The long anticipated construction defect reform bill was introduced into the senate on February 10, 2015 as SB 15-177. Sponsored by Senators Ulibarri and Scheffel in the Senate and co-sponsored by Representatives DelGrosso and Singer in the House of Representatives, the Bill has bi-partisan support.
Similar to the bill introduced last year, SB 15-177 contains three different requirements, all of which are intended to protect the developer of a community. The primary provisions of SB 15-177 are as follows:
- Section 1 of the bill attempts to clearly define who is subject to these amendments and defines a construction defect claim as any “civil action or arbitration proceeding for damages, indemnity, or contribution brought against a development party to assert a claim, counterclaim, cross-claim, or third-party claim for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in the design or construction of an improvement to real property that is part of the common interest community”;
- Section 2 of the bill strips the association of the ability to amend its declaration to remove mandatory mediation or arbitration provisions. These provisions, initially included in an association’s declaration, will be binding, regardless of if or when removed.
- Section 2 also provides that a construction defect claim against a development party must be resolved by the mediation or arbitration service provider provided in the governing documents unless the association is able to prove to an appropriate court that the service provider is not qualified. If the service provider is not qualified, the parties shall cooperate to select one reasonably acceptable to all parties to the claim. If a specific arbitration or mediation service provider is not identified in the governing documents, or if the parties are unable to agree upon the service provider, then:
o With respect to mediation, the parties may petition the district court to appoint a mediator.
o With respect to arbitration, the arbitrator shall be selected in accordance with the Uniform Arbitration Act.
- Section 3 of the bill mandates certain conditions be complied with prior to initiation of a construction defect claim. Prior to making a claim, the common interest community must submit the matter to mediation. If mediation fails, the board must mail or deliver written notice of the anticipated commencement of the action to each unit owner. The notice required must be prepared and signed by a person other than, and not employed by or otherwise affiliated with, the attorney or law firm that represents or will represent the association in the construction defect claim, and must contain a general description of the following:
o The expenses and fees that the executive board anticipates will be incurred by the association in prosecuting the defect claim including expert fees, attorney fees, and any fees it may be liable for it if is not the prevailing party or that it may be required to pay if it elects not to pursue the claim.
o The impact on the value of the units that are the subject of the construction defect claim, both during the pendency of the construction defect claim and after its resolution, as well as the impact on the value of those units if the association does not move forward with the defect claim.
o The impact on the marketability of the units that are the subject of the construction defect claim, including the impact on the ability of owners to refinance and buyers to obtain financing, during the pendency of the construction defect claim and after its resolution.
o The impact on units in which there are no alleged defects.
o The manner in which the association proposes to fund the cost of the construction defect claim, including attorney fees, consultant fees, expert witness fees, and court or arbitration costs, including any proposed special assessment or use of reserves.
o The anticipated duration of the defect action and likelihood of success.
- The notice must be sent no less than 60 days prior to sending the notice of claim and before hiring any experts or consultants, or incurring or agreeing to pay any expert fees or consultants fees in connection with the claim.
- Section 4 of the bill contains mandatory disclosures, at the time of closing, of the dispute resolution requirements contained in the declaration.
As is evidenced from the above, this is a very builder friendly bill that strips nearly every protection associations may have in pursuing a defect claim for poor or defective construction. We strongly encourage you to contact your representative or senator and express your concerns over this bill. As always, you can track the progress of this and all bills here.