In situations like this, I am reminded with the issues of instantaneous communications. Shortly after we posted a blog indicating that the Construction Defect bill had not been introduced, it was. Late yesterday SB 14-220 was introduced to the Senate. As drafted, the bill has three components. The first prohibits the association from amending its governing documents to remove required arbitration or mediation requirements that were originally drafted by the declarant and requires the association to follow those previously drafted arbitration or mediation requirements.
The second component requires that prior to the filing of a construction defect action the association gives notice to the owners in the community of:
- the nature of the action, the expenses and fees that the executive board anticipates will be incurred, directly or indirectly, in prosecuting the action which include, attorney fees, consultant fees, expert witness fees and court costs whether incurred by the association directly or for which it may be liable if it is not the prevailing party or that the association will be required, pursuant to an agreement with an attorney, to pay if it elects not to proceed with the claim;
- the impact on the value of the units that are the subject to the action, both during the pendency of the litigation and after its resolution;
- the impact on the marketability of units that are not the subject of the action, including impact on the ability to refinance during the pendency of the litigation and after its resolution;
- the manner in which the association proposes to fund the cost of the litigation, including any proposed special assessments or use of reserves; and
- the anticipated duration of the litigation and the likelihood of success.
In addition to the above requirements, the required disclosure pursuant to this section cannot be signed by any person or attorney that works for the firm that may represent the association during the construction defect action. And, the action cannot proceed until approved by no less than a majority of the total voting power of the association. This approval must be in writing and cannot be obtained by use of proxies. The notice required above must be sent 60 days prior to sending any notice of claim and must be sent prior to retaining any experts or incur any fees.
The third section is a notice section that adds to the disclosures required to be given to a potential purchaser in an association of the governing documents and the notice of the arbitration provisions.
While there is great concern with lawsuits and the ability of a builder to build properties without the threat of a law suit, this is not the solution to the problem. Not permitting an association to spend money on consultants without first sending notice to the owners of the action, the problems, the anticipated duration or the likelihood of success seems to put the cart before the proverbial horse. You can not send a notice to owners with the required information without understanding the scope of the issues which an association cannot do without hiring experts.
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