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Are lawsuits preventing condos from being built?

Scott Hente last built condominiums a couple of years ago. Despite a hot market, he's not itching to build more.

The co-owner of Robert Scott General Contractors and former City Council president says his last project nearly landed him in a lawsuit with the condos' homeowners association over alleged "construction defects." Such legal kerfuffles can result when there are defects in materials, design or workmanship, inadequate grading and drainage, or other deficiencies.

Though the suit was never filed and the dispute was resolved, the threat of legal action made it nearly impossible for Hente to find insurance to build more multi-family housing.

Hente says he was willing to make any needed repairs, so the whole fiasco seemed absurd.

"If you build multifamily, you'll get sued," Hente says. It's a common refrain among Colorado builders, and it's blamed for a statewide shortage of affordable housing.

A 2014 city/county study found that El Paso County has an estimated gap of 24,513 affordably priced housing units, which was expected to grow over five years.

Year to date, the Pikes Peak Regional Building Department has issued 2,687 new home permits. But of those, only 199 are townhomes and just 11 are condo units.

The state legislature has considered bills that would make it harder to file construction-defect lawsuits. The most recent failed in the last session.

With defeat at the state level, at least 10 Colorado municipalities are looking at, or have passed, their own measures. Colorado Springs City Council is scheduled to consider one on Nov. 24.

Councilor Jill Gaebler, chair of Council's Infill and Redevelopment Committee, says such a measure will encourage redevelopment.

"It's less the fact that builders don't want to build," she says. "They do want to build, but they can't even get insurance to build these properties."

The proposed law, which would apply only to condos and townhomes, would require all homeowners to be informed of any proposed litigation and that 51 percent of them — rather than just the HOA board — vote to move forward with it. The builder would also have the right to inspect and repair any damage, or to offer a cash settlement to avoid a lawsuit. If the homeowners are not satisfied with the repairs, or if the builder does not respond within the time allotted, a suit could be filed.

The proposal has earned the support of the Council for Neighbors and Organizations, the Colorado Springs Regional Business Alliance, the Downtown Partnership and the Housing and Building Association of Colorado Springs. But certain homeowners, along with the Colorado Trial Lawyers Association, have argued that such laws are an attack on homeowners' rights and claim the lack of affordable housing has many causes.

Colorado doesn't require contractors to be licensed the way plumbers and electricians are, leaving the decision to local governments. So when a problem occurs with a new home, it's generally either handled with a handshake or taken to the courts.

California, in contrast, licenses 44 classifications of contractors, who must meet specific requirements and undergo background checks. The California Contractors State License Board oversees the requirements and fields complaints when defects occur. Rick Lopes, chief of public affairs for the board, says homeowners can file complaints about latent problems on new construction for 10 years.

"That's a whole level of regulation and oversight in California that you don't have," he says.

David Fogt, the board's chief of enforcement, says each complaint is examined on its merits. Sometimes the board will bring in a third-party expert to decide whether the defects are caused by the contractor. Contractors found to be at fault are given a chance to fix the problem or to offer a cash settlement. Contractors who fail to respond risk losing their licenses to work in California.

"We've had more than 18,000 cases a year," Fogt says. "More than 70 percent of the time, we can resolve the complaint within 60 days."

Fogt adds the complaint process saves people from years of expensive litigation. When lawsuits are pursued, they deal with significant problems, especially on a commercial property; loss of life caused by a defect; or a lawyer trying to obtain payment from a contractor's insurance company.

Ken Grossbart, an attorney with Abdulaziz, Grossbart & Rudman in North Hollywood, often represents builders in construction-defects lawsuits. Despite what he calls "very strict" regulations, he says he's "very pro"-licensing board. In his experience, lawsuits arise when a claim is very expensive. And they apparently don't deter builders, as condo and townhome projects are popular there.

While it's hard to say whether other state systems mirror California's precisely, the National Association of State Contractors Licensing Agencies, a member organization, lists similar boards in states across the country.

Todd Welch, attorney for Pikes Peak Regional Building Department, says regulations on contractors vary across Colorado, but he considers our region's strict. Contractors here do need licensing, which is issued through PPRBD.

Still, the local system doesn't compare to California's. While a consumer can file a complaint about a defect, PPRBD boards simply decide whether the complaint is warranted; they can't force the contractor to repair the damage or pay up. If enough complaints rack up, they can revoke the contractor's license — though the contractor could simply work elsewhere in the state.

For consumers, lawsuits may be the only option, which Welch thinks is unfortunate.

"Litigation is never a good solution, in my opinion," he says, noting the price of a lawsuit often exceeds the cost of repairs.

Both Welch and Hente say they're unsure whether a system like California's would work well in Colorado, but they do seem sure that such sweeping changes are unlikely to be adopted.

"[That's] a dramatic difference from what we have in Colorado today," Hente says, "and obviously something like that would not happen overnight."

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