the number of unit owners who need to approve the action from a majority to a two-thirds majority.

Concerned that property owners’ right to file lawsuits could be diminished by these proposed bills, House Representatives then introduced a third bill, which also failed to pass, intended to expand, and protect property owner’s rights under CDARA:

• Of note, HB 24-1230 proposed amendments: (1) making it a violation of the Colorado Consumer Protection Act (CCPA) [4] to obtain or attempt to obtain a waiver or limitation of the legal rights and remedies provided by CDARA or the CCPA; (2) requiring that successful claimants be awarded pre-judgment interest at set rates; (3) increasing the statute of repose from six to ten years; (4) changing the time when a claim of relief arises to include the discovery, physical manifestation, and cause of the defect; (5) voiding a provision in a real estate contract that prohibits group lawsuits against a construction professional; and (6) prohibiting the governing documents of a common interest community like a condominium from setting different or additional requirements than those under current law.

For now, CDARA remains unchanged and continues to govern construction defect disputes as it is currently written. Changes to the law will have to wait until the next legislative session when it is anticipated that lawmakers will try again to amend CDARA. In the meantime, communities around Colorado will continue to grapple with the lack of affordable housing.

SOURCES

[1] Colo. Rev. Stat. §§13-20-801 to 13-20-808.

[2] Peter LiFari, The Decline of Condominium Construction in Colorado: Addressing Litigation Reform to Alleviate the Housing Affordability Crisis, FINAL-CSI-Report-CO-Condo-Litigation-Reform-FINAL-9.20.23.pdf (commonsenseinstituteco.org), at 5.

[3] Id.

[4] Colo. Rev. Stat. §§6-1-101 to 6-1-116.