On March 9, 2017, the
Colorado Court of Appeals announced its decision in Broomfield Senior Living Owner, LLC v. R.G. Brinkmann Company, No.
16CA0101, 2017 COA 31 (Colo. App. Mar. 9, 2017). As a matter of first
impression, the Court evaluated whether a senior living facility constitutes
“residential property” protected by the Homeowner Protection Act of 2007 ("HPA")
provision of the Construction Defect Reform Act (CDARA).
In 2007, Plaintiff
Broomfield entered into a contract with Defendant Brinkmann for construction of
a senior assisted and independent living facility. The contract contained
warranty provisions related to the quality of construction and cautioned that Plaintiff’s
failure to provide Defendant with prompt notice of any defects would result in
waiver of any claim for breach. The contract also limited Defendant Brinkmann’s
liability by identifying three separate accrual provisions that would determine
the time period in which Plaintiff could bring a claim. The project was
completed in 2009.
In the fall of 2012,
Plaintiff Broomfield observed the presence of sewer flies in the building and decided
to conduct further investigation into potential causes. In November 2013, Plaintiff
presented Defendant Brinkmann with a notice of claim identifying numerous construction
defects at the facility. A lawsuit ensued.
Brinkmann successfully defeated
Plaintiff’s claims at the trial court level by relying on the accrual period
and the notice requirement delineated in the parties’ contract. Under the terms
of the contract, Plaintiff’s claims began to accrue in 2009 and would have
expired in 2011 (even though Plaintiff did not observe the sewer flies until
the following year). In addition, application of the contract meant that, by
failing to provide Brinkmann with prompt notice or an adequate opportunity to conduct
repairs, Plaintiff had waived its right to assert claims for latent defects.
On appeal, Plaintiff
argued that the contractual provisions relied upon by Brinkmann and were void
as against public policy under the HPA. The HPA renders a contract’s limitation
or waiver of CDARA’s rights and remedies void as against public policy in
claims arising from “residential property.” It provides in relevant part:
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” ... 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 HPA was
traditionally understood to safeguard individual homeowners making the most expensive
purchase of their lives from more sophisticated, knowledgeable commercial
builders and sellers. See The
American Heritage Dictionary of the English Language 840 (2000) (a homeowner is
a person who owns the house in which he or she lives); see also Webster's Third New International Dictionary 1082 (2002)
(a home is a house occupied by a family). Plaintiff Broomfield was not an individual
homeowner, however. Instead, it was a sophisticated business entity that
profited by collecting rental income from its senior residents. There was no
apparent disparity of bargaining power in the sale of the subject property.
Would the HPA nevertheless apply to protect plaintiff from effect of its
contract with Defendant Broomfield? The appellate court determined that it
would.
Without delving into
the legislative history of the HPA, the Colorado Court of Appeals held that a
senior living facility constitutes a “residential property” within the meaning
of the enactment. The Court looked at the dictionary definition of “residence”
(a place where people live) and the fact that the property was zoned for
residential use. The court also examined the treatment of “residential real
property” in the context of property tax law, insinuating that its application
to the HPA might stop short of hotels and motels. Broomfield Senior Living Owner, LLC v. R.G. Brinkmann Co., 2017 COA
31, ¶ 21 (“[I]n the context of property tax law, the legislature and the
Colorado Constitution define “residential real property” as all residential
dwelling units and the land they are situated upon, excluding hotels and
motels.”)
The court rejected
Defendant Brinkmann’s argument that the term “residential property” was
ambiguous because it was not defined in the statute itself. Likewise, the fact
that Plaintiff was a sophisticated legal entity that collected rental income -
not an individual homeowner - did not render the property commercial. The Court
clarified that the term “residential” in the HPA is used to describe the property owned, not to limit its
applicability to any specific type of owner, whether an entity or a natural
person.
As a result of the
appellate court’s analysis, the HPA’s protection extended to Plaintiff Broomfield,
the limitation of the accrual of claims contained in the parties’ contract was
void as a matter of public policy, and the longer statutory accrual of claims
periods applied.[1] The suit was no longer time barred and Plaintiff had not waived any claims.
By focusing on the
nature of the property owned, as opposed to who owns the property, the Court’s
decision appears to stray from the HPA’s original purpose - the need to protect
individual homeowners from more sophisticated, knowledgeable commercial
builders and sellers. In a special concurrence, Judge Davidson analyzed the HPA’s
legislative history and acknowledged that “the overwhelming impetus for the
bill was the plight of the individual homeowner—the problem was that homeowners
were being forced to waive important rights in order to enter into a contract
to buy a house.” Even so, Judge Davidson went on to opine that the lack of any
discussion or voiced concerns in the legislature indicated that it was “assumed as a given that a purchaser of
‘residential property’ included not just an individual homeowner, but also the
(more sophisticated and far less vulnerable) purchaser of mixed-use and
multi-family properties.”
Unless and until the
Colorado Supreme Court addresses this issue, the appellate court has opened the
door for big businesses to use a special protection meant for individual
homeowners as a loophole in contracts for the purchase of any property that may
be considered “residential.” And this, of course, invites further questions as
to what other types of properties could potentially fall under that definition.
For more information regarding the Broomfield Senior Living case or construction law in Colorado, you can reach Maggie Stewart by telephone at (303) 987-9814 or by e-mail at stewart@hhmrlaw.com.
[1] CDARA links the accrual
of construction defect claims to the date of discovery. See C.R.S. § 13-80-104(2)(b)(I) (…“a claim for relief arises under
this section at the time the claimant or the claimant's predecessor in interest
discovers or in the exercise of reasonable diligence should have discovered the
physical manifestations of a defect in the improvement which ultimately causes
the injury.”) It was uncontested that the “physical manifestations of the
defect” or flies in the plumbing were discovered in the fall of 2012. Thus, in
contrast to the shortened accrual provisions described in the parties’
contract, under CDARA, Plaintiff’s claims would be considered timely because it
would have had until 2014 to bring suit. See
C.R.S. § 13-80-104(1)(a) (incorporating the two-year statute of limitations for
tort actions).
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