Positive Effects on Colorado Housing and Construction Market
Through its amicus
brief on behalf of some of the most influential business entities and organizations in the region, Polsinelli successfully presented prevailing arguments in favor of an interpretation of CCIOA that will have profound positive effects on the housing and construction markets in Colorado.
Construction defect litigation has severely restricted new condominium development in Colorado. During the 2015 Colorado legislative session, Senate Bill 177 was introduced to reform Colorado’s construction defect laws. The bill sought to address a common problem concerning arbitration provisions in community declarations. Developer-declarants - those who build the condo community and establish the HOA - routinely include in the declaration a provision requiring binding arbitration of construction defect disputes. The Colorado Common Interest Ownership Act (“CCIOA”), the statute that governs the formation of condominiums in Colorado, expressly encourages arbitration of such disputes and Colorado law has long favored arbitration as an alternative to civil actions in court. Just as routinely, homeowners, once in control of their HOA, would vote to amend their declarations to remove that arbitration requirement in an effort to bring their case before a jury. This amendment occurs despite an express provision in many declarations requiring declarant consent before the amendment is made. That consent is rarely, if ever, sought by the homeowners prior to the amendment. Following the amendment, the homeowners then proceed to court with their construction defect claims. Senate Bill 177 was meant to address these issues and make the declarant-consent provisions enforceable. However, the bill died in a House committee.
Meanwhile, the case of Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al.
was pending in the Colorado Court of Appeals. 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. 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.
In the case of Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al., 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 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 its published decision, the Colorado Court of Appeals’ opinion echoed the arguments presented in Polsinelli's amicus brief with respect to each of the CCIOA issues.
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