Earlier this month, in Broomfield Senior Living Owner, LLC v. R.G. Brinkmann Co., the Colorado Court of Appeals determined that senior-assisted and independent living facilities are “residential property” and protected by the Homeowner Protection Act (“HPA”), a provision contained within Colorado’s Construction Defect and Reform Act (“CDARA”). The appellate court’s opinion could have far-reaching and unintended consequences for construction professionals, insurance companies, and sureties.
Generally under CDARA, parties to a construction contract must bring their claims within two years after the claim “arises.” In this context, a claim arises at the time a claimant discovers the physical manifestation of a defect. Unless public policy prohibits it, Colorado law permits parties to a construction contract to agree to limit their liability, such as limiting the effect of an applicable statute of limitation by defining when a claim arises or shortening the statute of limitation. The HPA expressly prohibits limitations to residential property owners’ rights, providing that any limitations to residential property owners’ remedies are void as against public policy. Thus, despite the fact that the parties may have freely negotiated that the owner’s defect claims must be brought within six months of the contractor performing the defect, if the owner’s property is deemed to be “residential property,” the HPA will void that six-month contractual limitation clause and subject the parties to CDARA’s two-year limitation period. As one can see, determining if a particular piece of property is “residential” may significantly impact how owners and construction professionals manage and price their risks on a project.
In Broomfield Senior Living, an owner contracted with a contractor for the construction of a senior facility that would house rent-paying seniors. The owner and contractor agreed to limit the contractor’s liability and the owner’s rights and remedies. In particular, their contract provided that a claim for defects arises when the contractor performed or failed to perform the defective work. This contractual provision purported to modify CDARA’s statute of limitation, which provides that an owner’s claim arises when it discovers the physical manifestation of the defect. The court determined whether CDARA or the parties’ contract language controlled when the owner could bring its defect claim, and the court’s decision turned on whether the senior facility was residential or commercial property. The court held that the senior facility was “residential property” within the meaning of CDARA and the HPA, basing its decision on three grounds: (1) the dictionary definition of “residential”; (2) the zoning of the property; and (3) other definitions of “residential” in Colorado statutes and case law.
According to the court, the status of the parties and their right to freely contract does not matter under the HPA. So long as the construction project involves a place where people reside, live, and dwell, the owner of the property is afforded protection under the HPA. This decision follows a general policy tenet that certain things are sacred in society, and that includes the places we live, regardless if we are paying rent to a landlord or a mortgage to bank. If there is a defect, the owner deserves some protection because its property houses human lives.
However, the Colorado appellate court’s decision could have far-reaching consequences. Most obviously, “residential property” could easily extend beyond senior facilities under the court’s reasoning. Over the last several years, the Colorado multi-family construction market has strongly skewed toward building apartment complexes, reflecting an industry belief that CDARA does not affect – or create risk for – the construction of apartments in the same manner that it does for single-family homes and condominiums. Now that Colorado courts have expanded the HPA’s protections to any place where a person resides, this decision could affect the risks and liabilities for apartment complex constructors and sway the direction of the home construction market.
Not only that, the court’s decision to rely upon zoning considerations makes for difficult application. For instance, there are certain kinds of properties that do not neatly fit any classification—such as college dormitories, boarding schools, halfway houses, rehabilitation facilities, or other group homes. These types of properties do not traditionally fall under the term “residential” or “commercial,” but they might now because they could be considered within the court’s “residential property” definition or they are zoned for residential use. Then, there are properties zoned for mixed-use; the court gave no consideration on how to handle a property zoned for both commercial and residential activities. Still further, there are instances where a building is zoned for residential use but is never occupied in that manner, or a building that is zoned for commercial use but is (unlawfully) used for or constructed for residential purposes. In these circumstances, it is unclear if a property would gain or lose residential status because of its actual or intended use.
These kinds of considerations are left open after Broomfield Senior Living, but owners and construction professionals should consider when entering into contracts to make improvements to any kind of property. In particular, after Broomfield Senior Living, construction professionals should be concerned with the kind of property (and not the kind of owner) and the property’s potential uses when determining, managing, and pricing its construction risks.
Since this case was just decided, it is not currently known if the Colorado Supreme Court will review Broomfield Senior Living. If this case is appealed, the Colorado Supreme Court will interpret this statute on its own, giving no deference to the prior courts, which could lead to a wholly different interpretation.
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