The Denver Business Journal is reporting that, on Monday, Commerce City became the third city in the Denver metro-area to enact an ordinance addressing construction defects in condominium and other common interest community construction.  Lakewood and Lone Tree have also enacted similar ordinances, and other municipalities are considering doing the same.

These moves are a reaction to a lack of new construction of owner-occupied multi-family properties, which the development community and many local governments attribute to the high costs of defending and insuring against construction defect litigation.  Generally speaking, these local ordinances attempt to encourage alternative dispute resolution, such as mediation and arbitration, provide an opportunity for builders to repair alleged defects, and ensure that unit owners are informed and give consent before a homeowners’ association can bring a construction defect action.

Commerce City’s ordinance follows the failure of SB177 in the legislature earlier this year, which would have enacted similar changes into state law.  The issue has been contentious, with proponents of reform arguing that construction defect litigation is out of control and unjustified, and opponents claiming that reform is merely an effort by developers to shield themselves from liability for shoddy construction.   Next year is an election year, and reform proponents are skeptical that they will have better success in what could be an even more politically charged 2016 legislative session.

Many experts believe that there is a severe lack of construction of new condominium projects in Colorado relative to demand, especially considering likely housing trends tied to forces such as transit oriented development.  In light of the unclear prospects for legislative change at the state level, it is likely that more local jurisdictions will consider legislative changes aimed at reforming the construction defect process.

Despite the trend, it remains unclear  whether such local ordinances are preempted by conflicting state statutes relating to issues such as statutes of limitations, amendment of common interest community declarations, and the procedures laid out in the Colorado Construction Defect Action Reform Act, C.R.S. § 13-20-801 et seq.  The ordinances will survive a preemption challenge if a court determines they do not conflict with state law or address matters of purely local concern, but will be preempted if the subject matter is a matter of state or mixed state and local concern.  However, it may be years before these local ordinances are tested in court.

As a result, it is not clear that developers and insurance companies will be able to feel comfortable for some time that these ordinances address their concerns about construction defect liability.  However, if new condo construction levels remain low, we can expect that more local governments will consider adopting similar ordinances unless and until there is legislative change at the state level, or relevant case law gives additional guidance.