Will Lakewood Be Sued Over Its New Construction Defects Ordinance?

Will Lakewood Be Sued Over Its New Construction Defects Ordinance?

Earlier this week, Lakewood became the first Colorado city to pass an ordinance aimed at increasing condo construction, which has slowed to a near-halt in the metro area as builders back off for fear of getting sued for construction defects. The ordinance makes it more difficult for homeowners' associations to jump straight to a lawsuit, partly by giving builders the right to attempt to fix the problems first.

But will the ordinance, which passed on a 7 to 4 vote, hold up in court? Molly Foley-Healy of the Community Associations Institute, which opposed the measure, says she has no doubt that Lakewood will be sued on the grounds that the city overstepped its bounds.

See also: Has Condo Construction Hit a Wall in Denver?

"Home-rule municipalities have the ability to pass ordinances that are strictly of local concern," says Foley-Healy, who is the chairwoman of CAI's legislative action committee. But this ordinance, she says, addresses a matter of statewide concern.

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"This is not an issue just pertaining to Lakewood," Foley-Healy says. "It's the position of CAI that the city of Lakewood violated its authority under home rule."

CAI and other entities are examining all possible recourse, she says, including a lawsuit. In the meantime, she adds, other cities would be wise to wait before following in Lakewood's footsteps, as Mayor Bob Murphy has suggested they will.

"It would be unwise for other municipalities to take up an ordinance that attempts to trump state law," Foley-Healy says. As for the ordinance itself, she says that CAI thinks "it's a rotten shame that City of Lakewood, in order to spur condominium construction, had to strip away the rights of homeowners to recover for their construction defects.

"We're concerned this action is going to create the next slums of Colorado. Those developers who don't have any incentive to build quality construction will cut corners and create less-than-quality construction because they know they can't be sued for it."

Those who support the ordinance predict a different outcome. "I've said from the beginning that I believe this enhances consumer protection," Murphy says.

The ordinance sets up a specific process for dealing with construction defects, such as leaky windows or sloping floors, that may be discovered in future multi-family housing. Murphy reiterated several times on Monday night that the ordinance doesn't apply to current condo projects in Lakewood but to ones that may be built in the future.

Under the ordinance, a homeowner who finds a defect must notify the builder in writing and describe the problem. The builder then has the right to inspect the alleged problem, make an offer to repair it and then do the actual repair. If a homeowners association still decides to sue the builder, the ordinance requires that it get the consent of a majority of homeowners. An amendment approved on Monday night allows homeowners to vote on any potential lawsuit by direct proxy.

State law does not include such a high bar for filing a lawsuit. Nor does it include a "right to repair." Recent attempts to amend the law to include such a right have failed.

Those who testified in favor of the ordinance called it "moderate" and "balanced." It provides a way for homeowners to get their defects fixed without jumping into lengthy litigation that can make it nearly impossible for them to refinance or sell their units, they said. It also gives honest builders a chance to fix their mistakes.

Proponents also hope it will spur condo construction. Condos, they said, are needed to maintain a diverse population that includes first-time home-buyers and empty nesters. They're also important to businesses that need housing for their workers. The fact that there is little owner-occupied, multi-family housing available along the Front Range is "a mark against us," said Mizraim Cordero of the Colorado Competitive Council.

Murphy hopes that with the ordinance on the books, Lakewood will soon see builders putting forth proposals to build condos in the city. A few told the city council on Monday night that the ordinance would allow them to do just that.

"It is only Colorado where the issue of whether to build condominiums because of the legal environment ever comes up in our company," said Rod Mickelberry of Cardel Homes, which also does business in Florida and Canada. Recently, he said, Cardel canceled plans to build twelve condos in the city's Solterra community.

"After much work and expense, we stopped that project," Mickelberry testified. "Our reason? Too much risk. Period."

But a minority of city councilors think the ordinance itself poses too much risk. They believe that addressing the issue of too few condos (and too many construction defect lawsuits?) is the job of the state legislature and not of city government.

"I believe we need a consistent statewide fix," said city councilor Ramey Johnson, who voted against the ordinance. "This is clearly a legislative matter, not a municipal issue."

Added Johnson: "Passing this ordinance makes us very vulnerable to a lawsuit."

As for whether the city will face a lawsuit, the mayor says he doesn't know. What he does know, he says, is that Lakewood's action has called more attention to a problem that state lawmakers have been slow to solve. "This is a lack of building a product that the state economy desperately needs, and it can no longer be brushed under the rug," he says.

Follow me on Twitter @MelanieAsmar or e-mail me at melanie.asmar@westword.com

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