Construction defect lawsuits, which caused countless headaches for builders in the early 2000s, have returned to Colorado. “If it’s a multifamily project and it hasn’t been sued, it will be,” says Amie Mayhew, CEO of the Colorado Association of Home Builders, with certainty.

But there’s a new twist this time around. In late April, Denver will open the first branch of FasTracks, the multibillion-dollar light-rail line approved by voters in 2004. The new infrastructure is expected to spur residential and commercial development, particularly near the new stations.

However, builders and local leaders alike are worried that won’t happen, thanks to the risk of construction defect lawsuits for attached housing.

Just as the Denver housing market is rebounding, the supply of new attached projects is disappearing. 

According to CHBA figures, attached product, which includes townhouses, duplexes, and condos, represented 46% of all Denver-area starts in 2008. By 2012, though, that figure had plunged to 17%. Condos have fared even worse. “In a healthy market, we typically see the percentage of multifamily for sale at about 20% of all product being built, and we're currently hovering around 2%,” says Mayhew.

She says financing problems aren’t to blame for the shift in starts away from multifamily. “That’s not an issue for the production builders, and they build the majority of these.”

The trend worries Mile-High area officials, and the Denver Regional Council of Governments is now researching the issue. After all, many localities have invested years into planning and rezoning the land surrounding their communities’ intended FasTracks stations for residential and commercial use. 

“We want density, and that’s not a word often used in suburbia,” says Lakewood (Colo.) Mayor Bob Murphy, whose city is getting seven stations on the rail’s West line opening in late April. “We have done a lot to create the entitlements so that [developers] don’t have to worry about the time and money that getting entitlements can take.” 

Those plans often include for-sale attached housing. “We want to be able to provide housing options for the people in our community who don’t want a three-bedroom, three-bathroom house with a yard,” Murphy says. “It’s so important to get a mix of residential and commercial, and we’re very concerned that in this litigation environment, it may not happen.”

The answer, according to Mayhew and others, may be legislation that offers builders more protection from construction defect lawsuits. 

In January, Colorado state legislators Mark Scheffel, Bill Cadman, and Brian DelGrosso introduced the “Transit-Oriented Development Claims Act of 2013” (Colorado SB 13-052). 

This bill would give builders of transit-oriented developments a right to repair any construction defects that might arise at such a project. (To qualify, the development would have to be a multifamily or mixed-use project within a half-mile of a commuter rail, light rail, or commuter bus stop.) 

“The idea of a right to remedy is a very common-sense solution,” says Murphy, who supports the bill, along with other suburban Denver mayors, the CAHB, and other Colorado real estate and business organizations.

In addition, the bill also would require homeowners and construction professionals involved in such a project to agree to binding arbitration to reach a solution.  

Lastly, it would prevent construction professionals on a transit-oriented development project from being sued for “environmental conditions including noise, odors, light, temperatures, humidity, vibrations, and smoke or fumes causally related to transit, commercial, public, or retail use.”

The “Transit-Oriented Development Claims Act of 2013” is scheduled for its first hearing on Monday, April 15, in the Colorado General Assembly’s Senate Judiciary Committee.  

Learn more about markets featured in this article: Denver, CO.