Ask just about any Colorado legislator, regardless of party, what they believe to be one of the biggest issues facing the state and there’s a high likelihood they will say housing. More specifically, state lawmakers are grappling with the lack of affordable units for first-time homebuyers due in part to the Construction Defect Reform Act, which has left developers vulnerable to costly lawsuits and the state with fewer housing options. 

While current members of the Colorado General Assembly work to find a solution, one thing is certain, for the last two decades, construction on housing, such as condominiums, prime real estate for first-time home buyers, has decreased significantly, adding to a growing problem of affordability and accessibility. Condo construction has plummeted since 2003, as developers have opted to avoid building them altogether. 

Passed in 2001, the Construction Defect Reform Act was meant to decrease the number of construction defect-related lawsuits. But what exactly are construction defects, and what is so controversial about this law?

Colorado Politics breaks it all down. 

What are ‘construction defects’?

According to the Colorado Common Interest Ownership Act, “construction defects” are defined as deficiencies in the design, construction or repair of the common elements of a common interest community, including condos and apartment complexes. So called construction defects can mean a wide ranging of major issues, such cracks in the foundation or HVAC problems. It can also cover smaller issues, such as defective cabinetry and leaks, that can mean a developer has failed to meet applicable standards or enforced codes. 

What is the Construction Defect Action Reform Act? 

Colorado’s Construction Defect Action Reform Act, or CDARA, was signed into law in 2003 in an effort to encourage the resolution of construction defect-related disputes outside the courtroom. The law contains several provisions, including: 

Notice of Claim and Opportunity to Repair:

In order for property owners to proceed with litigation against a construction company, they must first provide the company with a written notice detailing the claim. This allows the company to complete an inspection and potentially make repairs before litigation is necessary. 

Majority Consent:

Under CDARA, a majority of homeowners must consent before a homeowner’s association can pursue legal action for construction defects. 

Right to Repair and Offer to Settle:

Builders have the right to repair construction defects, and homeowners have the right to accept or deny those repair offers. 

Alternative Dispute Resolution:

Homeowners and builders are encouraged to use alternative dispute resolution methods for construction defects, such as mediation or arbitration. 

Statute of Repose and Limitation:

Construction defect claims can only be filed up to six years after construction on a home that has been substantially completed. There is the possibility for a two-year extension on the statute if the defect is discovered within the first four years. 

Arguments in favor of CDARA

• Consumer protection: Homeowners have the option to seek legal remedies if their homes have construction defects that leave them unsafe or not up to codes and standards. 

• Encourages high-quality construction: Proponents of CDARA argue that builders wishing to avoid the threat of legal action will construct the highest-quality homes and apartments they can. 

• Market stability: Dispute resolution is streamlined through CDARA, preventing prolonged legal disputes that could disrupt the housing market.

• Insurance Availability: CDARA establishes clear guidelines for construction defect claims resolution, which could enhance liability insurers’ confidence in the market and make liability coverage accessible and available to builders, encouraging more projects.

Arguments against CDARA?

• Impact on affordable housing: Opponents of CDARA argue the law increases the cost of construction insurance, which in turn raises the cost of construction projects and ultimately the homes themselves.

• Stifles development: While proponents of CDARA consider the fear of litigation a motivator to builders, opponents assert that it can inhibit housing development as builders decide to construct homes in other states.  

• Takes accountability away from homeowners: Some fear that with legal action on the table, the responsibility bestowed upon homeowners to choose a reputable builder is diminished. 

• Legal complexity: Lawsuits over construction defects can lead to lengthy and expensive court battles. 

Lawmakers to tackle construction defects this year 

The Homeownership Opportunity Alliance, a bipartisan coalition composed of homeowners, builders, and construction groups, is pushing a two-tiered proposal it believes will reduce the frequency of lawsuits targeting newly constructed condos. The proposal is backed by several Democratic legislators, including Sen. Rachel Zenzinger, D-Arvada, and Rep. Shannon Bird, D-Westminster. The bill would reverse a current law that holds general contractors and all subcontractors responsible for construction defects, even if a specific subcontractor didn’t cause the defect. Zenzinger and Bird are pushing for this reversal, saying the current law has resulted in expensive all-encompassing “wrap-up” insurance policies. Because these policies can cost up to 800% more than general liability policies, builders often choose to construct rental apartments or single-family homes rather than condominiums, they said. 

The proposed bill would also introduce a “right to remedy” option, in which condo owners and the contractors involved in the construction defects claim would bring in a neutral third party to resolve the matter before it has to be taken to court. This new provision aims to decrease the number of lawsuits against projects, potentially leading to lower insurance premiums. 

“We have received good bipartisan feedback so far and look forward to working with legislators to address construction litigation reform to help bring down the cost of housing and enable more opportunities to build wealth through homeownership,” said Ted Leighty, CEO of the Colorado Association of Home Builders. “Ultimately, we’re looking to lessen insurance costs by reducing the magnitude and frequency of claims, provide other means to resolve disputes faster for homeowners, and obligate those whose work is the subject of the claims to be part of the process. If accomplished, we anticipate building more entry-level, attainably priced condos for Coloradans.”