A recent Colorado Supreme Court decision, Smith v. Executive Custom Homes, Inc., 230 P.3d 1186 (Colo. 2010), considerably shortens the time limit for bringing many construction defect lawsuits.  Homeowners and homeowner associations risk losing the right to seek reimbursement from builders, developers and other construction professionals unless they carefully and quickly act upon discovery of evidence of any potential construction defect.

The Statute of Limitations for Construction Defect Claims
Colorado’s construction defect statute of limitations limits the time for homeowners and homeowners associations to bring lawsuits for construction defects against “construction professionals,” including developers, general contractors, builders, engineers, architects, other design professionals, inspectors and subcontractors.  The statute requires homeowners and associations to file suit within two years “after the claim for relief arises.”  A claim for relief “arises” when a homeowner or association discovers or reasonably should have discovered the physical manifestation of a construction defect.

The two-year time limitation applies to each construction defect separately, and will begin to run upon the appearance of a “manifestation” of a construction defect (which may include, for example, a condition as simple as a roof leak or drywall cracks), even if the homeowner or association does not know the cause of the apparent problem.

The Smith Opinion and its Effect on the Statute of Limitations
In Smith v. Executive Custom Homes, Inc., the plaintiff homeowner, Mrs. Smith, slipped on ice that had accumulated on her sidewalk because of a leaking gutter and suffered injury.  When she first noticed the leak, she reported it to her property manager, who reported it to the builder.  The builder attempted to repair the gutter, unbeknownst to Mrs. Smith, and she did not notice further problems until approximately one year after she first observed the leak, when she fell and suffered serious injury.  She sued the builder within two years of her injury, but nearly three years after she first learned of the leak.

The Colorado Supreme Court dismissed Mrs. Smith’s claims as untimely and held that under the construction defect statute of limitations, the two-year period for suing for injuries due to construction defects begins when the homeowner first observes the physical manifestation of the defect, even if the resulting injury has not yet occurred.  The court acknowledged that this ruling could result in “unfair results,” especially if a serious and unforeseeable injury occurs more than two years after the first time the homeowner noticed the problem, and as a result the victim is unable to seek redress from those responsible for the defect.

The fact that Mrs. Smith’s builder made inadequate repairs to the leaking gutter did not save her claims.  Before Smith, under longstanding Colorado case law, the two-year period for bringing a lawsuit was tolled (extended) during the time period when a builder or other construction professional investigated and attempted to make repairs to correct apparent construction defects.  Smith held that this “repair doctrine” no longer applies since Colorado’s legislature adopted the Construction Defect Action Reform Act (CDARA).  As a result, a homeowner or homeowners association’s two year period to bring a claim continues to run even though a builder is making repairs.

Protecting Yourself and Your Association After Smith
After Smith, homeowner association boards must take extra care to protect the association’s legal rights to recover for necessary repairs and for injuries and property damage caused by construction defects.  Association boards have a fiduciary obligation to promptly investigate potential defects.  Boards should assume that the two-year time period for bringing claims is running from the time the first signs of a potential defect are discovered, regardless of what the builder, developer or other construction professional says or does.

To protect the association’s rights, boards should consider taking some or all of the following actions upon first discovering the manifestation of a possible construction defect:

Calendar two years from the date the board became aware of potential problems.

  • Promptly and thoroughly investigate potential defects.
  • Do not rely on experts hired by potentially responsible construction professionals.
  • Consult with construction defect attorneys regarding serving a Notice of Claim to formally inform the potentially responsible construction professionals of the problems and to toll the two-year limitations period for a limited time during the ensuing Notice of Claim process.
  • Negotiate written tolling agreements with all potentially responsible entities during discussions, investigations and negotiations regarding potential defects.
  • Thoroughly investigate, with the help of experts, the likely efficacy of any repair proposed by potentially responsible construction professionals.
  • Keep in mind that an association’s governing documents may need to be amended before suit can be filed, and leave several months’ time to do so.
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