{"id":894031,"date":"2018-04-18T15:27:15","date_gmt":"2018-04-18T21:27:15","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=894031"},"modified":"2018-04-18T15:27:15","modified_gmt":"2018-04-18T21:27:15","slug":"colorado-house-bill-17-1279-hoa-boards-now-must-get-members-informed-consent-bringing-construction-defect-action","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/colorado-house-bill-17-1279-hoa-boards-now-must-get-members-informed-consent-bringing-construction-defect-action\/","title":{"rendered":"Under Colorado House Bill 17-1279, HOA Boards Now Must Get Members\u2019 Informed Consent Before Bringing A Construction Defect Action"},"content":{"rendered":"

Luke Mecklenburg | Snell & Wilmer<\/a> | April 8, 2018<\/p>\n

Last year, I wrote a post\u00a0calling attention to stalled efforts in the Colorado legislature to pass\u00a0 meaningful\u00a0construction defect reform<\/a>.\u00a0 Shortly thereafter, the legislature got it done in the form of House Bill 17-1279.\u00a0 This bill creates an important pre-litigation notice-and-approval process whenever an HOA initiates a construction defect action in its own name or on behalf of two or more of its members.<\/p>\n

Before May 2017, the pre-litigation requirements that an HOA had to fulfill before bringing a construction defect claim under the Colorado Construction Defect Action Reform Act (\u201cCDARA\u201d) were generally minor. For example, while many declarations required majority approval from the community prior to initiation of claims, in practice, what the industry was seeing is that some HOAs were making it so that only a majority of the HOA Board had to approve bringing the claim, rather than the majority of interested unit owners.\u00a0 It was also common that, even where the majority of owners were involved, they were often voting in favor of filing a lawsuit or arbitration without fully understanding the risks and costs.\u00a0 This practice presented a risk to developers\u2014it is easier to get approval from a small group than from a larger group, and it is easier to get approval when the voting owners do not fully appreciate the risks and costs inherent in filing a claim.<\/p>\n

Colorado House Bill 17-1279, which was signed into law by Governor Hickenlooper in May 2017 and is codified at C.R.S. \u00a7 38-33.3-303.5, lessens these risks by amending the Colorado Common Interest Ownership Act (\u201cCCIOA\u201d) to add certain pre-litigation requirements.\u00a0 Section 38-33.3-303.5 applies any time an HOA\u00a0institutes a construction defect action\u00a0 its own name on behalf of itself or two or more unit owners on matters affecting the common interest community.\u00a0 C.R.S. \u00a7\u00a7 38-33.3-302(1)(d), -303.5(1)(a).<\/p>\n

These amendments directly address the \u201cmajority vote\u201d issue. As amended, section 38-33.3-303.5 states that the HOA\u2019s \u201cexecutive board may initiate the construction defect action only if authorized within the voting period by owners of units to which a majority of votes in the association are allocated,\u201d unless the action pertains to (1) nonresidential facilities with defects of less than $50,000 or (2) \u201cthe association is the contracting party for the performance of labor or purchase of services or materials.\u201d\u00a0 C.R.S. \u00a7 38-33.3-303.5(1)(d)(I)(A).\u00a0 The section excludes several types of votes from this \u201cmajority,\u201d including votes allocated to units owned by a development party and by banking institutions \u201cunless a vote from such an institution is actually received,\u201d votes \u201callocated to units of a product type in which no defects are alleged, in a common interest community whose declaration provides that common expense liabilities are not shared between the product types,\u201d and votes allocated to \u201cnonresponsive\u201d unit owners.\u00a0 C.R.S. \u00a7 38-33.3-303.5(1)(d)(III).\u00a0 Nevertheless, this majority vote requirement applies \u201cnotwithstanding any provision of law or any requirement in the governing documents\u201d of the community, so for most construction defect actions, it effectively curtails the practice of initiating construction defect actions based only on a majority vote of the HOA board.\u00a0 C.R.S. \u00a7 38-33.3-303.5(1)(d)(I)(A).<\/p>\n

The revised statute also requires significant disclosures. Before bringing a lawsuit or arbitration for construction defect claims, the HOA board must mail or deliver written notice of the anticipated construction defect action (the \u201cProposed Action\u201d) to each owner and to the construction professional against whom the Proposed Action would be asserted (the \u201cDisclosure Notice\u201d).\u00a0 The Disclosure Notice must: (1) set the date for the newly required meeting with owners (the \u201cMeeting\u201d) within ten to fifteen days after the Disclosure Notice, to consider the Proposed Action; and (2) make the following disclosures:[1]<\/p>\n