The Latest Construction Defect Bill Requires Notice, Disclosure, and Approval Prior to Commencing a Construction Defect Action

Written by: on Monday, February, 20th, 2017

Prior to the beginning of the 2017 Legislative Session, the legislature promised to address construction defect reform.  True to their words, five different and, in some cases, competing bills have been introduced, aimed at addressing construction defects.  The latest bill, SB 17-157, introduced by Senator Angela Williams (D), takes the best of previous attempts at encouraging the construction of condominium housing while improving on the “not so good” provisions.

Generally speaking, SB 17-157, as drafted, does the following:

1.    It requires a meeting of the owners be called to discuss the alleged defects.

2.    It requires at least a 180-day notice to the owners of a construction defect claim, including a statement that:

a.    The alleged construction defects might result in increased maintenance or repair costs to the Association  or increased  assessments or special assessments to cover the cost of repair;
b.    If a claim is not filed before the applicable deadlines, the claims will expire;
c.    Indicating that sellers of units may owe buyers a duty to disclose the known defects;
d.    The executive board has/may enter into a contingency-fee agreement with an attorney (the Association must disclose
e.     If the Association does not prevail on its claim, that the Association might, will, or will not be responsible for paying attorney’s fees.
f.    If the Association does not prevail on its claims, in some situations, a court or arbiter may award costs and attorney’s fees to the opposing party and whether or not the Association anticipated attorney’s fee as well as anticipated costs); may be responsible for paying that award in that situation;
g.    There is no guarantee that the Association will recover sufficient funds to fund all repairs;
h.    The market value of the units may be adversely affected until the repairs are made;
i.    Owners may have difficulty selling or refinancing units until the construction-defect action is completed; and
j.    The meeting called pursuant to the 180-day notice starts the first day of the180-day voting period.

3.    It prohibits a declarant from attempting to contact owners in an effort to gain an abstention or a “no” vote by any threat or inducement that is defined in the bill.

4.    The construction defect action must be approved by a majority of all votes in the community, with the following types of units excluded from the majority calculation:

a.    Developer-owned units;
b.    Units owned by individuals on active duty status in the United States Military as verified on a certificate provided pursuant to the “Service Members Civil Relief Act;”
c.    Units deemed “non-responsive” by a court;
d.    Units owned by a bank or other lending institute; and
e.    Units of a product type in which no defects are alleged if (i) the community is a planned community containing units of different product types (such as single family detached homes, patio homes, townhomes, or duplexes) that are governed by the same Association, and (ii) the units of the product type within the claimed construction defects are not governed by a subassociation.  This provision would allow some owners to proceed with a claim while excluding owners of a product type that is not experiencing construction defects.

5.    The bill also allows for the developer of a community to include a “counter point” to the Association’s claims by issuing a statement in the construction defect notice.  The developer’s notice may be up to 10 pages and must be delivered with the Association’s notice.  The developer may be required to pay for copying costs if the Association elects to send the construction defect notice by mail.  If it is determined that the developer interfered in violation of this bill, the developer will automatically be deemed to have assented to the action.

6.    Finally, the bill exempts the following types of claims from the notice requirement:

a.    Claims in which the defect only impacts portions of the property which are not residential units, such as claims involving club houses or recreation centers;
b.    Claims in which the Association was the original contracting party, meaning claims involving replacement roofs or siding; and
c.    Claims valued under $100,000 are also exempted from the owner-approval requirement.
This bill, as drafted, seems to strike a balance between the mandatory notices that have been the subject of many other bills while striking the requirement that a board provide extensive cost estimates without the ability to investigate the alleged deficiencies in the community.  The bill also eliminates developer tampering within the community and allows just the community to decide how it is best to proceed.

Please stay tuned as we provide updates on this and the four other bills as they move through the legislature.

If you have any questions on the above, please contact any of our attorneys at (303) 432-9999.