Mandatory Arbitration for Construction Defects?

Written by: on Thursday, February, 2nd, 2017

On February 1, 2017, Senate Bill 17-156  was introduced and assigned to the Business, Labor, and Technology Committee. S.B. 17-156 seeks to require mandatory mediation and/or arbitration for any construction defect action if the association’s governing documents previously required the same. This means that if a prior mediation and/or arbitration clause was amended or removed from the declaration, and the clause relates specifically to construction defect issues, the clause still applies and the association must comply. While S.B. 17-156 potentially limits an association’s options with respect to which forum to bring a construction defect action, S.B. 17-156 does include various protections for associations, such as:
1. An arbitrator is required to follow the substantive law of Colorado with respect to claims, defenses, and remedies, and a failure to do so would be considered grounds for a district court to vacate or refuse to confirm an arbitration award
2. Mediation or arbitration must take place in the judicial district where the community is located
3. The arbitrator must be a neutral third party

S.B. 17-156 further requires that, prior to filing any construction defect claim, the parties must:

1. Submit the matter to mediation before a neutral third party
2. Give advance notice to all unit owners which must include the projected costs, the duration of the dispute, and financial impact of the construction defect claim
3. Obtain the written consent of a majority of the votes in the community, assuming the governing documents do not require a higher percentage.

Finally, S.B. 17-156 requires that, in addition to other contractual requirements already in place, any contract for the purchase and sale of real property in a common interest community include a statement to prospective purchasers advising that mandatory binding arbitration may be required with respect to certain disputes. Please note, as this bill is not yet law, and is still in the early stages, the above procedure is not yet required or binding at this time.

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