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. SeeC.R.S. § 13-80-104(1)(a) (incorporating the two-year statute of limitations for tort actions).
