August 25, 2019

Colorado Court of Appeals Kicks the Can as to Whether HPA Voids Limitations-of-Liability Clauses in Residential A/E Contracts Between Construction Professionals

Tim_GordonBy Timothy Gordon

Colorado’s Homeowner Protection Act (the “HPA”) protects homeowners by voiding any contractual provision that would result in the waiver of a homeowner’s rights under the Construction Defects Action Reform Act. C.R.S. § 13-20-806(7)(a). But some have argued that this same law should also void certain waivers and releases in agreements between construction professionals working on residential projects. Recently, the Colorado Court of Appeals was faced with, but did not decide, this issue.

The HPA provision in question provides as follows:

In order to preserve Colorado residential property owners’ legal rights and remedies, in any civil action or arbitration proceeding described in section 13-20-802.5 (1), any express waiver of, or limitation on, the legal rights, remedies, or damages provided by the “Construction Defect Action Reform Act”, this part 8, or provided by the “Colorado Consumer Protection Act”, article 1 of title 6, C.R.S., as described in this section, or on the ability to enforce such legal rights, remedies, or damages within the time provided by applicable statutes of limitation or repose are void as against public policy.

C.R.S. § 13-20-806(7)(a).

The reference to “section 13-20-802.5(1)” is to the definition of the word “Action”, which is defined as “a civil action or an arbitration proceeding for damages, indemnity, or contribution brought against a construction professional to assert a claim, counterclaim, cross-claim, or third party claim for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in the design or construction of an improvement to real property.” So the basic argument is that construction professionals who bring cross-claims or third party claims for indemnification against other construction professionals should be protected under C.R.S. § 13-20-806(7)(a).

In Taylor Morrison of Colorado, Inc. v. Bemas Construction, Inc., et al., 2014 COA 10, Taylor Morrison hired Terracon to perform certain geotechnical engineering and construction materials testing for a residential subdivision that Taylor Morrison was developing. After many homes were constructed, homeowners began complaining about cracks in the drywall. Taylor Morrison investigated the complaints and ended up spending significant amounts of money to remedy the defective conditions.

Taylor Morrison then sued Terracon to recover the money that it spent remedying the defects. Terracon’s contract with Taylor Morrison limited Terracon’s liability to $550,000, but Taylor Morrison was seeking more. So Taylor Morrison filed a motion with the trial court, asking the trial court to determine whether the HPA invalidated the limitation of liability in its contract with Terracon. The trial court ruled in favor of Terracon, holding that the HPA did not apply to invalidate a limitation of liability clause in a contract between it and Taylor Morrison because the HPA was meant to protect homeowners, not commercial entities. The Court of Appeals affirmed, but on different grounds. Specifically, the Court of Appeals held that the HPA could not apply retroactively to the contract between Terracon and Taylor Morrison. So the issue of whether the HPA would void a limitation of liability in an engineer’s agreement with a developer remains unresolved at the appellate level.

Consider the outstanding issue in light of the Court of Appeals’ decision in Mid Valley Real Estate Solutions V, LLC v. Hepworth-Pawlak Geotechnical, Inc., et al., 2013 COA 119. There, the Court of Appeals held that a bank holding title to residential property qualifies as a “homeowner” for purposes of the economic loss rule, and therefore may bring tort claims against construction professionals for construction defects. The Court’s reasoning in Mid Valley Real Estate Solutions is broad enough to include just about any person or entity holding title to residential property. So query the following:

  • Can developers who still hold title to homes that they have developed sue their own subcontractors and consultants in tort for alleged construction defects under Mid Valley Real Estate Solutions?
  • If so, are the developers bound by limitations of liability in their contracts with their subcontractors and consultants, or does the HPA void such limitations?
  • Finally, does it make sense to make a distinction between developers who still hold title to homes and developers who no longer hold title to homes when deciding whether or not the HPA applies?

Timothy Gordon represents construction and commercial real estate clients in complex disputes, and understands the interrelationship between the long-term real estate development, project construction, and property management. A thought leader in construction law, he currently authors Construction Law in Colorado, a blog that provides insight on key cases and developments relevant to construction law in Colorado, where this post originally appeared on February 21, 2014. He is the Co-Managing Editor of The Practitioner’s Guide to Colorado Construction Law, a three-volume treatise on construction law in Colorado.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Timothy Gordon: Including Accrued Interest in Lien Statement Does Not Render it Void as Excessive

Editor’s Note: The Colorado Court of Appeals’ opinion in Honnen Equipment Co. v. Never Summer Backhoe Service, Inc. can be read here.

In Honnen Equipment Company, Inc. v. Never Summer Backhoe Service, Inc. (Colo. App. July 7, 2011), a division of the Colorado Court of Appeals held that the inclusion of interest in a lien statement does not render the lien void as an excessive lien.  In doing so, the Court had to distinguish prior Supreme Court precedent holding that a mechanics’ lien may not include late charges.

Generally, the Colorado mechanics’ lien statute provides that a lien claimant is entitled to a lien in the amount of the value of the services rendered or labor performed and materials furnished for the improvement of real property.  C.R.S. § 38-22-101(1).  When recording a mechanics’ lien, one must be careful not to overstate the amount.  The reason is that anyone who knowingly records an overstated lien not only forfeits their lien rights but also can be liable to the owner for costs and fees.  C.R.S. § 38-22-128.

In Honnen Equipment Co., the lien claimant included accrued interest in its mechanics’ lien.  The owner argued that interest may not be included in a lien because interest does not represent the value of the work performed to benefit the property.  Therefore, according to the owner, the inclusion of accrued interest in a lien statement renders it excessive and therefore invalid pursuant to C.R.S. § 38-22-128.

The Court of Appeals disagreed.  In its holding, the Court of Appeals distinguished the Colorado Supreme Court’s holding in Independent Trust Corp. v. Stan Miller, Inc., 796 P.2d 483 (Colo. 1990).  In Independent Trust Corp., the Supreme Court held that late charges recoverable by contract were not lienable.  While the Court of Appeals acknowledge that interest, like late charges, does not represent the value of the work performed, the Court of Appeals held that interest is lienable because it is specifically mentioned in the mechanics’ lien statute as being recoverable.  See C.R.S. § 38-22-101(5).  According to the Court, “[t]he intent of section 38-22-128 is to punish and deter those who abuse the mechanic’s lien statute by knowingly and intentionally claiming excess amounts that are totally unrelated to the construction project.”

Timothy Gordon is a partner at Holland & Hart who focuses his practice on the construction and commercial real estate industries. He is the author of the firm’s Construction Law in Colorado blog, where this post originally appeared on August 9, 2011.He is also one of the managing editors for CBA-CLE’s Practitioner’s Guide to Colorado Construction Law.

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Case Law: Smith v. Executive Custom Homes, Statute of Limitations and the Construction Defect Action Reform Act

The Colorado Supreme Court issued its decision in Smith v. Executive Custom Homes on May 10, 2010.

Construction Defect Action Reform Act—Personal Injury Claims—Claim Accrual—Statute of Limitations—Statutory Interpretation—Repair Doctrine—Equitable Tolling.

In this appeal from a grant of summary judgment, the Supreme Court held that claims for personal injury under the Construction Defect Action Reform Act begin to accrue for purposes of the two-year statute of limitations at the time the claimant first discovers, or in the exercise of reasonable diligence should have discovered, the physical manifestations of the defect that ultimately causes the injury. The Court further held that the statute’s notice of claim and tolling provisions preclude equitable tolling under the repair doctrine.

The Court reverses the ruling of the court of appeals. The case is remanded with instructions to affirm the ruling of the trial court.

The Rocky Mountain Appellate Blog covered the case in more depth yesterday.

Summary and full case also available here.

CBA-CLE publishes the Practitioner’s Guide to Colorado Construction Law–the definitive desktop guide for Colorado construction law attorneys.