August 18, 2019

HB 14-1165: Limiting the Amount of Payment Property Owners Can Withhold from Construction Professionals

On January 21, 2014, Rep. Randy Fischer and Sen. Lois Tochtrop introduced HB 14-1165 – Concerning a Limit on the Retainage Allowed under a Private Construction Contract. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires property owners who contract for improvements to real property to:

  • Pay 95 percent of the amount due, which limits the amount retained to ensure the quality of work to 5 percent; and
  • Pay subcontractors the retainage after the work is finally accepted.

If a person fails to make required payments, the person must pay interest and is liable for attorney fees. These requirements are enforceable in court. Contractual provisions that do not comply with the requirements are unenforceable. A statute of limitations to enforce the bill is set for one year.

The bill is assigned to the Business, Labor, Economic, & Workforce Development Committee; the bill is scheduled for committee review on Thursday, Feb. 27 at 1:30 p.m.

Colorado Court of Appeals: Regardless of Homeowner Protection Act’s Application to Commercial Entities, Retrospective Application Not Allowed

The Colorado Court of Appeals issued its opinion in Taylor Morrison of Colorado, Inc. v. Bemas Construction, Inc. on Thursday, January 30, 2014.

Construction Defect—Homeowner Protection Act of 2007.

Taylor Morrison of Colorado, Inc. (Taylor) was the developer of a residential subdivision known as Homestead Hills (Project). Pursuant to written contracts with Taylor, Terracon Consultants, Inc. (Terracon) performed geotechnical engineering and construction material testing services at the Project. Bemas Construction, Inc. (Bemas) performed site grading.

After many of the homes were constructed, Taylor began receiving complaints about cracks in the drywall of homes. Taylor remedied the defective conditions, and then sued Terracon and Bemas for breach of contract and negligence, among other things.

Ten months after the deadline to amend pleadings, Taylor moved for leave to add claims against Terracon for gross negligence, negligent misrepresentation, and fraudulent misrepresentation/concealment, as well as a demand for exemplary damages. These claims were based, in part, on allegations that Terracon had willfully and wantonly breached duties to Taylor when it ignored or concealed inadequate subsurface soil conditions at the Project. The trial court denied the motion to amend the pleadings.

Taylor also moved for determination as to whether the Homeowner Protection Act of 2007 (HPA) invalidated the limitation of liability clauses in the contracts with Terracon. The trial court denied the motion on the ground that the HPA applies to residential property owners but not to commercial entities.

Terracon moved for leave to deposit into the court’s registry $550,000, representing the maximum amount that Taylor could recover from Terracon under the contractual limitation of liability clauses and the court order. It also requested that upon acceptance of such deposit, the court should declare Taylor’s claims against Terracon moot and dismiss them with prejudice. The trial court ruled in favor of Terracon. The money was deposited and the claims were dismissed with prejudice.

Taylor then went to trial against Bemas. The jury returned a verdict in Bemas’s favor on all of Taylor’s claims against it. Taylor appealed.

Taylor argued that it was error to rule that the HPA did not invalidate the limitation of liability clauses in Taylor’s contracts with Terracon. The Court of Appeals affirmed the trial court’s judgment, but for different reasons. The Court held that regardless of whether the HPA applies to commercial entities, retroactive application of the HPA to these facts would be unconstitutionally retrospective. The Courtconcluded, however, that further proceedings were necessary to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct to attempt to overcome Terracon’s assertion of the limitation of liability clauses.

Taylor also argued that if a new trial is ordered against Terracon, a new trial as to Bemas also should be granted. The Court held that the Bemas’s liability was distinct and separable from Terracon’s liability and there would be no injustice or unfairness to Taylor in allowing the verdict for Bemas to stand. The judgment was affirmed and the case was remanded to the trial court to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct for the sole purpose of attempting to overcome Terracon’s assertion of the limitation of liability clauses at issue.

Summary and full case available here.