Last summer, after years of partisan disagreement, the Colorado General Assembly passed, and the Governor signed into law, a construction defects law aimed at eliminating the single greatest impediment to the building of new condominiums in Colorado.
Previously, a condo board, without membership approval, could engage in litigation against their builder/developer for construction defects. I saw this happen firsthand about 10 years ago. A law firm specializing in such lawsuits made a hard-to-refuse offer to the condo board of directors, by which they would inspect the building in an effort to identify construction defects and then sue the developer for a cash settlement for found defects. These law firms typically work on a contingency basis, charging nothing to the condo association upfront, but keeping 30% or more of any winnings — plus reimbursement for all the inspections and other expenses.
So many law firms engaged in this practice that some insurance companies stopped writing policies for condo construction projects in Colorado. That’s why the vast majority of multi-family construction over the past several years has been of apartment buildings instead of condos. One exception has been for luxury condos, where the price point of the units made the risk worth taking on the part of builders and insurers.
For several years, Republican legislators pushed bills that swung the pendulum too far in the opposite direction, making it unlikely that any condo board could get the necessary member support for litigation. On the other side were Democratic legislators, who believed that condo owners would be victimized by increasingly shoddy construction. Last year the two sides came together and unanimously approved a reasonable compromise. No longer, regarding such matters, will condo boards be allowed to act without member approval. Also, the 2017 law (HB 1279) requires a 90-day election period during which each side can present both the pros and cons of litigation to the condo owners.
Clearly, the expectation was that condo construction would increase from 3% of new housing constructio
n to the 20% it was a decade or more ago, but seven months later, it’s hard to find much of a surge. MLS data shows a definite increase in the sale of new condos during 2017, but the numbers are still small, as shown in this chart. Hopefully we will see a more dramatic increase in condo sales by builders during 2018.
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