Construction Defect Debate to be Heard by Colorado Supreme Court

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The construction defects case of Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al. has garnered national attention since the Colorado Court of Appeals' decision in May 2015, and the subsequent petition for certiorari review to the Colorado Supreme Court. Developers, contractors, homeowner associations and others on both sides of the construction defect reform debate have been keeping a close eye on the final outcome of this precedent-setting case.

On Monday, the Colorado Supreme Court granted the petition to review the Court of Appeals' decision. The Court will decide the following question: "Whether the court of appeals erred by holding as a matter of first impression that Colorado's Common Interest Ownership Act (CCIOA) permits a developer-declarant to reserve the power to veto unit owner votes to amend common interest community declarations."

The grant of certiorari review is significant because the Court's decision on this issue will set precedence on this important piece of CCIOA and will likely be looked to by courts from around the country, given CCIOA is modeled after a national uniform act. Further, the Vallagio issue addresses a key component of recent legislative efforts that have been unable to reach the Governor's desk.

In Vallagio, a condominium homeowners association brought a lawsuit against the developer/declarant alleging construction defects. The declaration included a mandatory arbitration provision specifically for construction defect claims. That section stated that its provisions "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 the amendment." 

After the declarant turned over control of the project to the association, the unit owners voted to amend the declaration to remove the entire mandatory arbitration provision, without ever obtaining the declarant's consent. Soon after the declaration was amended, the association filed a lawsuit in district court. The district court denied the declarant's motion to compel arbitration, ruling the declarant consent requirement violated CCIOA and was void and unenforceable. An appeal followed and the Court of Appeals reversed on the CCIOA issues.

Besides holding the declarant's permission was required, Court of Appeals further held that requiring declarant consent for amendments does not limit any "power" of a homeowners' association and that CCIOA does not prohibit a declaration from imposing the requirement of declarant consent for amendments. The Supreme Court's consideration of this important construction defect issue—one that has been the subject of ongoing efforts at the General Assembly—will undoubtedly be the subject of further coalition building and amicus curiae briefing, and ongoing media attention.

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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