The Colorado appeals court docket sees important implied guarantee legal responsibility for contractors and builders earlier than Snell & Wilmer

The Denver real estate market has been hot for years. An influx of residents, low housing stocks, and rising property prices make Denver a great choice for home builders and contractors. Last November, however, the Colorado Court of Appeals issued a statement in which the liability of developers and builders in building “communities of common interest” according to Colo. Rev. Stat. § 38-33.3-103 (8).

The players

Brooktree Village Homeowners Association, Inc. v Brooktree Village LLC, 479 S. 3d 86 (Colo. App. 2020) is focused on a 52-unit residential community in Colorado Springs. The original owner built and sold seven townhouses before running into financial problems. Eventually Rivers Development, Inc. (“Developer”) and Brooktree Village, LLC (“Builder”) acquired. The contractor (who the builder established to market and sell the townhouses) acquired the unfinished remainder of the development, with the exception of the public areas, which had already been submitted to the Homeowners Association (“Association”). The client agreed to complete the remaining houses, streets and public areas.

The problems

Shortly after construction was completed, homeowners began to experience problems due to improper grading and drainage. The association then filed a lawsuit against the builder and contractor on behalf of itself and its homeowners, in which claims were asserted for breach of the tacit warranty, negligence and negligence. The association applied for damages to remedy construction defects in the public areas and in a town house in which damage had been caused by construction defects in the public areas. A jury ruled in favor of the association with respect to the implied warranty and negligence claims and awarded damages of $ 1,850,000. The developer and builder appealed to a number of problems, the most important of which are explained below.

The takeaways

The developer and builder claimed that the association was unable to assert its implicit warranty claim. The appeals court disagreed and eventually ruled that a homeowners association can reimburse the full cost of fixing construction defects in public areas if:

  1. The defects are attributable to the developer or builder.
  2. At least two members of the association have bought their homes directly from this developer or contractor. and
  3. These members have the right to use public areas.

With this decision, the court rejected the builder’s argument that the builder could not be sued for breach of the tacit guarantee, since the builder had sold the remaining townhouses, as Colorado’s tacit guarantee for artisanal construction and habitability only from contractual agreements on the Sale of new construction and there was no contractual privacy between the builder and the homeowners. The appellate court found that the builder had given the buyers tacit guarantees by signing the purchase agreement. The court also held that it would be unfair to allow builders to set up intermediary distributors to get rid of responsibility under Colorado’s implicit warranty law.

The appellate court also rejected the argument that the association was unable to pursue its implicit guarantee claim because the builder and developer were not familiar with the association and did not give it any tacit guarantees. The court stated that under Colorado law, a homeowners association can make implied warranty claims on behalf of its members. Thus, the association was able to follow in the footsteps of its members, although it did not have its own contractual relationship with the developer and contractor.

The fact that the builder and developer had never owned the public spaces in question did not offer them any defense. The court only required that defects in these areas be caused by the building contractor or building owner.

Eventually, the court ruled that the builder and contractor were liable for the entire cost of fixing the construction defects in public areas – even though the contractor had sold townhouses to less than half of the current members of the association (and thus owed an implicit guarantee). In order to find something else, the court would withhold a reasonable legal remedy from the direct buyers.

One final note on damage

As noted above, the jury has awarded the club $ 1,850,000 in damages without distinguishing which portion of the award is related to negligence or the implied warranty claim. The jury also found that the club was 10% guilty, but the court did not reduce the compensation accordingly.

The appeals court confirmed and found no error. If the association had only prevailed in its negligence suit, the court would have been obliged to reduce the arbitration award by 10% – the percentage fault of the association. However, the court of appeal found that the association was entitled to the full arbitration award because the association had enforced its implicit warranty claim and the principles of comparative fault do not apply to this claim.

Conclusion

Brooktree Village Homeowners Association, Inc. demonstrates that homeowners and homeowners can be held liable for any damage caused by construction defects in public areas of “Communities of Common Interest”. However, its effect goes far beyond the perceived public areas in condominium complexes. “Common Areas” can include individual entities and “Common Interest Groups” can extend to subdivisions. Accordingly, Colorado builders and contractors – even successors to home builders and builders – should understand the significant liability and consider consulting a legal advisor before starting any residential property project.

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