Colorado Supreme Court rules that developers retain perpetual control over construction defect covenants

The Colorado Supreme Court ruled today that developers can retain control over community covenants in perpetuity by recording a covenant that requires declarant consent to any amendments. Although the Colorado Common Interest Ownership Act (CCIOA) states that such controls should be void, the court nevertheless ruled that a declarant may veto amendments that alter the dispute resolution procedures for construction defect actions at any time.

The case of Vallagio at Inverness Residential Condominium Ass’n v. Metropolitan Homes, Inc., __ P.3d __, 15CO508, arose when the community’s members discovered widespread construction defects. When the declarant developed the project, it had recorded a declaration of covenants that purported to waive the homeowners’ right to a jury trial and instead require that any construction defect disputes be resolved by a private arbitration panel. The declaration also prohibited the homeowners from recovering attorney fees and costs, and it limited the declarant’s liability for damages. Consistent with CCIOA, the declaration allowed the homeowners to amend their covenants by a 67% vote, but it recited that the declarant could veto any such amendment prior to the sale of the last unit to a homeowner. The covenants further stated that the declarant must consent to any amendment that altered the construction defect restrictions.

When the developer refused to make acceptable repairs to the defects, the Vallagio homeowners voted to amend their covenants to eliminate the restrictions and liability limitations. Their vote occurred after the sale of the last unit and passed with a 67% majority, but the declarant did not provide its consent. Shortly thereafter, the association filed suit to recover the cost of repairing the defective work and damages for violating the Colorado Consumer Protection Act (CCPA), and it demanded a jury trial. The association named the declarant as a defendant along with the community’s general contractor and two former board members.

The defendants moved to compel arbitration and argued that the homeowners’ vote was ineffective without the declarant’s consent. They further argued that arbitration clauses in homeowners’ individual purchase agreements bound the association. In response, the association asserted that the homeowners’ vote was valid, that the requirement of declarant consent was void under CCIOA’s provisions for amending covenants, that only the declarant (not the other defendants) had standing to enforce the arbitration covenants, that the homeowners’ individual purchase contracts did not bind the association, and that CCPA claims were not arbitrable. The district court agreed with the association and denied the defendants’ motion.

The defendants appealed, and a division of the Colorado Court of Appeals reversed. The division concluded that, although CCIOA prohibits a declarant from recording covenants that require more than a two-thirds majority vote to amend a declaration, CCIOA did not invalidate a covenant that required a declarant’s consent to such an amendment. The court rejected the defendants’ argument that the purchase contracts bound the association, but it held that CCPA claims could be subject to arbitration on remand. The division remanded the case for determination of whether the other defendants had standing to enforce the arbitration covenant, or whether this term only protected the declarant itself from suit.

After granting certiorari review, the supreme court affirmed the court of appeals. The court held that the provisions of CCIOA that invalidate higher voting percentages for declaration amendments did not preclude declarants from adding a separate requirement that they consent to amendments that passed with the required 67% majority. The court found support for its decision in other sections of CCIOA that require declarant consent, apparently choosing to ignore the statutory language that creates express exceptions for those situations.

The court also rejected the association’s argument that declarant-consent provisions violate CCIOA’s prohibitions on terms that favor the declarant over other unit owners. The court declined to consider the association’s alternative argument that perpetual declarant control violates CCIOA’s other provisions that impose a time limit on exercise of declarant rights, prohibit unconscionable contract clauses, and allow an association to terminate contracts with a declarant; the court found that these issues had not been fully briefed.

Finally, the court ruled that CCPA claims can be subject to binding arbitration, and that public policy does not prohibit a contractual waiver of a consumer’s right to file such claims in court.

Justices Márquez and Coats dissented from the majority. They recognized that, while CCIOA contemplates the possibility of declarant consent, the consent-to-amend provision at Vallagio evades the limitations and prohibitions of CCIOA “by effectively allowing the Declarant to grant itself permanent veto power over a supermajority of unit owners and thus unilaterally control the Association’s ability to amend the Declaration, even after the Declarant’s control period ends.” They further recognized that, while the majority’s decision arose in the context of a construction defect dispute, “its logic will permit declarants to control homeowners’ associations’ affairs into perpetuity simply by drafting self-serving provisions and then including a consent-to-amend provision that allows the declarant to demand consent to the amendment of any provision in the declaration.” This goes directly against CCIOA and the protections that the legislature enacted for homeowners.

Arbitration can be a quick, effective means of dispute resolution between sophisticated parties who choose to engage in alternative dispute resolution. Parties with equal bargaining power can specify what discovery is needed, how quickly the case must be resolved, and whether to limit administrative fees. Unfortunately, many corporations see arbitration as a way to avoid state consumer protection remedies, and they try to foist complicated, slow, costly procedures on consumers by inserting unfair arbitration clauses into form contracts. In the homebuilding context, national developers have begun to record such clauses in community declarations, giving homeowners zero opportunity to negotiate the terms or opt out of unfavorable terms. The Vallagio case provides one such example of this tactic. Unfortunately, Colorado courts have now ruled that this is permissible.

How this will affect homebuilding in the state remains to be seen. Last month,the General Assembly passed a compromise bill on construction defect litigation intended to spur housing construction by requiring homeowner association boards to provide additional notice to their members before filing suit over negligent work. This law, coupled with the Vallagio decision, may embolden some developers to cut corners on quality control and offer more cheap multifamily homes in the name of affordable housing.

Today’s decision comes on the heels of two other cases in which the Colorado Supreme Court ruled that CCIOA offers little protection for homeowners against developers who draft self-serving declarations, Ryan Ranch Community Ass’n v. Kelley, 380 P.3d 137 (Colo. 2016), and Pulte Home Corp. v. Countryside Community Ass’n, 382 P.3d 821 (Colo. 2016). The supreme court has now made clear that it will enforce covenants and statutes that benefit developers while ignoring covenants and statutes that benefit homeowners. Unless the legislature acts to strengthen CCIOA and make clear that the courts must uphold its consumer protection terms, this trend is unlikely to stop.

Colorado passes compromise bill on construction defects

Suzanne Leff speaks to the media

Attorney Suzanne Leff speaks to the media about HB17-1279, flanked by Senator Jack Tate, Representatives Alec Garnett, Cole Wist, and Lori Saine, and Governor John Hickenlooper.

After four failed attempts, Colorado legislators have finally reached a compromise on construction defect legislation.

This afternoon, HB17-1279 gained unanimous approval from the House Committee on State, Veterans, and Military Affairs. The bill is expected to pass both chambers easily and be signed into law by Governor John Hickenlooper.

Proponents say that a bill is needed spur more condominium construction in the state. They contend that homebuilders have been reluctant to construct multifamily projects in recent years based on a perceived fear that small groups of homeowners can file lawsuits in the name of their community associations without adequate the consent of other members. A 2013 study found that quality control and insurance costs only reduce homebuilder profits by a small amount, but concerns about litigation have nevertheless prompted some construction professionals to focus on constructing apartments and other products.

Many of these arguments date back to 1991, when the General Assembly enacted the Colorado Common Interest Ownership Act. After hearing testimony that there were not enough building inspectors to keep up with the fast pace of construction in the early 1990’s, legislators empowered community associations to bring suit for construction defects on behalf of their members. Since then, homebuilders have repeatedly tried to roll back these protections and reduce their exposure to liability for defective work. In 2001 and 2003, the General Assembly enacted the Construction Defect Reform Act, which requires association boards to disclose a list of claimed defects and advise their members before filing suit. Some contended, however, that these changes were not enough.

Lawmakers rejected bills requiring binding arbitration and supermajority vote requirements in 2013, 2014, and 2015. Efforts to introduce a similar bill in 2016 fell apart. In 2017, however, the stakeholders were able to agree on a compromise that assuaged the homebuilders’ remaining fears while still maintaining adequate protections for homebuyers.

With several amendments made in committee, the 2017 bill establishes several new requirements for community associations. Before an association files a construction defect suit, it must first make certain disclosures and gain the approval of 51% of its members, subject to exceptions for properties owned by development parties or banks. The association has ninety days to hold a meeting and conduct its vote, and the statutes of limitation and repose are tolled during this time. The responsible construction professionals must be allowed attend the meeting and speak to the membership. The bill provides that its requirements supersede higher vote thresholds recited in covenants or local ordinances; this should add a new and important protection for homeowners.

Speaking today at the State Capitol along with Hickenlooper and others, Community Associations Institute attorney Suzanne Leff acknowledged that this was a compromise bill with sacrifices on both sides. Nonetheless, while it may not immediately change the landscape, HB17-1279 should finally end the argument that homeowner association boards are filing lawsuits without proper notice and consent. Now, the burden shifts to the homebuilders to make good on their promise to deliver quality, affordable condominiums to Colorado buyers.

Colorado finally corrects thirty-year old flaw in construction defect statute of repose

The Colorado Supreme Court has finally settled a decades-old conundrum surrounding the state’s construction defect statute of repose.

A statute of repose is similar to a statute of limitations insofar as both restrict the time a party can bring a claim. A statute of repose period begins on a fixed date (such as the day someone finishes work on a project), while a statute of limitations period begins when someone discovers an injury (such as a defectively installed window).

In 1986, at the height of the so-called “tort reform” movement, the Colorado General Assembly voted to shorten both the statute of repose and the statute of limitations for construction defect claims. Historically, Colorado’s statute of repose had given a homeowner ten years following construction to file an action, and its statute of limitations had required that any such action be filed within three years of the date that the claimant discovered a defect. After 1986, however, these time periods changed; the new statute of repose required suits to be filed within six years of the end of construction, and the new statute of limitations gave claimants only two years following discovery of the physical manifestation of a defect to seek legal relief.[1]

Although these amendments were intended to benefit builders by shortening their exposure to construction defect claims by homeowners, they had an unexpected consequence. Based on the broad wording of the 1986 statute, courts concluded that the new statute applied to all construction defect claims against all construction professionals, including indemnity claims filed by developers against their subcontractors.[2] This was a change from prior law, which had recognized: “The virtually universal rule is that a claim for indemnity does not accrue, and therefore the limitations period does not begin to run, until the indemnitee’s liability is fixed i. e., when he pays the underlying claim, or a judgment on it.”[3]

For example, consider the following timeline. In 1987, a developer hires a carpenter to install a window on a new home under a subcontract that requires the carpenter to provide indemnity for any defects in his workmanship. In 1988, a homeowner buys the house. In 1992, the homeowner discovers that the window is leaking but does not know why. In 1994, the homeowner sues the developer for water damage. In 1995, the developer pays to repair the water damage after determining that the leak occurred because the carpenter failed to flash the window correctly. According to the subcontract, the developer should be able to demand indemnity from the carpenter for those repair costs. But under the 1986 statute, the developer’s third-party claim for indemnity would be barred because more than two years have passed since the homeowner discovered the manifestation of the defect in 1992, and more than six years have passed since the end of construction in 1988.

This result—that a claim for indemnity could accrue and expire before a developer had paid anything on the loss, or perhaps even identified what trades were responsible—came as a shock to many in the industry, and it led to “shotgun style” pleadings, in which a developer named in a lawsuit would immediately sue every subcontractor on the job for indemnity, even if many of those subcontractors had no involvement with any alleged defects.

This caused insurance premiums to rise and prompted Colorado’s first Construction Defect Action Reform Act (CDARA) in 2001. CDARA amended the 1986 statute of limitations and repose to add a new section stating that, notwithstanding the limitations and repose periods, an indemnity claim against a third party would not arise until the underlying claim was resolved, and that the indemnitee would then have ninety days to pursue an indemnity claim. In the example above, the developer would have had ninety days after settling with the homeowner in which to sue the carpenter for indemnity.

That was the intent, at least. In 2008, the Colorado Court of Appeals ruled that CDARA had only succeeded in changing the two-year statute of limitations, not the six-year statute of repose.[4] This interpretation gave developers extra time in cases where a defect had manifested early in the repose period, but it provided little relief in situations where a homeowner filed suit closer to the six-year mark. Indeed, even if developer did not have a statute of repose problem at the outset of a case, the slow pace of litigation could cause the six-year period to expire during the pendency of the lawsuit. Thus, these decisions encouraged a return to the era of shotgun pleadings that CDARA had sought to curta il. In two subsequent decisions in 2012 and 2016, the court of appeals adhered to this interpretation and ruled that the statute of repose could be even shorter for subcontractors who only worked on a discrete portion of a job.[5]

In 2013, the General Assembly voted down a bill that would have corrected this problem, citing concerns over other portions of the bill that would have weakened consumer protections for homebuyers.[6] Later attempts to amend CDARA focused on limiting homeowner rights and did not address the courts’ incorrect interpretation of the statute of repose.

Finally, however, the supreme court took up the issue in 2016. In Goodman v. Heritage Builders, Inc.,[7] the court overruled the three court of appeals decisions. The court correctly recognized that CDARA was intended to provide developers a ninety-day window following settlement or judgment with a homeowner to pursue indemnity claims against subcontractors or others responsible for the underlying damage, even if that occurred more than six years after construction.

In Goodman, a couple purchased a home from Heritage Builders in 2006. In late 2011, the couple sold to a new owner. Several months later, the new owner discovered construction defects. Unable to reach an informal resolution, he sued Heritage Builders in 2013. Heritage Builders then filed a third-party complaint for indemnity against the responsible subcontractors, but the district court entered summary judgment in the subcontractors’ favor, finding that the indemnity claims had not been filed within six years of the 2006 completion date.

Although a summary judgment order would typically be appealed to the Colorado Court of Appeals, the Colorado Supreme Court granted an original proceeding based on the novel issues presented and ordered the subcontractor to show cause why summary judgment should not be set aside. The court announced its final decision in March 2017. The court first reviewed the statutory language of CDARA and its statement that indemnity claims could be brought within ninety days of resolution “notwithstanding” the other provisions of the statute. The court then concluded that this language clearly indicated the drafters’ intent to allow developers more time beyond the six-year statute of repose to bring third-party indemnity claims. The court therefore made its rule absolute and vacated entry of summary judgment.

How this opinion will affect future litigation remains to be seen. Some have argued that a shorter statute of repose is crucial “to relieve those involved in the construction business of the prospect of potentially indefinite liability for their acts or omissions.”[8] Such a concern may be exaggerated, however, given the fact that most subcontractors’ liability insurance arises from “occurrence” policies triggered by the date of loss, not the date that a claim is made.[9] In that context, the Goodman case should not expose subcontractors to significant liability beyond the existing statute of repose period. Even if an indemnity claim was made decades after work was performed, the claimant would still need to prove that the property damage occurred during the first six to eight years following construction, or else the claim would be untimely. So long as subcontractors have paid their premiums during the statute of repose period, those policies should cover their liability, regardless of when the claim was actually made; they need not fear perpetual exposure to indemnity claims.

In sum, Goodman appears to be the solution to a thirty-year puzzle over Colorado’s construction defect statute of repose. For the time being, the issue appears to be settled. Should the legislature start tinkering with the statute again, however, then the next fix may be decades away.


[1] See Colo. Rev. Stat. § 13-80-104.  The 1986 amendments incorporated an element of accrual into the statute of repose, such that the actual period could vary between six and eight years. Discussion of these scenarios is beyond the scope of this article.

[2] Nelson, Haley, Patterson & Quirk, Inc. v. Garney Cos., Inc., 781 P.2d 153, 155 (Colo. App. 1989).

[3] Duncan v. Schuster-Graham Homes, Inc., 194 Colo. 441, 447, 578 P.2d 637, 641 (1978)

[4] Thermo Dev., Inc. v. Cent. Masonry Corp., 195 P.3d 1166, 1167 (Colo. App. 2008).

[5] Sierra Pac. Indus., Inc. v. Bradbury, ___ P.3d ___, 2016 COA 132, (Colo. App. Sept. 8, 2016); Shaw Constr., LLC v. United Builder Servs., Inc., 296 P.3d 145 (Colo. App. 2012).

[6] Colo. 69th Gen Ass. S.B. 52 (2013) “Transit-oriented Development Claims Act of 2013.”

[7] 2017 CO 13, ___ P.3d ___ (Colo. Mar. 20, 2017).

[8] Sierra Pacific, supra n.5, ¶ 26.

[9] See Jesse Howard Witt & Marci M. Achenbach, “Insuring the Risk of Construction Defects in Colorado: The Tenth Circuit’s Greystone Decsion,” 90 Den. U. L. Rev. 622 (2013).

CBS story highlights client’s dispute with repair contractor

In a recent news story, Denver’s CBS4 covered a dispute between homeowner Maria Gordon and restoration contractor Belfor. Gordon had hired Belfor to rebuild her home after a drunk driver destroyed the house while she lay sleeping, but disagreements led to a lawsuit. Jesse Witt represented Gordon in the action, and he cautioned homeowners to read construction contracts carefully before signing. The parties eventually reached a confidential settlement.

Click here to watch the video.

Witt named to 2017 Super Lawyers

The Witt Law Firm is proud to announce that Super Lawyers has recognized lawyer Jesse Howard Witt as Top Rated Construction Litigation Attorney in Boulder Colorado.

Super Lawyers is a rating service of outstanding lawyers who have attained a high-degree of peer recognition and professional achievement. Super Lawyers selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with independent research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis. The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel. Since Super Lawyers is intended to be used as an aid in selecting a lawyer, it limits the lawyer ratings to those who can be hired and retained by the public. This is the fifth time that Super Lawyers has recognized Mr. Witt.

Electoral College convenes under protest as Colorado Secretary of State rewrites oath of office

At 11:35 am this morning, Colorado presidential electors Polly Baca and Robert Nemanich convinced state court judge Elizabeth Starrs to prohibit Colorado’s Republican Secretary of State, Wayne Williams, from changing the oath of office for this year’s presidential election. During a merits hearing last week, cross-examination revealed that Williams’s office had drafted a new oath for 2016, apparently to discourage any Democrats from defecting from Hillary Clinton to support John Kasich or other alternatives to Donald Trump. Judge Starrs ruled that this was improper and ordered Williams to administer the standard oath. The victory was short-lived, however, as Williams immediately adopted a temporary election rule permitting him to reuse the new oath at noon, despite the court’s ruling moments before. As authority for his rebuke of the court’s order, Williams cited his right to suspend notice and rulemaking procedures to ensure that state elections run smoothly.

Judge Starrs declined to grant the electors further relief when the parties telephoned the courthouse from the governor’s chambers at the state capitol, despite the electors’ argument that Williams had failed to demonstrate that changing the oath was “imperatively necessary,” as required to suspend the notice and rulemaking requirements of Colorado’s State Administrative Procedure Act. The electors eventually agreed to signed the new oath “under duress.” Williams had previously said they would be removed from their positions if they did not swear their allegiance under the modified oath.

This is the first time such an oath is believed to have been administered in Colorado. Baca said that, in her previous experience as an elector in 2008 and 2012, the Secretary had used the standard oath of office. The standard oath requires an elector to support the state and federal constitutions and faithfully performing the duties of the office, but it stops short of telling electors how to actually vote in the federal election for president. A state statute, C.R.S. § 1-4-304(5), purports to bind the electors’ vote to the winner of the general election, but many have suggested that this statute violates the United States Constitution.

Baca and others said that they were coerced into signing the new oath. In a scene that felt like it could have been lifted from a fascist propaganda film, the electors reluctantly raised their right hands and took the modified oath. One elector, Michael Baca (no relation to Polly) apparently reconsidered after signing his oath. Mr. Baca, dressed in a bright yellow Bernie Sanders T-shirt, cast his vote for Kasich, which immediately prompted Williams to remove him in favor of an alternate willing to vote for Hillary. The large crowd that had assembled disapproved and began shouting for Williams himself to resign.

Whether the Secretary’s actions were constitutional remains unclear. The federal courts declined to enter an injunction prior to today’s meeting of the Electoral College, but they are still expected to decide in the future whether the states can treat presidential electors as performing the purely ministerial task of ratifying election results, or whether they must remain free to fulfill their constitutional duty to deliberate, investigate, and choose a qualified candidate for office, as Alexander Hamilton intended.

Late Friday, a federal appeals court had ruled that it was unlikely that Williams or the state had authority to remove presidential electors after the Electoral College convened, reasoning that the electors would be subject to federal law once appointed by the state. Nevertheless, that is exactly what transpired today after Mr. Baca voted for Kasich. Mr. Baca asked for legal advice as the Secretary sought to remove him, and his attorney, Jason Wesoky, attempted to explain this issue before Williams asked him to step away.

Jesse Witt of the The Witt Law Firm has represented Polly Baca and Robert Nemanich in the state courts. Wesoky of Darling Milligan Horowitz PC is representing them in their ongoing federal action.

Several hours after Colorado voted, electors in Texas delivered the presidency to Donald Trump. Two Texas electors defected, one supporting Ron Paul and the other joining Michael Baca to cast a vote for Kasich.

Colorado high court declines to hear Hamilton Electors’ appeal

Late this afternoon, the Colorado Supreme Court declined to exercise jurisdiction over the appeal by presidential electors Polly Baca and Robert Nemanich. These means that, absent intervention by the federal courts, the Colorado Secretary of State will be able to remove these electors if they vote for a candidate other than Hillary Clinton or Timothy Kaine when the Electoral College convenes on Monday in Denver.

Baca and Nemanich had previously stated their belief that federal law requires members of the Electoral College to meet, deliberate, and investigate before choosing a candidate for president. These duties are set forth in the writings of Alexander Hamilton and reflected in Article II and Amendment XII of the Constitution. Although Baca and Nemanich each indicated their support for Hillary Clinton, they also expressed a willingness to consider choosing another candidate if the opportunity arose to join with Republican electors in other states to support a bipartisan alternative to Donald Trump.

Today’s ruling was limited to an interpretation of state election law. An emergency appeal is still ongoing in the federal Tenth Circuit, where Baca and Nemanich have asked a three-judge panel to suspend the law altogether because it violates the Constitution. Earlier this morning, Trump’s lawyers filed a brief in that case arguing that Baca and Nemanich cannot be allowed to vote for another candidate, in part because it could disrupt his otherwise orderly transition to power.

The decision not to decline the electors’ appeal today does not create legal precedent, so the issue could arise again in future elections.

The Witt Law Firm’s Jesse Witt has represented Baca and Nemanich in the state courts. Jason Wesoky of Darling Milligan Horowitz PC has represented them in the federal actions.