Housing Affordability vs. Construction Industry Concerns

Colorado’s housing market is currently a battleground for legislative proposals aimed at addressing affordability challenges while balancing construction industry concerns.

Amid the state’s affordable housing shortfall and prospective buyers contending with stubbornly high interest rates and escalating borrowing expenses, Colorado is exploring diverse avenues to combat the state’s housing challenges. As part of this push for reform on both sides, two competing bills were introduced in the General Assembly, SB 24-106 and HB 24-1230. Each had the potential to significantly alter the landscape of construction industry operations in Colorado. Both failed to pass during the 2024 legislative session.

While many Colorado residential builders appear to support SB 24-106, construction professionals have voiced concern over the HB 24-1230 as it favors consumers and largely ignores concerns posed by construction thought leaders who fear it could increase construction-defect litigation significantly.

HB 24-1230, the Construction Defect Action Reform Act (CDARA), and the Statute of Repose

Colorado passed the Construction Defect Action Reform Act (CDARA) in 2001 and instituted new regulations governing construction- and design-defect actions across the state. The underlying policy of the statute was to balance the rights of homeowners to pursue a valid claim for construction defect while also protecting the construction industry from claims without legal merit. CDARA contains both a statute of limitations and a statute of repose for construction-defect claims.

The statute of limitations begins to run on the date the physical manifestation of a construction defect is discovered or reasonably should have been discovered regardless of whether the underlying cause is known. The statute of repose provides a firm time limit as to when a litigant may bring a claim, regardless of when the defect is or may reasonably be discovered. In addition, CDARA requires claimants to provide a notice of a claim to the construction professional and allow time to remedy the issue or make an offer of settlement before filing suit.

CDARA currently allows potential litigants up to six years to file a construction-defect action pursuant to the statute of repose, with a possible extension up to eight years if the physical manifestation of the defect is discovered in year five or six. The statute begins to run upon substantial completion of the property and expires six years from that date.

Under HB 24-1230, however, the statute of repose would have increased to 10 years, with a potential for 12 years if the physical manifestation of the defect is discovered in years nine or 10.

While proponents argue that this extension would provide homeowners with more time to identify and address construction defects, critics fear that it could lead to an increase in construction- and design-defect litigation, resulting in longer exposure for developers, builders, and construction professionals. The potential consequences could include higher development costs, such as increased damage claim payouts and skyrocketing insurance premiums, which could negatively impact housing prices as the increased costs are inevitably passed on to the consumer.

Currently, CDARA limits a prevailing claimants’ monetary damage to actual damages, except in limited circumstances. Under HB 24-1230, not only would it be illegal to attempt to waive, limit, or curtail the rights, remedies, or damages available under CDARA, but it would also be considered a violation of the Colorado Consumer Protection Act (C.R.S. 6-1-101 et seq.) In effect this means that waivers are no longer only unenforceable, but also will be characterized as a deceptive trade practice and come with steep penalties including treble damages and attorney fees.

HB 24-1230 would have resulted in the following changes:

• Increase the statute of repose from six to 10 years, with the possibility of up to 12 years, to bring a claim if a defect is discovered in years nine or 10.

• Claim would arise only when both the physical manifestation of the defect and the underlying cause are discovered. This allows litigants more time to discover defects and file their claims. The law currently does not require the underlying cause to be discovered to trigger the statute of limitations period.

• New penalties under the CCPA for any attempts to waive, limit, or curtail the rights, remedies, or damages available under CDARA. Not only are such attempts unenforceable, but they will now be characterized as deceptive trade practices and come with a minimum $500 fine and may result in treble damages and reimbursement of attorney fees.

• Prejudgment interest in the amount of 6-8% added as a remedy; purchase and sale contracts may not limit or restrict class actions or group claims. Also prevents any expansion of limits on a homeowners association’s ability to bring a claim.

HB 24-1230 passed the House, but did not make it out of committee in the Senate.

The Right to Remedy Construction Defects Act

The competing bill, SB 24-106, is known as the “Construction Defect Reform Act” and it establishes procedures for bringing a construction-defect claim. It was passed by the Colorado Senate in early February 2024, but was postponed indefinitely in the House on May 3. The main takeaways from SB 24-106 are as follows: voting threshold changes from a simple majority of association members to 60% to bring a claim for construction defects; new definition of claimant; claims involving code violations are not actionable unless the violation causes property damage and/or endangers the life, safety or health of residents; claim may be held in abeyance while alternative dispute resolution takes place; matter at issue must involve real estate owned by the association or be subject to each defense claim, procedure, and alternative dispute resolution procedure that each unit owner would be subject to.

Moving Forward

Colorado’s housing market faces pivotal changes that could reshape industry practices and consumer rights. The proposed legislation had the potential to significantly impact the construction and development landscape in the state. If HB 24-1230 had passed, the extension of the statute of repose and other changes could have had far-reaching effects, potentially raising construction and development costs and impacting housing prices and rents.

It is vital for all parties involved to stay informed and actively participate in shaping legislation that ensures a fair and sustainable housing market for all Coloradans.

This article originally appeared on Wood Smith Henning & Berman LLP. 

Ryan M. Hicks is a Partner at Wood Smith Henning & Berman LLP.