Precedent Set in Colorado Construction Defect Law


On May 7, 2015, less than 24 hours after the Colorado legislative session ended and just over a week after Senate Bill 177, a construction defects reform bill, died in a House committee, the Colorado Court of Appeals issued its published decision in the Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al. case. In this appellate case, Polsinelli drafted and filed an amicus curiae brief, a "friend of the court" brief, on behalf of a coalition of developers, chambers of commerce, trade organizations, and business organizations, presenting arguments that declarations requiring declarant consent prior to the removal of an arbitration provision by homeowners are valid and enforceable under the Colorado Common Interest Ownership Act ("CCIOA"). The published appellate decision addressed a major problem in Colorado's construction defect laws that Senate Bill 177 was designed to correct – if the declaration includes a requirement that an arbitration clause cannot be removed without the declarant's consent, that declaration means what it says, and that requirement is enforceable.

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.

The Court of Appeals reversed on the CCIOA issues. The Court of Appeals opinion echoed the arguments in Polsinelli's amicus brief with respect to each of the CCIOA issues. Notably, the appellate court held the declarant's consent was required to amend the arbitration provision under the terms of the original declaration, and the consent requirement was not void and unenforceable under CCIOA. The appellate court 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 court concluded: "Because the unit owners did not obtain Metro Inverness' written consent, their attempt to remove the declaration's arbitration provision was ineffective."

The court went on to acknowledge that there may be intended third-party beneficiaries to the arbitration requirement within declarations – i.e., construction and design professionals – so long as they are specifically intended within the declarations.

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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