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Supreme Court Upholds Arbitration in Construction-Defects Cases

June 5, 2017

The Colorado Supreme Court on Monday delivered a boost to real estate developers hoping to build more condominiums in a market starved for more affordable housing.

construction defects
CCIG’s Scott Carslon.

In a 5-2 ruling, the court said the Vallagio at Inverness Residential Condominium Association was wrong in ignoring a provision in its bylaws requiring it to obtain the developer’s OK to bypass arbitration in construction-defect disputes.

Metropolitan Homes, the developer of the Vallagio project, had turned over control of the association’s board of directors to the project’s unit owners in 2010. The association’s bylaws, however, included a section whose provisions stated that it “shall not ever be amended without the written consent of (the developer).”

Developers largely stopped building condos at least in part because of the state’s construction-defects law, which has led to numerous lawsuits and made insurance more costly. There’s been a slight uptick in condo construction recently, but demand remains far ahead of supply.

That’s why advocates say the idea of arbitration, instead of a drawn-out, expensive court case, should appeal to anyone who finds themselves in a construction-defects battle.

This isn’t about stripping consumers of their protections, they say. Builders whose workmanship is shoddy should be held accountable.

But arbitration means not having to hire expensive lawyers. It means cases are heard much more quickly than a lawsuit wending its way through the often-clogged court system. It allows the disputing parties to select an arbitrator who has experience in the field.

Perhaps most importantly, arbitration in no way immunizes builders from liability – a point that even the American Trial Lawyers Association (now known as the American Association for Justice) will readily affirm.

A little more than two years ago, the state Court of Appeals ruled that arbitration provisions couldn’t be removed from homeowner association bylaws without the builder’s consent.

In issuing its ruling on Monday, the state Supreme Court agreed.

Hoping to help address the issue, lawmakers earlier this year passed a bill that requires a majority of homeowners in a condo complex to agree to take legal action against a developer when problems arise. Previously, lawsuits could proceed with just the approval of the board of a homeowners’ association.

Scott Carlson is a Vice President at CCIG. Reach him at or 720-330-7925.

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