As previously reported on this blog a Colorado Court of Appeals decision in 2015 allowed a developer/declarant to retain a right to consent to amendments to a common interest community’s declaration that require arbitration of construction defect claims.
The Colorado Supreme Court has now weighed in on the case involved, which is known as Vallagio at Inverness Residential Condo. Ass’n v. Metro. Homes, Inc., affirming the decision of the Court of Appeals.
Vallagio involved a residential development in which the declaration, created pursuant to the Colorado Common Interest Ownership Act (“CCIOA”) included certain dispute resolution provisions, including an arbitration requirement. The dispute resolution provisions also stated that those provisions could “not ever be amended without the written consent of the Declarant,” who was the developer of the project.
After the homeowners had taken control of the HOA that controlled the development, construction defect issues arose. When those were not resolved through the Construction Defect Action Reform Act (“CDARA”) process, the unit owners voted to amend the declaration, eliminating entirely the dispute resolution provisions. The HOA then filed suit in district court, asserting claims alleging construction defects and claims under the Colorado Consumer Protection Act (“CCPA”).
The developer moved to compel arbitration, which gave rise to the issues before the Supreme Court. The HOA argued that the developer’s effort to retain a right to consent to any amendment of the dispute resolution provisions violated CCIOA, and that claims pursuant to the CCPA could not be arbitrated.
The Supreme Court discussed the relevant statutes at length and ultimately rejected both of the HOA’s arguments. Specifically, the Court found that the consent to amend requirement is consistent with CCIOA, and therefore enforceable, and found that nothing in the CCPA precludes an agreement to arbitrate.
Builders in Colorado have been particularly concerned in recent years about potential liability for construction defect claims, particularly in the context of condominium construction. Many in the industry believe that this concern has contributed to the limited number of new condominium units being constructed in the state. The Vallagio decision may help push things in the direction of more certainty for builders, as the ability to require arbitration has been an element of a number of failed attempts to enact legislation to reform the construction defect process.
As a practical pointer, if developers acting as declarants want to ensure that disputes with an association or unit owners are subject to arbitration, they should include specific mandatory dispute resolution provisions in the declaration, and include language providing that those provisions “shall not ever be amended without the written consent of the Declarant.” This was the language upheld in Vallagio.