Colorado Supreme Court to Rule on Yet Another Key Construction Defects Issue

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On July 5, 2016, the Colorado Supreme Court announced it will consider the construction defects case of Forest City Stapleton, Inc., et al. v. Rogers.   In this case the Colorado Court of Appeals, for the first time, imposed an implied warranty of "suitability" for new home construction in certain instances.  The Colorado appellate court held that a master developer may be liable to a subsequent home purchaser under a so-called implied warranty of suitability.  The decision is regarded as a step backward in construction defect reform progress.  This opinion seemingly expands the potential scope of liability to developers and contractors.  This comes at a time when condominium construction in the Denver metro area has all but disappeared under the pressure of exposure to construction defect litigation.  The Supreme Court's decision to review the Rogers case is an opportunity for a change in course on this key issue in the industry.

The Supreme Court will take on the following issues:

  1. Whether an implied warranty (meaning a warranty that springs into existence automatically, even though it is not contained in a contract) of "suitability" can exist between a developer and ultimate purchaser of the home, when the developer sold the vacant lot to a builder who in turn builds the dwelling and sells to the homeowner
  2. Whether privity of contract (meaning a direct contractual relation) is required before a purchaser of a home can sue a developer for breach of the implied warranty of suitability

The Court's announcement comes just two weeks after it agreed to hear another high profile construction defects case, Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al., which concerns whether Colorado's Common Interest Ownership Act ("CCIOA") permits a developer to reserve the power to veto unit owner votes to amend HOA declarations.  These two cases present opportunities for the Colorado Supreme Court to resolve two important construction defect reform issues.

The Supreme Court will review the Court of Appeals decision that an implied warranty of "suitability" exists between a developer of a vacant lot and an owner of a home on that lot who is not the first purchaser.  The Court of Appeals, extrapolating on prior Colorado case law and authority from other states, held that the implied warranty of suitability does exist, even if the owner is not the first purchaser, if two conditions are met: (1) the developer improved the lot for a particular purpose; and (2) all subsequent purchasers relied on the developer's skill or expertise in improving the lot for that purpose.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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