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SAWHORSE
Interest in Lakewood defects measure intensifies across Denver metro
By John Aguilar
The Denver Post
Metro communities from Lone Tree to Brighton say they are ready to take a hard look at modifying Colorado's law on builder defects, which they blame for hampering new condominium construction amid the buildout of the region's 122-mile commuter-rail system.
The flurry of interest in the issue was sparked by Lakewood's decision last week to pass a controversial measure making it more difficult for homeowners to sue builders for construction flaws.
Other cities, especially those with plans for dense transit-oriented development around bus and rail stops attractive to young professionals and empty-nesters, see Lakewood's move as a bold way of luring developers of owner-occupied, multifamily housing projects back to town.
Lone Tree scheduled a study session for Tuesday to discuss drafting its own construction-defects ordinance while a city councilmember in Englewood has put in a request that the city take up the topic. A handful of cities recently contacted by The Denver Post — including Brighton, Broomfield and Centennial — also want to give the issue more attention.
The renewed focus on Colorado's law, which has been blamed for creating an overly litigious environment around construction-defects claims, highlights the frustration communities are feeling over what they say is the law's damaging effect on affordably priced condominiums and townhomes.
"We want to see some of these badly needed projects work their way through the developer pipeline in the city of Lakewood," Mayor Bob Murphy said. "The ordinance seems to have re-energized the dialogue at the state level, and it puts a spotlight on a vacuum that exists in the range of housing options in our communities."
Condos represented only 4.6 percent of total new home starts in metro Denver in the second quarter of 2014, compared with more than 26 percent in 2008, according to Metrostudy.
Lakewood's ordinance, assuming it stands up to legal challenge, gives developers and builders a "right to repair" defects, as opposed to facing potential litigation the moment a defect is discovered. It also requires condominium association boards to get consent from a majority of homeowners — rather than just the majority of the board — before filing suit.
But critics of the measure say it will severely limit the ability of homeowners to hold builders responsible for poorly constructed homes, especially in a court of law. They say the reason for the decline in condominium starts in the state is not solely the result of the threat of lawsuits over defects but of foreclosures, financing challenges and post-recession market dynamics.
Passing a measure that reduces consumer protections is not the way to go, they say."Lakewood has given builders the green light to cut corners, which will inevitably result in substandard construction with no real risk of being held responsible," said Molly Foley-Healy, legislative liaison for the Community Associations Institute.
Many say the only place to truly resolve Colorado's construction-defects quagmire is at the state level.
Although attempts at reform have failed in the past two legislative sessions, Sen. Mark Scheffel, R-Parker, said it's likely that construction-defects legislation — especially with "prodding" from Lakewood last week — will come up again in the 2015 session.
"I see this topic as one that is hitting critical mass," said Scheffel, one of the lawmakers behind the failed legislation. "I think it has ripened enough that it will see some action again. The third time could be the charm. The people of Colorado want this issue addressed."
"Not meeting the demand"
A housing-diversity study released late last year by the Denver Council of Regional Governments found that insurance premiums on the construction of condominiums are 25 percent to 45 percent higher in Colorado — an average of $15,000 for each for-sale unit — than in other states.
That means the only projects capable of generating a high-enough profit margin for developers are high-end condos and townhouses, according to the study, leaving the mid- and low-priced condo market in Colorado unfilled.
"The national builders interviewed for this project indicated they are not currently building for-sale condominium projects in Colorado and have no plans to do so in the near future," the study stated. "The identified reasons were the real and/or perceived costs and risks associated with construction defects, insurance costs, and the potential for construction-defects lawsuits."
According to data from the Downtown Denver Partnership, for-sale product in the city's core has plummeted from 870 units in 2007 to zero units in 2012. Last year, 21 condos went online downtown, but so far this year, none has been built.
"We know that the market is there. But when we look at what is being built, it's not meeting the demand," said Tammy Door, president and CEO of the partnership. "We're locking out a segment of the population that likes a dense urban environment and wants to own their own place."
Gene Hodge, director of project development for Mortenson Construction, said his firm is one of the builders that no longer takes on condo projects in Colorado.
"Regardless of how well you build, what kind of insurance you have and what warranties you put in place, based on the way laws are written now, condo projects will end up in some sort of litigation," Hodge said. "It's not worth it."
He questioned why apartment buildings, hotels and other developments don't attract the level of lawsuit activity that condominiums do, given that the same construction standards apply to each product.
"There's not a predominance of quality issues that are unique to condo construction," Hodge said.
Real estate transaction attorney Bruce Likoff, who represents developers, said he knows why condominiums are in attorneys' sights. He said state law, starting with the Construction Defect Action Reform Act of 2001 and three major legislative revisions of the law in 2003, 2007 and 2010, requires only that a majority of a homeowner association board — not the homeowners themselves — is needed to authorize litigation against a builder.
That, in some cases, means having to persuade as few as three people to lock in potentially hundreds of homeowners as part of a class-action lawsuit, Likoff said. And once litigation is underway, he said, homeowners generally can't sell or refinance their units because they are encumbered by the legal action.
"It's a good business target for plaintiffs' lawyers — they only have to convince the board, not all the homeowners," Likoff said. "From the perspective of generating business for these lawyers, I get it. It's pretty clever."
"We aren't protected enough"
But Jennifer Seidman, a lawyer who represents homeowners and homeowners associations in construction-defects cases, said the idea that condo owners are salivating for a lawsuit as soon as they move in is ludicrous.
"As a practical matter, I've never met a homeowner who called a lawyer first," she said. "They try to contact their builder first and work it out."
Colorado law, she said, is already partial to the building community when compared with other states, and homeowners need what protection they can get in a state where there has been no shortage of damaged homes because of shifting soils or bad craftsmanship.
One of the more well-known cases involves the 14-story, $100 million luxury Beauvallon condo tower in Denver. The Beauvallon homeowners association filed a $21 million lawsuit against the builder in 2007, citing a list of 80 problems, including leaking windows and mold. While the case worked its way through court, the price of individual units plummeted and residents who sold did so at a steep loss.
Seidman wonders why the emphasis in the construction-defects debate isn't on why developers don't just build things right to begin with rather than trying to weaken consumer protection laws.
"I think the builders are trying to limit their liability for their own mistakes," Seidman said. "I think they're putting obstacles and additional costs in homeowners' paths who are seeking the legal system to protect their rights and investments."
Jonathan Harris has been battling construction defects in his condo unit in Five Points since it was completed in 2003. Water leaks through his bedroom window because of poorly laid flashing, while above him, water migrates from his neighbor's balcony down into his unit. In the courtyard, poor drainage has led to cracked concrete.
His homeowners association sued the builder for the defects and last year settled for an undisclosed amount, Harris said. Repairs are still being made, a decade after the building opened.
"It's been very frustrating," he said. "I had no idea when I signed my name on the dotted line that I would be going through all this."
He said it's important that other municipalities not follow Lakewood's lead.
"We aren't protected enough, and it seems that we're going in the wrong direction," Harris said. "If we let the builders off on this, it is inviting them to use shoddy construction and just walk away from it."
By John Aguilar
The Denver Post
Metro communities from Lone Tree to Brighton say they are ready to take a hard look at modifying Colorado's law on builder defects, which they blame for hampering new condominium construction amid the buildout of the region's 122-mile commuter-rail system.
The flurry of interest in the issue was sparked by Lakewood's decision last week to pass a controversial measure making it more difficult for homeowners to sue builders for construction flaws.
Other cities, especially those with plans for dense transit-oriented development around bus and rail stops attractive to young professionals and empty-nesters, see Lakewood's move as a bold way of luring developers of owner-occupied, multifamily housing projects back to town.
Lone Tree scheduled a study session for Tuesday to discuss drafting its own construction-defects ordinance while a city councilmember in Englewood has put in a request that the city take up the topic. A handful of cities recently contacted by The Denver Post — including Brighton, Broomfield and Centennial — also want to give the issue more attention.
The renewed focus on Colorado's law, which has been blamed for creating an overly litigious environment around construction-defects claims, highlights the frustration communities are feeling over what they say is the law's damaging effect on affordably priced condominiums and townhomes.
"We want to see some of these badly needed projects work their way through the developer pipeline in the city of Lakewood," Mayor Bob Murphy said. "The ordinance seems to have re-energized the dialogue at the state level, and it puts a spotlight on a vacuum that exists in the range of housing options in our communities."
Condos represented only 4.6 percent of total new home starts in metro Denver in the second quarter of 2014, compared with more than 26 percent in 2008, according to Metrostudy.
Lakewood's ordinance, assuming it stands up to legal challenge, gives developers and builders a "right to repair" defects, as opposed to facing potential litigation the moment a defect is discovered. It also requires condominium association boards to get consent from a majority of homeowners — rather than just the majority of the board — before filing suit.
But critics of the measure say it will severely limit the ability of homeowners to hold builders responsible for poorly constructed homes, especially in a court of law. They say the reason for the decline in condominium starts in the state is not solely the result of the threat of lawsuits over defects but of foreclosures, financing challenges and post-recession market dynamics.
Passing a measure that reduces consumer protections is not the way to go, they say."Lakewood has given builders the green light to cut corners, which will inevitably result in substandard construction with no real risk of being held responsible," said Molly Foley-Healy, legislative liaison for the Community Associations Institute.
Many say the only place to truly resolve Colorado's construction-defects quagmire is at the state level.
Although attempts at reform have failed in the past two legislative sessions, Sen. Mark Scheffel, R-Parker, said it's likely that construction-defects legislation — especially with "prodding" from Lakewood last week — will come up again in the 2015 session.
"I see this topic as one that is hitting critical mass," said Scheffel, one of the lawmakers behind the failed legislation. "I think it has ripened enough that it will see some action again. The third time could be the charm. The people of Colorado want this issue addressed."
"Not meeting the demand"
A housing-diversity study released late last year by the Denver Council of Regional Governments found that insurance premiums on the construction of condominiums are 25 percent to 45 percent higher in Colorado — an average of $15,000 for each for-sale unit — than in other states.
That means the only projects capable of generating a high-enough profit margin for developers are high-end condos and townhouses, according to the study, leaving the mid- and low-priced condo market in Colorado unfilled.
"The national builders interviewed for this project indicated they are not currently building for-sale condominium projects in Colorado and have no plans to do so in the near future," the study stated. "The identified reasons were the real and/or perceived costs and risks associated with construction defects, insurance costs, and the potential for construction-defects lawsuits."
According to data from the Downtown Denver Partnership, for-sale product in the city's core has plummeted from 870 units in 2007 to zero units in 2012. Last year, 21 condos went online downtown, but so far this year, none has been built.
"We know that the market is there. But when we look at what is being built, it's not meeting the demand," said Tammy Door, president and CEO of the partnership. "We're locking out a segment of the population that likes a dense urban environment and wants to own their own place."
Gene Hodge, director of project development for Mortenson Construction, said his firm is one of the builders that no longer takes on condo projects in Colorado.
"Regardless of how well you build, what kind of insurance you have and what warranties you put in place, based on the way laws are written now, condo projects will end up in some sort of litigation," Hodge said. "It's not worth it."
He questioned why apartment buildings, hotels and other developments don't attract the level of lawsuit activity that condominiums do, given that the same construction standards apply to each product.
"There's not a predominance of quality issues that are unique to condo construction," Hodge said.
Real estate transaction attorney Bruce Likoff, who represents developers, said he knows why condominiums are in attorneys' sights. He said state law, starting with the Construction Defect Action Reform Act of 2001 and three major legislative revisions of the law in 2003, 2007 and 2010, requires only that a majority of a homeowner association board — not the homeowners themselves — is needed to authorize litigation against a builder.
That, in some cases, means having to persuade as few as three people to lock in potentially hundreds of homeowners as part of a class-action lawsuit, Likoff said. And once litigation is underway, he said, homeowners generally can't sell or refinance their units because they are encumbered by the legal action.
"It's a good business target for plaintiffs' lawyers — they only have to convince the board, not all the homeowners," Likoff said. "From the perspective of generating business for these lawyers, I get it. It's pretty clever."
"We aren't protected enough"
But Jennifer Seidman, a lawyer who represents homeowners and homeowners associations in construction-defects cases, said the idea that condo owners are salivating for a lawsuit as soon as they move in is ludicrous.
"As a practical matter, I've never met a homeowner who called a lawyer first," she said. "They try to contact their builder first and work it out."
Colorado law, she said, is already partial to the building community when compared with other states, and homeowners need what protection they can get in a state where there has been no shortage of damaged homes because of shifting soils or bad craftsmanship.
One of the more well-known cases involves the 14-story, $100 million luxury Beauvallon condo tower in Denver. The Beauvallon homeowners association filed a $21 million lawsuit against the builder in 2007, citing a list of 80 problems, including leaking windows and mold. While the case worked its way through court, the price of individual units plummeted and residents who sold did so at a steep loss.
Seidman wonders why the emphasis in the construction-defects debate isn't on why developers don't just build things right to begin with rather than trying to weaken consumer protection laws.
"I think the builders are trying to limit their liability for their own mistakes," Seidman said. "I think they're putting obstacles and additional costs in homeowners' paths who are seeking the legal system to protect their rights and investments."
Jonathan Harris has been battling construction defects in his condo unit in Five Points since it was completed in 2003. Water leaks through his bedroom window because of poorly laid flashing, while above him, water migrates from his neighbor's balcony down into his unit. In the courtyard, poor drainage has led to cracked concrete.
His homeowners association sued the builder for the defects and last year settled for an undisclosed amount, Harris said. Repairs are still being made, a decade after the building opened.
"It's been very frustrating," he said. "I had no idea when I signed my name on the dotted line that I would be going through all this."
He said it's important that other municipalities not follow Lakewood's lead.
"We aren't protected enough, and it seems that we're going in the wrong direction," Harris said. "If we let the builders off on this, it is inviting them to use shoddy construction and just walk away from it."
