Denver tries to spur condo construction by limiting homeowners’ right to sue
Monday Denver became the latest municipality to enact so-called construction defects reform. City Council approved a proposal out of the Mayor’s office that will make it harder for homeowners to file defects claims about sinking foundations, moldy walls, or leaking roofs. The rationale is that developers will build more if they’re not so scared of getting sued all the time.
Councilmember Debbie Ortega said she wasn’t thrilled with the measure, but voted “yea” because the city desperately needs more affordable housing.
“I don’t want to see Denver become a Manhattan where only people with the highest incomes can afford to live here,” she said. “I’m crossing my fingers this (ordinance) will result in further construction.”
Indeed, the measure was crafted to spur a segment of Denver’s housing market that’s lagging behind the rest: new, for-sale condominiums.
The city has seen an influx of new residents (60,000 over the past five years, and another 50,000 expected over the next five), but a nosedive in condo construction. Data from Metrostudy shows that condominiums make up just under 4 percent of new owner-occupied housing — a 21 percent drop from 2007.
According to city attorney David Broadwell, homebuilders are deterred by high liability, exorbitant insurance premiums and the risk of pricey litigation.
“Denver officials believe that the dearth in condominium construction is a direct result of recent trends in construction defect litigation brought by some condominium homeowners associations against homebuilders,” he wrote in an October memo. “Simply put, the costs and risks associated with high-rise condominium projects have made the construction of these projects prohibitive, except at the very highest price point.”
Denver’s new ordinance is modeled after legislation cooked up at the state level.
That bill had bipartisan sponsorship. It passed the GOP controlled state Senate before dying (narrowly) in the Democratic controlled House. Had it become law, mediation or arbitration would be the preferred method to resolve construction defect disputes in Colorado, rather than in court. And the majority of homeowners would have to be on board to sue.
But since that legislation failed, construction-defects reform has been playing out on the local level. Lakewood was the first municipality to pass a defect ordinance, with Lone Tree, Aurora, Littleton, Parker and Commerce City all following suit.
Denver’s ordinance looks similar to those others: It ensures disputes get settled through arbitration or mediation, not in court; requires the consent of most condo unit owners for litigation to move forward; and prevents homeowners associations from rewriting community bylaws to make room for lawsuits. But Denver’s adds some new dimensions: A project can’t be called “defective” if it’s built and maintained according to the city’s building codes; and defects that do violate code only count if they’re linked to actual damage or injury.
As someone who moved into a defective condo himself, Denver native Jonathan Harris doesn’t think shifting even more risk onto consumers is a viable solution to the city’s housing woes.
He and his partner bought a new condo in Five Points in 2004. When it rained for the first time, he discovered it leaked. Water seeped into the stucco facade, and soon the building’s shoddy awnings and balconies began to sag. And he wasn’t alone — two other units in the complex became uninhabitable.
When Harris’ homeowners association tried to resolve the issue with the developer, friendly talks failed, mediation failed and arbitration didn’t really do the trick either.
“It became apparent they weren’t really trying to fix things — they were just trying to stall for time.”
Harris and the other plaintiffs had time, but not endless money. In the end, moving forward with the suit was too risky a prospect.
Binding arbitration clauses — like the kind homebuyers will be forced into under this new ordinance — are designed to resolve disputes quickly and cheaply by avoiding court. But when the non-negotiable bylaws governing a common-interest community like a condominium complex are drawn up by the developer, details like who arbitrates a dispute, where, when and for how much end up stacking against homeowners.
The New York Times recently did a tour-de-force report on how clauses buried in the fine print end up screwing those who sign them. And it’s not just condo owners — just about everyone who participates in the economy likely sacrifices their constitutional rights.
“Over the last few years, it has become increasingly difficult to apply for a credit card, use a cellphone, get cable or Internet service, or shop online without agreeing to private arbitration,” reporters Jessica Silverstein-Greenberg and Robert Gebeloff wrote in part one of the three part series. “The same applies to getting a job, renting a car or placing a relative in a nursing home.”
Jonathan Harris founded Build Our Homes Right in the midst of his decade-long legal headache. The homeowners’ rights group has been pushing back against these construction defect ordinances everywhere they crop up in Colorado. He recognizes that their efforts have been somewhat futile — every municipality that considers a defect ordinance adopts it — but remains committed to getting his message out.
“From my side it looks like they (city officials) feel it’s more important to cater to developers than to take care of their constituents,” Harris told The Independent. “I’m just worried people aren’t paying attention to what’s going on.”
Government watchdog group Colorado Ethics Watch found that nearly 80 percent of campaign contributions in last year’s municipal elections came from corporations and Political Action Committees. Mayor Michael Hancock ran unopposed but nonetheless raked in $372,659.51 from business interests.
“I hear anecdotally from citizens all the time, ‘all of our City Council people are in the pocket of developers’ or ‘developers run this city,’” Ethics Watch senior counsel Peg Perl told The Independent‘s Bree Davies in August. “What I think people don’t realize is that developers are actually allowed to give money. People aren’t aware that companies can just cut checks and give them to candidates’ campaigns, because that’s not the norm at the state or federal level.”
Council member Paul Kashmann of District 6 was the sole “nay” vote Monday night.
“It (the ordinance) gives a small nod to the interests of homebuyers when something goes amiss, but it’s just not designed to protect them,” he said. “With all these warnings in mind, I just can’t support it this evening.”
Councilmember Raphael Espinoza of District 1 agreed. “There are things in here that give me pause … but I do think there’s an opportunity to make corrections down the road.”
He voted to pass the ordinance.
At-large councilmember Debbie Ortega acknowledged that the measure “won’t do anything to help people who have already purchased and have issues,” like Harris, and promised she would “pay very close attention to the effect this has on consumers.”
She also voted to pass the ordinance.
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