Even after members of a key Senate committee rallied around a construction-defects reform bill this week, homebuilders continue to have serious questions about whether it will restart condominium construction in the way its sponsors want.
House Bill 1272 would create a new voluntary program that would make it harder to file condo defects lawsuits and limit the scope of legal actions that can be pursued in exchange for builders offering third-party inspections and warranties on their property. The Senate Local Government and Housing Committee voted 6-1 to send it for debate to the full Senate, the last big hurdle it would have to clear before heading to Gov. Jared Polis’ desk.
Senate President James Coleman and Sen. Dylan Roberts, the Democratic cosponsors of HB 1272 in that chamber, said the bill would go a long way to clearing barriers to construction of condos, which once were 20% of new housing stock but now are 3%. Most builders have stopped creating the typically more affordable housing option seen as key to allowing young professionals an entry point into home ownership because state law makes it so easy to sue over purported defects — an allowance the bill aims to correct.
But throughout the hearing, builders and business groups testified not in support of the bill but seeking amendments — most of which have yet to come, industry leaders said. And without those extra steps, officials said during the hearing and in an interview with The Sum & Substance on Friday, the effect that HB 1272 could have on construction could be much less than desired.
Colorado Senate President James Coleman delivers remarks on the opening day of the 2025 legislative session.
Unresolved issues in construction bill
“This bill doesn’t go far enough to solve the issue it seeks to address,” said Ted Leighty, CEO of the Colorado Association of Home Builders. “I’m not sure that it will achieve its goal … though I’ve never hoped to be more wrong in my life.”
The bill’s unresolved issues largely boil down to several provisions that are or aren’t in HB 1272 right now, Leighty and others said. In attempting to define the limited kind of defects that can generate a lawsuit, the bill is not specific enough. And in specifying the tasks that a third-party inspector can oversee to create affirmative legal defenses for builders, the bill is too prescriptive.
On defects, the bill continues to allow lawsuits if there is damage that substantially affects the functionality of a system, causes loss of the use of real or personal property, results in bodily injury or wrongful death, causes unreasonable reduction in the ability of a building component to perform its function or causes an unreasonable risk of bodily injury. Those terms are much vaguer than definitions in a 2024 bill that died in the House, and they could lead to a significant number of suits being filed still, Leighty asserted.
Reducing the frequency and magnitude of legal claims must be the point of the bill, as the overwhelming number of claims under existing law has driven insurance rates for condo construction so high that most builders have exited that submarket. A report from the Common Sense Institute noted that while insurance comprises 1.1% of the cost of apartment construction, it is 5.5% of the price tag of building owner-occupied multifamily housing structures.
Problems with inspections and attorneys’ fees
When prescribing the need to use a third-party inspector to certify that construction is being doing correctly, the bill just picks up what is now a common practice required by insurers on many building projects, Leighty noted. However, the wording in HB 1272 mandates the inspectors watching over certain parts of construction must have expertise in those components of building — meaning that 10-12 inspectors could be required for each project, adding enough costs that the returns on building affordable condos could not pencil out, he said.
Finally, a provision in the bill allows judges to award attorneys’ fees if it’s deemed that builders do not make a reasonable offer to homeowners claiming defects within a defined 120-day window. This too is troublesome, Leighty noted, because the time required to inspect the purported defects and make a thorough counteroffer of repair could be close to 120 days, leaving little time for negotiations and more incentive for attorneys to claim they didn’t get a reasonable offer.
Leighty emphasized that the construction community is grateful to the sponsors for HB 1272, which has garnered more support than any construction-defects reform effort in eight years and takes several substantial steps to try to solve the problem. But he wants any bill that passes to be able to move the market and get major builders to participate in the voluntary program and start putting up attainably priced condos again, and he’s just not sure that HB 1272 can do that yet.
Construction could be slow without easier financing
Alison Morgan, director of state government relations for the Colorado Bankers Association, explained further during Thursday’s hearing that there remains too much uncertainty around whether the bill will cut down on lawsuits. And that uncertainty will cause uncertainty among financiers, which could lead to continually high interest rates, requirements for greater collateral on construction loans and shorter maturity dates on the loans — all of which may inhibit new condos.
“Anytime there’s uncertainty in the industry, leaders have to take that into account when making loans,” Morgan told the committee. “It could then increase risk in the market.”
That hesitancy among builders to fully embrace the bill came as the Build Our Homes Right coalition of homeowners and plaintiff’s attorneys, which typically has opposed reform efforts as ways to strip condo owners of their legal rights, has begun to embrace HB 1272. On Thursday, sponsors added two amendments that coalition leaders said go a long way to easing concerns that the bill would tilt the legal playing field too much in builders’ favor.
One of the amendments assures condo owners that they can file lawsuits not just for defects but for claims allowed in other parts of Colorado law, such as breach of contract, if the builder failed to deliver on type or quality of amenities promised in the home. The other states that it the statute of repose is set to run out before the warranties that builders are required to provide, that statute can be paused until repairs are completed, in order to give homeowners a legal avenue if they don’t feel builder adequately corrected problems.
Opponents coming around on bill
Janine Musser, a member of the Build Our Homes Right coalition, speaks during a virtual news conference
“Homeowners are relieved that HB 1272 sponsors listened to us and added important protections so it will still be possible to hold builders accountable for repairing new homes with significant construction problems,” said Janine Musser, a coalition member, in a statement after the vote.
One other outstanding issue involves a request to add to the bill a reporting requirement so that the Colorado Department of Local Affairs could track the number of builders that participate in the voluntary program and the number of condos that they put up. Organizations including the CAHB and the Colorado Springs Chamber of Commerce called the reporting vital validation of whether the pilot program is working or must be changed, but legislators have balked at what they say is too high a price tag to add the requirement.
Sponsors can still work to add some of the builder-requested changes to the bill on the Senate floor, but they risk upsetting the delicate balance with former critics of reform if they are viewed as making the bill too builder-friendly. But they also face what is now a publicly stated concern that they could pass a supposedly market-changing bill that does nothing, leaving Colorado still without a vital lower-cost housing option while its housing costs are 28% higher than the national average.