The Colorado Court of Appeals recently issued an opinion which helps homeowner associations bringing construction defect lawsuits concerning damage to individual townhome or condominium units. In Yacht Club II v. A.C. Excavating, the Colorado Court of Appeals decided the association is the proper party to pursue claims for construction defect damage to individual townhome units. This has been a recurring problem for associations because the builders have asked the courts to require the homeowner associations to either file a class action lawsuit on behalf of all the owners in their community, or to make every single owner in the community a plaintiff in the lawsuit. Both options are unwieldy, time-consuming and expensive. The Colorado Court of Appeals recognized that the Colorado Common Interest Ownership Act specifically authorizes an association to bring an action on its own behalf, and also on behalf of two or more unit owners as long as the matter affects the common interest community. Because portions of individual units are a part of the common interest community, an association is a proper party to bring such claims on behalf of its owners.

The Yacht Club decision also included an important ruling which allows associations to file negligence claims. Builders frequently raise the defense of the “economic loss rule,” which prevents recovery for negligence when the duty breached is a contractual duty and the harm is the result of a failure of the purposes of the contract. Following earlier Colorado Court decisions concerning public policies favoring proper home construction, the Colorado Court of Appeals held that subcontractors owe homeowners a duty of care independent of any contract when constructing homes. Because of Colorado’s strong public policy favoring quality construction of homes, the Court of Appeals decided that homeowner associations can bring negligence claims against subcontractors. Since neither unit owners nor associations have the opportunity to bargain contract terms with subcontractors, negligence claims are allowed. The economic loss rule is not an available defense for the builders.

In light of the recent amendment to the construction defect statute which makes the process of asserting such claims more burdensome, the Yacht Club decision is a welcome signal that the Courts will protect the right of the homeowners to purchase a well-built home, and will preserve legal remedies if the home is not properly built.

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