HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 03/01/2016 - FIRST READING OF ORDINANCE NO. 030, 2016, REGARDINAgenda 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
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)
Construction Defects Legislation in Fort Collins
January 2016
Summary
This white paper provides information on Colorado's construction defect laws and the various issues
surrounding construction defects in Colorado. It summarizes the current construction defect laws in the
state, the original legislative intent of the legislation and the impacts of the real estate market, provides a
summary of a recent legislation at the local level throughout the state, and provides some options for the
City of Fort Collins with regards to the Construction Defects legislation.
Bottom Line
Colorado's construction defect law allows as few as two condo owners to bring a class-action suit
against a builder for construction defects. It was originally passed with the intent of protecting buyers
from poorly-constructed homes of any kind. However, one of the unintended consequences of this law is
that it has severely limited the construction of new condominiums, which has historically represented an
important segment in the real estate market by providing a more attainable option than single-family
detached housing.
The City of Fort Collins has the following available options with regards to Construction Defects
legislation:
1. Amend Land Use Code to require developers of owner-occupied multi-family housing projects
(condominiums) to record a Plat Note requiring binding arbitration prior to filing of lawsuit (similar
to Arvada & Wheat Ridge).
2. Adopt an ordinance similar to ordinances of Denver, Lakewood, Littleton that:
a. Requires notification of defects and enhanced right to repair;
b. Prohibits the amendment of the governing documents to remove provisions requiring
alternative dispute resolution of construction defect claims;
c. Requires notification of homeowners of association legal action and majority vote of consent.
3. Engage development community to provide education on existing self-help options available under
the Villagio case to determine whether such options may increase development of affordable owner-
occupied multi-family housing projects.
4. Take no action locally, but continue to work with state legislation to address construction defects
law, including cooperative efforts organized by CML.
Colorado’s Construction Defects Action Reform Act
Colorado’s Construction Defect Action Reform Act (C.R.S. § 13-20-801, et. seq.) (“CDARA” or “Act”)
is a provision of Colorado law that governs all claims and litigation where a party is claiming
construction defects. CDARA was passed by the Colorado General Assembly in 2001, and amended in
2003, with the intention of curbing frivolous lawsuits affecting the construction industry and limiting the
ATTACHMENT 1
liability of construction professionals. CDARA governs all actions in Colorado (including arbitration)
brought against a “construction professional” that assert a claim “caused by a defect in the design or
construction of an improvement to real property.” Since CDARA defines “construction professionals” as
“an architect, contractor, subcontractor, developer, 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,” CDARA is not limited to only those parties actually
performing physical construction; it governs claims against nearly everyone involved in the construction
process.
The Act requires that a homeowner provide a Notice of Claim to a construction professional as a
condition precedent to bringing any civil legal action or arbitration proceeding. For residential
construction defect claims, the Notice of Claim must be submitted no later than 75 days before an action
can be filed. Upon receipt, the construction professional may request access to the property to conduct
an inspection.
Once the inspection has been conducted, a construction professional has 30 days to make an offer to
resolve the claim, either by paying a settlement amount or providing a plan to remedy the defect. A
homeowner is under no obligation to accept any settlement proposal, and the construction professional
has no right to insist that it be able to make the proposed repairs. If the construction professional does
not make a settlement offer, fails to comply with its offer, or if the homeowner rejects the offer, then the
homeowner may elect to bring a legal or equitable action against the construction professional.
Under CDARA, as amended, a party claiming construction defects generally may not recover more than
“actual damages” in an action stemming from construction defects unless a violation of the Colorado
Consumer Protection Act and other specific circumstances are present. CDARA defines actual damages
as “the lesser of the: (1) fair market value of the real property without the alleged construction defect;
(2) replacement cost of the real property; or (3) reasonable cost to repair the alleged construction defect,
together with ‘relocation costs.’” CDARA further requires that a party claiming construction defects file
an initial list of construction defects in any litigation or arbitration, which may be amended if additional
defects are discovered.
1
Colorado Construction Defects Legislative History
x House Bill 91-1292: Created the Colorado Common Interest Ownership Act (CCIOA). CCIOA
established the right for unit owner associations in common interest ownership developments to
engage in litigation or administrative proceedings in their own names or on behalf of two or more
unit owners on matters affecting the common interest community. When filing construction defect
claims involving five or more units, CCIOA requires an association’s executive board to provide
specific notices to owners, but the power of the executive board to pursue such claims is not subject
to a favorable vote of the unit owners.
x House Bill 01-1166: Created the Construction Defect Action Reform Act (CDARA or Act). The Act
distinguishes construction defect lawsuits related to real property from common lawsuits, such as
1 Miller, Jessica A., Understanding Colorado’s Construction Defect Action Reform Act
2
negligence. The act requires claimants to create a list of property defects that must be filed with the
court and served on the defendant within 60 days of commencing legal action. It allows a
homeowners' association (HOA) to file a defect action for five or more units that are part of the
association, and requires it to notify unit occupants of the action.
x House Bill 03-1161: Made amendments and additions to CDARA, and was dubbed "CDARA II."
Many provisions of the bill were introduced in response to numerous class-action lawsuits that had
seen large damages awarded to claimants, which construction industry professionals argued were
above and beyond reasonable amounts. It initiated a "notice of claim" process, requiring residential
owners to notify the construction professional no later than 75 days before filing an action, provide
them with a list of alleged defects, and allow them the opportunity to inspect the defects and to
tender an offer to fix them. Damages were limited to $250,000 in any action brought against a
construction professional. The bill also defined the terms "actual damages" and "construction
professional," and expanded the act's scope to commercial construction.
x House Bill 07-1338: Voided the waiver of certain statutory rights and remedies by residential
property owners in their transactions with construction professionals. Specifically, the bill prohibits
clauses in contracts between home buyers and construction professionals from expressly waiving
any of the rights contained in either CDARA or the Colorado Consumer Protection Act. However,
these rights may be waived if a homeowner settles with a construction professional after the claim
for a defect accrues.
x House Bill 10-1394: Enacted following a number of contradictory Colorado Court of Appeals
rulings surrounding what constitutes an "occurrence" in a construction defect claim. The bill states
that insurance companies must broadly interpret their duty to defend the insured under a commercial
general liability policy in cases involving construction defect complaints. The act applies only to
insurance policies that were in existence at the time or issued on or after the effective date of the
legislation, and guides the pending and future actions of insurers in interpreting liability policies
issued to construction professionals.
2
x Proposed Bills Since 2010: Since 2010, a variety of bills have been introduced by the General
Assembly to amend or address construction defect laws in Colorado, but have not been adopted.
These bills have attempted to change the law to:
o Establish legal procedures and limitations related to construction defect claims to make
construction professionals involved in transit-oriented development (TOD) immune from
claims surrounding noise, odors, light, and other environmental conditions related to TOD;
2 Kiszka, Matt, Colorado Legislative Council, Construction Defects Laws and Issue; April 17, 2015.
3
o Provide insurance premium rebates for developers creating multi-family, owner-occupied
affordable housing;
o Require the Division of Housing within the Department of Local Affairs to collect and study
data on the effects of various factors on new owner-occupied affordable housing in Colorado;
and
o Require HOAs involved in a construction defect claim to use mediation or third-party
arbitration, and to send advance notice to all unit owners, before a lawsuit can be filed in
disputes involving construction defects.
Effects of Construction Defects Legislation
Consumer Protections
Many of the standards and rules governing construction defect law in the State of Colorado arise out of
the public policy that a builder is in a better position than the consumer to ensure that the construction of
a residence is suitable. In the case of Sloat v. Methany, the Colorado Supreme Court remarked as
follows:
“the rule of caveat emptor [buyer beware]... was based upon an arms-length transaction between the
seller and buyer and contemplated comparable skill and experience, which does not now exist; they
are not in an equal bargaining position and the buyer is forced to rely on the skill and knowledge of
the builder. The position of the builder-vendor, as compared to the buyer, dictates that the builder
bear the risk that the house is fit for its intended use. Another rationale for the rule is to inhibit the
unscrupulous, fly-by-night, or unskilled builder and to discourage much of the sloppy work and jerry
building that has become perceptible over the years”
3
Residential Construction
In October 2013, the Denver Regional Council of Governments (DRCOG) published a comprehensive
Denver Metro Area Housing Diversity Study, which sought to identify factors influencing attached-
housing construction trends in the Denver metro area.
According to DRCOG, out of a total of 8,545 housing units under construction in downtown Denver at
the time of the study, only 193 units were for-sale product. The study also noted that there were no for-
sale unit permits issued for downtown Denver in 2012 and in 2013 by the time of publication.
In its market study, DRCOG estimated that because of additional costs related to construction defects,
developers need to pay approximately $15,000 more per unit for a condominium project than an
apartment building, reducing the profitability of such projects and making more affordable
condominiums less viable for developers. DRCOG adds that in industry interviews many national
builders said they were no longer pursuing condominium projects in Colorado because of the increased
costs and heightened risk of litigation.
4
3 Neider, Mark; Harris, Karstaedt, Jamison & Powers, P.C,; Colorado Construction Defect Law.
4 Kiszka, Matt, Colorado Legislative Council, Construction Defects Laws and Issue; April 17, 2015.
4
DRCOG's conclusions suggest that the most significant impact on the construction of for-sale attached
products has come from costs related to construction defects litigation. It notes that most developers
believe that the probability of being sued for a construction defect in Colorado is near 100 percent for
projects involving an HOA. DRCOG also states that construction insurance costs have grown
significantly since the passage of HB 10-1394 as multiple carriers have left the state, although insurance
company concerns over their ability to offer policies in the Colorado contractor liability market appear
to stem back further than the enactment of the bill.
5
Construction of Owner-Occupied Units in Fort Collins
The lack of construction of owner-occupied multi-family units in Fort Collins is similar to Denver and
other communities in Colorado. The following table shows the number of residential units issued
permits since 2005:
5 Ibid.
5
It is worth noting that the data for apartments and condominiums does not illustrate the breakdown
between for-sale and rental product, so it is difficult to determine the current mix of this type of
construction. However, in reviewing the completed projects, there has been one owner-occupied multi-
family project approved since 2008. The Arrowhead Condos were approved in 2010 for 20 units in two
buildings at the corner of Worthington Circle and Centre Avenue. Only one of the buildings (10 units)
was constructed (2011). There have been two projects recently submitted in which the developers have
indicated the intent to build owner-occupied units (Penny Flats and 320 Maple); however, these projects
are still in the approval process.
Owner-occupied multi-family units have historically represented an important segment in the real estate
market offering first time homebuyers entry into the real estate market, and providing a more attainable
option than single-family detached housing. This has become more important for communities trying to
develop residential housing in higher density settings, such as along transit lines and within urban
downtown areas.
Colorado Communities with Construction Defects Ordinances
The City of Lakewood was the first Colorado municipality to adopt legislation intended to encourage
construction of “for sale” multifamily projects by mitigating the risks to developers and builders
associated with construction defect litigation in October of 2013. Since then, a total of nine
municipalities have adopted construction defects legislation (See Attachment 1 for a list of Cities with
Construction Defects Ordinances – not all nine municipalities are included because of the similarity of
the ordinances). A majority of the local construction defects ordinances share three common elements:
x First, the ordinances provide “builders” (which are defined as any entity “including but not
limited to a builder, developer, general contractor, contractor, or original seller who performs or
6
furnishes the design, supervision, inspection, construction or observation of any improvement to
real property”) with an enhanced right to repair construction defects. The ordinances require
claimants to provide builders with notice of alleged construction defects, an opportunity to
inspect the alleged defects, and 30 days to make repairs.
x Second, the ordinances prohibit the amendment of the governing documents of any
condominium or planned community to remove provisions requiring alternative dispute
resolution (such as arbitration) of construction defect claims. Supporters argue that this provision
results in faster and less expensive resolution of construction defect disputes. (The Colorado
Court of Appeals decision in Villagio v. Metropolitan Homes (2015) found that covenants
containing such provisions are enforceable and not prohibited by CCIOA; therefore this
protection is already available to developers, irrespective of local ordinance provisions like this.
The court in Villagio upheld condominium covenants that required construction defect claims to
be submitted to arbitration and prohibited changes in those covenant provisions by unit owners
without the developer’s consent.)
x Third, the ordinances require any homeowners association considering initiating a construction
defect action to obtain written consent from a majority of the non-declarant owners prior to filing
a claim. The consent—generally referred to as an “informed consent” due to the required
disclosures to homeowners—must be obtained directly, and not via proxy voting. In obtaining
informed consent, homeowners associations must deliver notices to homeowners that include,
among other things: an estimate of the impact that the action will have on the values and
marketability of units in the community (including any effects on the ability of owners to
refinance their units during and after the action); an estimate of the duration of the action; an
estimate of the likelihood of success; and a statement indicating whether the builder has offered
to make any repairs.
The Town of Parker and City of Arvada passed local ordinances that only require a note to be added to
the multi-family plat that requires mandatory arbitration of construction defects claims if such a note
was requested by owner/developer. Arvada’s ordinance also requires that a disclosure be provided to
the initial prospective purchaser of the existence of the plat note requirement.
Effect of Local Legislation
At this time, it is unknown whether or not the multitude of local construction defects ordinances may be
effective to address the municipal interests articulated as the basis for their enactment, which appears to
be primarily the construction of more affordable condominium housing within the respective
communities.
In addition, no information is currently available regarding the impact of such local ordinances on the
costs related to construction defects litigation, including availability and cost of insurance, which are
considered to be an economic impediment to construction of for-sale attached housing products
(condominiums).
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Finally, the legal viability of such local construction defects ordinances remains untested at this time.
Many municipal legal experts have suggested that local construction defect ordinances altering builder
or unit owner remedies would not survive a preemption challenge by the State, in view of the legislative
intent of the General Assembly in enacting CCIOA and CDARA. The State has declared construction
defect resolution to be an issue of statewide concern, and has enacted a body of legislation intended to
be the exclusive rule of law on the subject. The municipalities in adopting local provisions have cited the
need to address discrete and unique local impacts of state construction defect policy by the use of their
home-rule authority.
Even without a local ordinance on the subject, the Villagio case noted above highlights self-help options
available to developers/builders that have only recently (May, 2015) been validated under state law,
including recording plat notes and covenant provisions that require arbitration of construction defect
claims and prohibit modification of such requirements by unit owners without the developer’s consent.
If broadly adopted by developers, exercising these options may provide a more sustainable solution than
can be achieved by a municipal ordinance that is subject to legal challenge on the basis of State
preemption.
Options for Fort Collins
1. Amend Land Use Code to require developers of owner-occupied multi-family housing projects
(condominiums) to record a Plat Note requiring binding arbitration prior to filing of lawsuit (similar
to Arvada & Wheat Ridge).
2. Adopt an ordinance similar to ordinances of Denver, Lakewood, Littleton that:
a. Requires notification of defects and enhanced right to repair;
b. Prohibits the amendment of the governing documents to remove provisions requiring
alternative dispute resolution of construction defect claims;
c. Requires notification of homeowners of association legal action and majority vote of consent.
3. Engage development community to provide education on existing self-help options available under
the Villagio case noted above to determine whether such options may increase development of
affordable owner-occupied multi-family housing projects.
4. Take no action locally, but continue to work with state legislation to address construction defects
law, including cooperative efforts organized by CML.
8
Attachment 1
9
Construction Defects Ordinance – First Reading
Tom Leeson, CDNS Director
ATTACHMENT 2
Construction Defects
Colorado’s Construction Defect Action Reform Act
(CDARA)
• Colorado law governing claims and litigation related to
construction defects.
• CDARA was passed in 2001 (amended in 2003) with the
intention of curbing frivolous lawsuits affecting the
construction industry and limiting the liability of
construction professionals.
Construction Defects
• CDARA governs all actions (including arbitration) brought
against a “construction professional” that assert a claim
“caused by a defect in the design or construction of an
improvement to real property.”
• CDARA is not limited to only those parties actually
performing physical construction; it governs claims
against nearly everyone involved in the construction
process.
Construction Defects
Consumer Protection
• Builder is in better position than consumer to ensure
construction of a residence is suitable
• Protect buyers from poorly-constructed homes of any
kind
Construction Defects
Unintended Consequences
• Severely limited the construction of new condominiums
• DRCOG published a comprehensive Denver Metro Area
Housing Diversity Study
• 8,545 housing units under construction in downtown
Denver (2013) - 193 units were for-sale product
Construction Defects
Unintended Consequences
• DRCOG added that builders said they were no longer
pursuing condominium projects in Colorado because of
the increased costs and heightened risk of litigation
• “the most significant impact on the construction of for-
sale attached products has come from costs related to
construction defects litigation”
Construction Defects
Construction of Owner-Occupied Units in Fort Collins
Since 2008, there has been one owner-occupied multi-
family project approved.
Construction Defects
Construction of Owner-Occupied Units in Fort Collins
• Owner-occupied multi-family units are an important
segment in the real estate market
• Offering first time homebuyers entry into the real estate
market
• Provide more attainable option than single-family
detached housing.
• Important higher density settings - along transit lines and
within urban core.
Construction Defects
Components of Ordinance
1) Building Code Violation
• Clarifies that a violation of any city building code, or a
failure to substantially comply with any such code, does
not necessarily create a private cause of action.
Construction Defects
Components of Ordinance
2) Informed Consent
• Requires notice above and beyond that already required
in Colorado law 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.
Construction Defects
Components of Ordinance
3) Alternative Dispute Resolution
• 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.
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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