Uncertainty Surrounding the Statute of Repose in Colorado Construction Defect Actions

Shane Fleener[1]

While a statute of limitations begins running when a claim arises, a statute of repose bars bringing a suit after a set period of time, regardless of whether an injury has occurred or a claim has arisen.[2]  In general, the purpose of a statute of repose is to prevent parties from asserting “stale claims” and to reduce the so-called “long tail” of liability created by the discovery rule.[3] 

In Colorado, construction defect cases are governed by the six-year statute of repose contained within C.R.S. § 13-80-104, which states as follows:

[A]ll actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within [two years] after the claim for relief arises, and not thereafter, but in no case shall such an action be brought more than six years after the substantial completion of the improvement to the real property.[4] 

While interpretation of this statute may be a simple matter in some cases, considerable uncertainty arises in the context of large construction defect litigation involving a homeowners association that has sued a developer and its subcontractors for construction defects affecting the association’s property at large.  This uncertainty stems from the fact that the statute of repose does not begin running until “substantial completion” of the improvement to real property, a term that is not statutorily defined and that has not been addressed by the Colorado Supreme Court or any of the Colorado Appellate courts.  As a result of this uncertainty, subcontractors and developers will argue that a single integrated community contains numerous and overlapping statutes of repose that begin to run upon substantial completion of each individual subcontractors’ work and/or upon substantial completion of each individual item of construction.  In some instances, such as early grading work performed by a subcontractor that subsequently leaves the project, this could result in the statute of repose expiring prior to the association even being formed.  For this reason, homeowner’s associations will argue that, with respect to a single common interest community, the project contains a single date of substantial completion, and therefore a single statute of repose, that is triggered upon substantial completion of the project as a whole.  This article summarizes the arguments supporting this latter position. 

The Statute’s Plain Language and Public Policy

When interpreting an ambiguously-worded statute, courts strive to give effect to the legislative purposes by adopting an interpretation that “best effectuates those purposes.”[5]  Because the statute of repose is in derogation of the common law, the courts must strictly construe it “to limit its application to the clear intent of the General Assembly.”[6] 

Although the statute of repose does not expressly define the term “substantial completion,” the statute’s plain language refers to a single, distinct point in time when the integrated improvement as a whole is substantially complete.[7]  This interpretation comports with a common sense interpretation of the statute and Colorado’s public policy for several reasons.  First, the statute refers to the “substantial completion” of the “improvement” to real property, not the completion of a component part of a larger improvement to real property. 

Second, the interpretation of C.R.S. § 13-80-104 often urged by developers and subcontractors would create a complex morass of different “substantial completion” dates—one for each subcontractor and/or component of construction—for an integrated residential construction project such as a common interest community.  This would lead to unjust results because homeowners, who are not present during construction, would have no basis for knowing when the various statutes of repose for each component of a project had begun running.  This would also unnecessarily and inequitably complicate an aggrieved homeowner’s right to sue the responsible parties, burden the justice system with multiple lawsuits, and oblige homeowners, judges, and juries to sort through the complex and confusing process of determining a separate substantial completion date for each subcontractor and/or component of an integrated construction project.  This inequitable and confusing result is not what the General Assembly intended when enacting the six-year statute of repose. 

Third, the interpretation of C.R.S. § 13-80-104 urged by developers and subcontractors would violate fundamental principles of fairness because the numerous statutes of repose would all be triggered before the issuance of a Certificate of Occupancy.  Therefore, the statutes would be running before homeowners are even permitted to occupy their homes, thus making it impossible for homeowners to be aware of any defects.[8]

In addition, most homeowners associations, along with the property they control, are created as a single integrated common interest community pursuant to Colorado’s Common Interest Ownership Act (“CCIOA”).[9]  CCIOA was adopted by the legislature for the express purpose of “establish[ing] a clear, comprehensive, and uniform framework for the creation and operation of common interest communities.”[10]  According to Representative Kerns, CCIOA’s sponsor, and David Kirch, a drafter of CCIOA, a primary purpose of the statute is to “give homeowners associations greater ability to sue developers for construction defects” and to pursue such an action “without a lot of legal hoops to jump through.”[11]  To that end, CCIOA specifically seeks to “strengthen[] homeowner associations . . . through . . . more certain powers in the association to sue on behalf of the owners.”[12]  To effectuate this purpose, the legislature expressly conferred on a homeowners association the right to “[i]nstitute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the common interest community.”[13]

Furthermore, because the units are part of the common interest community, a homeowners association is also expressly authorized to sue on behalf of “two or more”  homeowners for damages to the individual units.[14]  The interpretation of C.R.S. § 13-80-104 urged by developers and subcontractors would circumvent CCIOA’s legislative intent because if independent statutes of repose began running at separate times in relation to each subcontractor and/or element of construction, the time-frame during which an association would be able to assert a claim for defects affecting the entire project would be significantly reduced (or eliminated) to the times when the various statutes of repose happen to overlap. 

Case Law from Colorado  

No Colorado appellate court has held, or even implied, that completion of a component part of an integrated construction project creates a separate “substantial completion” date from which the statute of repose begins to run for claims related to that component of a project, or that the statute of repose begins to run with respect to a subcontractor at any time before the developer or general contractor finishes all of its work on a construction project.  Instead, Colorado cases interpreting the statute of repose support the conclusion that a construction project has one “substantial completion” date, measured from the completion of the project as a whole. 

For example, in May Department Stores, the court held that the statute of repose began to run for claims against the architect involved in building a shopping mall upon “substantial completion” of the project as a whole, a date which coincided with the occupation and “grand opening” of the mall.[15]    Nowhere does the case suggest that separate “substantial completion” dates existed for each of the subcontractors involved in the mall’s construction.  Rather, May supports the conclusion that completion of the project as a whole and completion of all of the developer’s and general contractor’s work triggers the running of the statute of repose.

In another case, Yarbro v. Hilton Hotels Corp., the plaintiff brought suit against Hilton Hotels and the designing architects, alleging that construction defects led to his wife’s death.[16]  Despite the fact that the architect’s work on the project was completed prior to the completion of the hotel, the Colorado Supreme Court held that the date of “substantial completion,” for purposes of the statute of repose, was the date a Certificate of Occupancy was issued for the entire hotel.[17] 

In addition, several Colorado district courts have addressed the issue of when the statute of repose begins to run in the context of similar construction defect cases.  Consistent with May and Yarbro, these district court opinions establish that there is only one date of substantial completion: when the project as a whole is completed.  For example, the El Paso County District Court in Messier v. Heartview Co. held that the “substantial completion” date for purposes of the statute of repose was the completion date of the construction project as a whole, and completion of a discrete component of the project did not trigger the repose period.[18]  Messier involved a multi-home residential construction development where the overlot grading contractor argued that the statute of repose began running with respect to claims against it at the time that it completed its particular component of the construction project.  In determining whether “substantial completion” referred to the project as a whole versus the individual component of grading, the Messier court explained that if a construction component was completed by a subcontractor on behalf of the general contractor creating a larger project, then the repose period began running from the date of the completion of the entire residential construction project, and not just a part of it.[19]

The Adams County District Court has reached the same conclusion.[20]  More specifically, the Honorable Judge Crabtree held that, “[f]or purposes of the commencement of the statute of limitations/repose the Court holds that it was the date the last certificate of occupancy was issued.”[21]  In reaching this conclusion, Judge Crabtree found persuasive the reasoning of the court in Messier, which held that “substantial completion of a residential project occurs when the project as a whole is completed, not just a portion of the improvements.”[22] 

The Arapahoe County District Court has reached the same conclusion with regard to C.R.S. § 13-80-104, holding:

[T]he [project] was “substantially completed” . . .  when construction of the Project ended. This interpretation is consistent with the legislature’s intent to limit infinite liability for construction defects and simultaneously preserves a “fixed point” from which the statute of repose runs.  Adopting [subcontractor’s] interpretation would create a separate statute of repose for each individual subcontractor. In addition to the complications arising out of a piecemeal approach, such an interpretation would create an inequitable advantage for those contractors who complete their work early in the construction of an improvement—especially where a substantial portion of the statute of repose has run prior to occupancy.[23]

Case Law from Outside Colorado  

Apart from Colorado district courts, several other jurisdictions have held, based on nearly identical statutory language to Colorado’s, that “substantial completion” for purposes of the statute of repose means substantial completion of the project as a whole, not a separate completion date for each subcontractor or component of a project.  For example, in Patraka v. Armco Steel Co.,[24] the court analyzed Pennsylvania’s improvement to real property statute of repose, which is almost identical to Colorado’s, except that it provides for a twelve-year repose period; it specifically bars any action more than twelve years after completion of an improvement “[f]or any deficiency in the design, planning, supervision or observation of construction, or construction of an improvement to real property.”[25] 

In Patraka v. Armco Steel Co., the plaintiff sued the general contractor and numerous subcontractors involved in a highway’s construction for injuries arising from a car accident allegedly caused by defects in the highway’s sub-base construction. The highway’s sub-base was completed in 1963, and the highway’s Certificate of Completion was issued in October 1964.  The court determined that the statute of repose began running from the completion of the entire highway, not just the sub-base component:

[Our] Act, like legislation passed in a majority of jurisdictions across the country, cuts off such liability at a point when the legislators, in their collective wisdom, believe that a builder would be unfairly prejudiced in attempting to assert a defense to charges of defective design or construction.

Since the Act is designed to cut off the potential liability caused by the abolition of the “completed and accepted” rule, it would seem to follow that the limitations period would begin to run at or near the time the builder is exposed to the additional liability.  That is, by employing the phrase “after completion of . . . an improvement,” it appears that the General Assembly intended to mark the commencement of the limitations period as that point when third-parties would be exposed to any defect in design or construction.  This would be when the entire improvement, and not merely a component part, is so far completed that it may be used for its intended purposes by the general public. 

Had the legislature intended to have the limitations period begin running at an earlier point they could have, as have other legislatures, stipulated that the period begins to run after completion of the defendant’s services.  Or the Act could have specified that the period begins to run from the date the defective subpart of the improvement is completed.  By using instead the general term “improvement,” the conclusion seems inescapable that the General Assembly was referring to the overall improvement under construction.[26]

Similarly, in Rosenthal v. Kurtz, the court reversed the trial court’s grant of the defendant-architects’ summary judgment motion based on Wisconsin’s six-year statute of repose applicable to real property improvements.  There, the architects had completed their services more than six years before the plaintiffs filed suit, but the construction project as a whole had been completed less than six years before plaintiffs filed suit.[27]  The court held that the statute of repose for claims against the architects began running from the date of completion of the entire construction project, not just completion of the architect’s component of the work. 

And finally, in Federal Reserve Bank of Richmond v. Wright, the court determined that Virginia’s statute of repose applicable to real property improvements did not bar the plaintiff’s claims against the defendant-architects.  The court explained, “a reasonable construction of the statute would suggest a single limitation period to run from the final completion date of the entire project.”[28]  

CONCLUSION

Based on the foregoing, Colorado homeowners associations have a strong argument that the statute of repose in construction defect cases begins running upon substantial completion of the project as a whole. 

 

 


[1] Mr. Fleener graduated from Loyola University Chicago School of Law in 2004. The senior associate attorney at McKenzie Rhody & Hearn, LLC., Mr. Fleener has assisted in the representation of hundreds of homeowners associations across the state of Colorado, including the representation of homeowners associations at the appellate court level. Mr. Fleener has also spoken numerous times at Community Association Institute (CAI) events regarding construction defect litigation and, in particular, Colorado's notice of claim process and the statute of limitations.  

[2] Two Denver Highlands L.L.L.P. v. Stanley Structures, Inc., 12 P.3d 819, 821 (Colo. App. 2000).

[3] Cornforth v. Larsen, 49 P.3d 346, 348 (Colo. App. 2002).

[4] Colo. Rev. Stat. § 13-80-104(1)(a).

[5] Smith v. Exec. Custom Homes, Inc., 230 P.3d 1186, 1189 (Colo. 2010). 

[6] Gleason v. Becker-Johnson Assocs., Inc., 916 P.2d 662, 664 (Colo. App. 1996). 

[7] Colo. Rev. Stat. § 13-80-104(2). 

[8] Denver, Colo., Uniform Building Code § 160.1 (1997) (“All new buildings or structures except miscellaneous buildings or structures shall not be used or occupied until a Certificate of Occupancy is issued”).         

[9] Colo. Rev. Stat. § 38-33.3-102(1)(a). 

[10] Id. 

[11] Hearing on H.B. 1292 Before the H. Comm. On Judiciary, 4, 13 (1991) (statement of Rep. Kerns) (statement of David Kirch).

[12] Colo. Rev. Stat. § 38-33.3-102(1)(b). 

[13] Colo. Rev. Stat. § 38-33.3-302(1)(d)

[14] Yacht Club II Homeowners Assoc.v. A.C. Excavating, 94 P.3d 1177, 1180 (Colo.  App.  2003), aff’d, 114 P.3d 862, 869 (Colo. 2005). 

[15] May Dep’t Stores Co. v. Univ. Hills, 789 P.2d 438, 438-39 (Colo. App. 1989). 

[16] Yarbro v. Hilton Hotels Corp., 655 P.2d 822, 824 (Colo. 1982) (en banc). 

[17] Id. at 824–26.

[18] Messier v. Heartview Co., Case No. 01 CV 2837 (El Paso Cty. Dist. Ct. Oct. 17, 2003) (Order).

[19] Id.

[20] Heritage Greens at Legacy Ridge Homeowners Ass'n, v. Heritage Greens at Legacy Ridge, L.L.P., No. 06CV713 (Adams Cnty. Dist. Ct. June 10, 2008).

[21] Id. 

[22] Id. 

[23] Kensington Townhomes Homeowners Ass’n. v. Kensington Townhomes, L.L.C.,  No. 2006CV5212, *7 (Arapahoe Cnty. Dist. Ct. Sept. 2008) (emphasis added). 

[24] 495 F. Supp. 1013, 1018-19 (D.C. Pa. 1980).

[25] Pa. Stat. Ann. 12 § 65.1 (1977) (repealed and reenacted by 42 Pa. Cons. Stat. Ann. § 5536 (1979)).

[26] 495 F. Supp. at 1019 (quotations, citations, and footnotes omitted).

[27] Rosenthal v. Kurtz, 213 N.W.2d 741, 742, 746-47 (Wis. 1974). 

[28] Fed. Reserve Bank of Richmond v. Wright, 392 F. Supp. 1126, 1130 (E.D. Va. 1975).