HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 03/15/2016 - SECOND READING OF ORDINANCE NO. 030, 2016, REGARDIAgenda Item 20
Item # 20 Page 1
AGENDA ITEM SUMMARY March 15, 2016
City Council
STAFF
Tom Leeson, Director, Comm Dev & Neighborhood Svrs
SUBJECT
Second Reading of Ordinance No. 030, 2016, Regarding Adoption of a New Article VIII of Chapter 5 of the
Code of the City of Fort Collins Involving the Establishment and Resolution of Construction Defect Claims.
EXECUTIVE SUMMARY
This Ordinance, adopted on First Reading on March 1, 2016, by a vote of 4-2 (Nays: Cunniff, Overbeck;
Stephens absent) amends City Code to clarify that the failure to substantially comply with the City Building
Code may not be used to support or prove any construction defect claim; to require provision of additional
information to residential unit owners prior to any legal action involving a construction defect claim; and to
prohibit modifying or eliminating any requirement for alternative dispute resolution in a common interest
community declaration that meets certain requirements.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on Second Reading.
BACKGROUND / DISCUSSION
At First Reading, City Council requested information on three items:
1. A potential modification to Sec. 5-352(a) to permit, in addition to other kinds of listed damages, recovery of
other financial damages or financial harm such as damages resulting from a failure to meet energy
standards set forth in the City’s building codes. If Council desires to add such a provision, this could be
accomplished by a motion to amend the Ordinance by the addition of the following subsection (5) to
Section 5-352(a):
“(5) to the extent permitted under Colorado law, other financial losses or damages directly
caused by the violation or substantial failure”.
2. An inquiry regarding Sec. 5-353(c) with regards to voting thresholds for Homeowner Associations.
The Colorado Common Interest Ownership Act (CCIOA) empowers an association board to manage the
association and take actions based on a majority vote of the board, subject to certain requirements for
unit owner approval on specific issues such as conveyance or mortgage of common property (67% of
votes not allocated to declarant, or more if so required by the covenants), an amendment of the
covenants (covenants often require approval of more than a majority to do this), or veto of an annual
budget (by a majority of all unit owners, or more if covenants so require). So CCIOA generally doesn’t
require unit owner approval of board actions except in more significant areas where the tendency is to
require more than a majority of all unit owners. Covenants can be more restrictive (require a greater level
of approval) than that required under CCIOA. Staff is not aware of any associations that have a lower
voting threshold than a majority vote.
Agenda Item 20
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3. An inquiry as to the impact on the housing market in other communities that have adopted construction
defects legislation.
Since 2014, there have been roughly 12 communities that have passed local construction defects
ordinances and many of the ordinances have varied to some degree. The impacts of those ordinances on
the housing markets in those communities have been limited. Lakewood passed the first such measure in
October 2014 and, as of January of this year, has yet to receive an application for a condo project.
ATTACHMENTS
1. First Reading Agenda Item Summary, March 1, 2016 (w/o attachments) (PDF)
2. Affordable Housing Board memo, March 3, 2016 (PDF)
3. Powerpoint presentation (PDF)
4. Ordinance No. 030, 2016 (PDF)
Agenda Item 13
Item # 13 Page 1
AGENDA ITEM SUMMARY March 1, 2016
City Council
STAFF
Tom Leeson, Director, Comm Dev & Neighborhood Svrs
SUBJECT
First Reading of Ordinance No. 030, 2016, Regarding Adoption of a New Article VIII of Chapter 5 of the Code
of the City of Fort Collins Involving the Establishment and Resolution of Construction Defect Claims.
EXECUTIVE SUMMARY
The purpose of this item is to clarify that the failure to substantially comply with the City Building Code may not
be used to support or prove any construction defect claim; to require provision of additional information to
residential unit owners prior to any legal action involving a construction defect claim; and to prohibit modifying
or eliminating any requirement for alternative dispute resolution in a common interest community declaration
that meets certain requirements.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
BACKGROUND / DISCUSSION
Colorado’s Construction Defect Action Reform Act (C.R.S. § 13-20-801,et. seq.) (“CDARA” or “Act”) governs
claims arising from construction defects. CDARA was passed by the Colorado General Assembly in 2001, and
amended in 2003, and limits the construction defect liability of construction professionals. CDARA defines
“construction professionals” broadly to include nearly everyone involved in the construction process, in addition
to parties actually performing physical construction.
Although Fort Collins is currently experiencing a construction boom in multi-family residential units in urbanized
neighborhoods and transit corridors, almost all of the new multi-family construction consists of apartments and
townhomes. The percentage of new housing starts represented by condominiums has significantly declined
since 2008, and to the extent new residential condominium projects are currently being built in Fort Collins,
condominium units are being offered for sale most often at higher price points.
The lack of new residential condominium construction in Fort Collins may be attributable, in part, to trends in
construction defect litigation brought by condominium homeowner associations in common interest
communities, with the scope of such claims in recent years causing new condominium projects to be
uninsurable, un-financeable, or both, particularly at more affordable price points for those seeking to enter the
housing market.
The proposed Ordinance seeks to address particularized local interests in the development of diverse and
affordable housing and protection of public health and safety by addressing construction defects issues
through local building codes in a manner that is intended to minimize conflict with existing state law. The
Ordinance:
1. Clarifies that a violation of any City Building Code, or a failure to substantially comply with any such Code,
does not create a private cause of action, and provides that a violation of any City Building Code, or a
ATTACHMENT 1
Agenda Item 13
Item # 13 Page 2
failure to substantially comply with any such Code, may not be used to support or prove any construction
defect claim, except in specified circumstances.
2. Requires that before the executive board of a common interest community that includes residential units
institutes any legal action involving a construction defect claim, it must: (a) give a notice to residential unit
owners that includes additional information above and beyond that already required in the Colorado
Common Interest Ownership Act (§38-33.3-303.5, C.R.S) to more fully advise the unit owners of the nature
of the action, potential impacts, and the relief sought; and (b) obtain written consent from the majority of
unit owners.
3. Requires that whenever a declaration in a common interest community that includes residential units (a)
requires any form of alternative dispute resolution for construction defect claims asserted by the
association, executive board, or any unit owner; and (b) expressly prohibits any future amendment to the
declaration that would modify or eliminate such a requirement without the consent of the declarant, then
any attempt to modify or eliminate the requirement for alternative dispute resolution by the association,
executive board or unit owners without the consent of the declarant shall be deemed ineffective, an
abrogation of a contractual obligation, and void as against public policy, and may expose anyone seeking
to eliminate such a requirement for ADR to penalties under the City Code.
CITY FINANCIAL IMPACTS
There is no quantifiable financial impact to the City from this Ordinance at this time. However, the Ordinance
does apply uniformly to property owned privately and by the City. So, to the extent the City may have
construction defect claims as an owner of a condominium unit in a common interest community that includes
residential units, the City will be subject to the limitations set forth in the Ordinance.
BOARD / COMMISSION RECOMMENDATION
No recommendations have been sought from any boards or commissions.
PUBLIC OUTREACH
No public outreach has occurred for this topic.
ATTACHMENTS
1. Construction Defects Legislation in Fort Collins (PDF)
2. Powerpoint presentation (PDF)
ATTACHMENT 2
1
Construction Defects Ordinance-Second Reading
Tom Leeson, CDNS Director
ATTACHMENT 3
Construction Defects
2
Follow up from First Reading
• A potential modification to Sec. 5-352(a) to permit recovery of other
financial damages such as damages resulting from a failure to meet
energy standards set forth in the City’s building codes
• An inquiry regarding Sec. 5-353(c) with regards to voting thresholds
for Homeowner Associations
• An inquiry as to the impact on the housing market in other
communities that have adopted construction defects legislation
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ORDINANCE NO. 030, 2016
OF THE COUNCIL OF THE CITY OF FORT COLLINS
REGARDING ADOPTION OF A NEW ARTICLE VIII OF CHAPTER 5
OF THE CODE OF THE CITY OF FORT COLLINS INVOLVING THE
ESTABLISHMENT AND RESOLUTION OF CONSTRUCTION DEFECT CLAIMS
WHEREAS, the City has a compelling local and municipal interest in promoting a
diverse housing supply that gives residents the opportunity to rent and purchase homes in a range
of styles, locations and price points; and
WHEREAS, as the most populous and urbanized city in Northern Colorado with limited
opportunity to annex new territory, Fort Collins must accommodate much of its population
growth in multi-story multi-family buildings; and
WHEREAS, to the extent new residential condominium projects are currently being built
in Fort Collins, condominium units are being offered for sale generally at higher price points;
and
WHEREAS, an increase in the number of affordable residential condominium units
available for sale in Fort Collins may have a positive effect on overall housing costs in Fort
Collins by providing more attainable for-sale housing stock and by providing housing consumers
with an alternative to paying high rents; and
WHEREAS, an increase in the number of residential condominium units available for
sale in the city may improve consumer choice by providing residents greater opportunities to
invest and develop equity in homes in urban and transit corridors, rather than renting in these
locations; and
WHEREAS, the lack of new residential condominium construction in Fort Collins may
be attributable, in part, to trends in construction defect litigation brought by homeowners
associations in common interest communities, causing new condominium projects to be
uninsurable, un-financeable, or both, particularly at more affordable price points for those
seeking to enter the housing market; and
WHEREAS, the City Council desires to encourage affordable residential condominium
construction in Fort Collins through the efficient and fair resolution of construction defect
claims, without compromising the rights and remedies condominium homeowners associations
and individual condominium owners have under state law; and
WHEREAS, Colorado courts recognize the authority of legislative bodies to determine
how their regulatory codes adopted under the police power, including building codes, may or
may not be used in private civil litigation, and it is further the intent of the City Council to
clearly express how compliance with or violation of the City’s codes may be invoked by private
litigants in the course of construction defects claims brought by common interest communities;
and
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WHEREAS, Colorado law and public policy support the use of alternative dispute
resolution (ADR) in lieu of litigation, and the Council further intends by this ordinance to
likewise support the use of ADR and reinforce requirements for arbitration as agreed to by
parties under the declaration of covenants in common interest communities; and
WHEREAS, because initiation of a construction defects claim in a common interest
community significantly affects the economic interests of all condominium owners, the City
Council also intends to promote and require informed consent by affected homeowners prior to
the initiation of new claims involving construction defects in the city; and
WHEREAS, nothing in this Ordinance is intended to conflict with or supersede the
requirements of any state statute governing construction defects claims, including by way of
example the notice of claim provisions set forth in the Colorado Construction Defect Action
Reform Act, Part 8 of Article 20 of Title 13, C.R.S.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
FORT COLLINS as follows:
Section 1. That the City Council hereby makes and adopts the determinations and
findings contained in the recitals set forth above.
Section 2. That Chapter 5 of the Code of the City of Fort Collins is hereby amended
by the addition of a new Article VIII which reads in its entirety as follows:
ARTICLE VIII.
CONSTRUCTION DEFECT CLAIMS
Sec. 5-350. Intent.
The general purpose of this Article is to amend the City building regulations in a manner
that will encourage residential condominium construction in the City of Fort Collins
through the efficient and fair resolution of construction defect claims, without
compromising the rights and remedies of condominium homeowners associations and
owners of individual condominium units used for residential purposes under Colorado
law. This Article shall be effective and apply to any common interest community that
includes residential units created in the City on and after July 1, 2016.
Sec. 5-351. Definitions.
The following terms, phrases, and words, when used in this Article, shall have the
meanings ascribed to them in this Section:
Association shall be defined as provided in the Colorado Common Interest Ownership
Act, Article 33.3 of Title 38, C.R.S., as amended.
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Common interest community shall be defined as provided in the Colorado Common
Interest Ownership Act, Article 33.3 of Title 38, C.R.S., as amended.
Construction defect claim shall mean a civil action or an arbitration proceeding for
damages, indemnity, or contribution brought against a development party to assert a
claim, counterclaim, cross-claim, or third-party claim for damages or loss to, or the loss
of the use of, real or personal property or personal injury caused by a defect in the design
or construction of an improvement to real property that is part of a common interest
community.
Declarant shall be defined as provided in the Colorado Common Interest Ownership Act,
Article 33.3 of Title 38, C.R.S., as amended.
Declaration shall be defined as provided in the Colorado Common Interest Ownership
Act, Article 33.3 of Title 38, C.R.S., as amended.
Development party shall mean an architect, contractor, subcontractor, developer,
declarant or affiliates of a declarant, builder, builder vendor, engineer, or inspector
performing or furnishing the design, supervision, inspection, construction, or observation
of the construction of any improvement to real property that is part of the common
interest community or any other party responsible for any part of the design or
construction of any portion of the common interest community, or any of such parties’
affiliates, or the officers, directors, partners, shareholders, members, managers,
employees or servants of any of them.
Executive board shall be defined as provided in the Colorado Common Interest
Ownership Act, Article 33.3 of Title 38, C.R.S., as amended.
Governing documents shall mean the declaration, articles of incorporation, bylaws, rules
and regulations, policies and procedures of a common interest community.
Residential use shall be defined as provided in the Colorado Common Interest Ownership
Act, Article 33.3 of Title 38, C.R.S., as amended.
Residential unit shall mean a unit limited by a declaration to residential use.
Unit shall be defined as provided in the Colorado Common Interest Ownership Act,
Article 33.3 of Title 38, C.R.S., as amended.
Unit owner shall be defined as provided in the Colorado Common Interest Ownership
Act, Article 33.3 of Title 38, C.R.S., as amended.
Sec. 5-352. Relationship of city building codes to construction defect claims.
(a) In general. A violation of any section of Articles I throughVII of this Chapter, or a
failure to substantially comply with any portion thereof, shall not create a private cause of
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action. A violation of any section of this Chapter, or a failure to substantially comply
with any portion thereof, 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 causes 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. Under no circumstances shall a violation of any section of this
Chapter, or a failure to substantially comply with any portion thereof, 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 provisions
of this this Chapter are intended to establish a minimum standard for safe and sound
construction. Therefore, any particular element, feature, component or other detail of any
improvement to real property that is specifically regulated under this Chapter and is
constructed or installed in substantial compliance with this Chapter shall not be
considered defective for purposes of proving any construction defect claim.
Sec. 5-353. Informed consent for construction defect claims.
(a) Information required in notice to unit owners. Before the executive board of a
common interest community that includes residential units institutes any legal action
involving a construction defect claim, the executive board shall include in the notice to
unit owners required by § 38-33.3-303.5, C.R.S. the following additional information to
more fully advise unit owners of the nature of the action and the relief sought, in
substantially the following form:
(1) If the association does not file a claim by ______ (DATE), the claim
cannot be filed at all under the applicable statute of limitations, statute of repose,
or both.
(2) If the association prevails, the executive board expects the association may
recover from the defendant(s) an amount between $_____ and $_____.
(3) The executive board intends to enter into a contingency fee arrangement
with the attorneys representing the association, under which, of the amount the
association recovers from the defendant(s), the attorneys will be paid a
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contingency fee equal to ____ percent of the (net) (gross) recovery. The executive
board estimates that, in addition to the attorney fees, the association will incur
costs totaling approximately $ _____ for consultants, expert witnesses,
depositions, filing fees, and other expenses of litigation.
(4) If the association makes a claim and does not win, the executive board
expects the association will have to pay for its own attorney fees, consultant fees,
expert witness fees, and other costs (the amount listed in paragraph 1, above) plus
defendant’s consultant fees, expert witness fess, and court costs.
(5) If the association does not recover from the defendant(s), it may have to
pay to repair or replace the claimed defective construction work.
(6) Until the claimed defective construction work is repaired or replaced, or
until the construction defect claim is concluded, the market value of the affected
units may be adversely affected.
(7) Until the claimed defective construction work is repaired or replaced, or
until the claim is concluded, owners of the affected units may have difficulty
refinancing and prospective buyers of the affected units may have difficulty
obtaining financing. In addition, certain federal underwriting standards or
regulations prevent refinancing or obtaining a new loan in projects where a
construction defect is claimed. In addition, certain lenders as a matter of policy
will not refinance or provide a new loan in projects where a construction defect is
claimed.
(b) Timing of notice to unit owners. The notice to unit owners required by § 38-33.3-
303.5, C.R.S., including the additional information set forth in subsection (a) of this
section with respect to associations that include residential units, must be sent to affected
unit owners at least sixty (60) days before service on a development party of the notice of
a construction defect claim under the Colorado Construction Defect Action Reform Act,
§ 13-20-803.5, C.R.S.
(c) Majority consent of unit owners required. A construction defect claim is not
authorized unless the executive board of an association that includes residential units
obtains the signed, written consent from owners, other than the declarant, of units to
which at least a majority of the total votes, excluding votes allocated to units owned by
the declarant, in the association are allocated, which written consent acknowledges that
the owner has received the notice required under § 38-33.3-303.5, C.R.S., including the
additional information set forth in Subsection (a) above, and approves of the executive
board’s proposed action.
(d) Preservation of privileged information. Nothing in this Section shall be construed
to:
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(1) Require the disclosure in the notice or disclosure to a unit owner of
attorney-client communications or other privileged communication.
(2) Permit the notice to serve as a basis for any person to assert the waiver of
any applicable privilege or right of confidentiality resulting from, or to claim
immunity in connection with, the disclosure of information in the notice.
Sec. 5-354. Enforcement of covenants requiring alternative dispute resolution,
penalties.
(a) Requirements for modification of ADR provisions in declaration. No person shall
attempt to modify or eliminate a requirement for alternative dispute resolution by the
association, by the executive board or by the unit owners without the consent of the
declarant, whenever a declaration in a common interest community that includes
residential units requires any form of alternative dispute resolution for construction defect
claims asserted by the association, by the executive board, or by any unit owner, and such
declaration expressly prohibits any future amendment to the declaration that would
modify or eliminate the requirement for alternative dispute resolution without the consent
of the declarant. This Section shall apply only if:
(1) The declaration contains a provision substantially in the following form:
“The terms and provisions of the Declaration requiring alternative dispute
resolution for construction defect claims inure to the benefit of Declarant, are
enforceable by Declarant, and shall not ever be amended without the written
consent of Declarant and without regard to whether Declarant owns any portion of
the Real Estate at the time of such amendment. BY TAKING TITLE TO A UNIT,
EACH OWNER ACKNOWLEDGES AND AGREES THAT THE TERMS OF
THE DECLARATION REQUIRING ALTERNATIVE DISPUTE
RESOLUTION OF CONSTRUCTION DEFECT CLAIMS ARE A
SIGNIFICANT INDUCEMENT TO THE DECLARANT'S WILLINGNESS TO
DEVELOP AND SELL THE UNITS AND THAT IN THE ABSENCE OF THE
ALTERNATIVE DISPUTE RESOLUTION PROVISIONS CONTAINED IN
THE DECLARATION, DECLARANT WOULD HAVE BEEN UNABLE AND
UNWILLING TO DEVELOP AND SELL THE UNITS FOR THE PRICES
PAID BY THE ORIGINAL PURCHASERS.”
and,
(2) The provisions of the declaration requiring alternative dispute resolution
for construction defect claims inure to the benefit of other development parties in
addition to the declarant; and
(3) The provisions of the declaration requiring alternative dispute resolution
for construction defect claims are consistent with the requirements of the
Colorado Uniform Arbitration Act, Part 2 of Article 22 of Title 13, C.R.S.,
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including but not limited to the requirement that any mediator or arbitrator
selected to preside over a construction defect claim must be a neutral third party
as required by § 13-22-211 (2), C.R.S., and that the mediator or arbitrator shall
make the disclosures required by § 13-22-212, C.R.S.; and
(4) The provisions of the declaration requiring alternative dispute resolution
for construction defect claims require that any mediation or arbitration must be
held at a mutually agreeable location within the City of Fort Collins; and
(5) The provisions of the declaration requiring alternative dispute resolution
for construction defect claims requires that any arbitration shall be governed by
the substantive law of Colorado with regard to any remedy granted, and if the
remedy is substantially affected by the arbitrator’s failure to follow the
substantive law of Colorado, a court may vacate or refuse to confirm the
arbitrator’s award on that basis.
(b) Effect of violation of requirements for modification of ADR provisions in
declaration. Any attempt to modify or eliminate a requirement for alternative dispute
resolution contrary to Subsection (a) above, shall be deemed ineffective, an abrogation of
a contractual obligation, and void as against public policy. Any person who attempts to so
modify or eliminate such a requirement in violation of Subsection (a), shall, upon
conviction, be subject to the penalties set forth in § 1-15 of the City Code. This Article
VIII shall not create any private cause of action, civil remedy or contract right.
Introduced, considered favorably on first reading, and ordered published this 1st day of
March, A.D. 2016, and to be presented for final passage on the 15th day of March, A.D. 2016.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk
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Passed and adopted on final reading on the 15th day of March, A.D. 2016.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk