The “Colorado American Dream Act:” H.B. 25-1272’s Construction Defect Reforms

On March 28, 2025, the Colorado House passed House Bill 25-1272 on second reading with floor amendments.  The bill — titled the “Colorado American Dream Act” — seeks to address Colorado’s housing crisis by encouraging construction of for-sale multifamily housing, such as condominiums and townhomes, through targeted legal reforms.

H.B. 25-1272 would create a new, voluntary framework under C.R.S. § 13-20-803.3: the Multifamily Construction Incentive Program.  Projects built under this program would be governed by a separate set of litigation rules, designed to reduce construction defect claims, and encourage builder participation in the entry-level housing market.

This post provides a comprehensive breakdown of the bill’s key provisions, as amended on second reading, and explains why one new element — a fee-shifting provision tied to settlement negotiations — may have unintended and counterproductive consequences.  The current version of the bill is available here.

Legislative Purpose

According to legislative findings, Colorado is short at least 100,000 housing units, and the state’s legal climate — particularly for construction defect litigation — is frequently cited as a barrier to condominium development.  The bill aims to provide a more predictable litigation framework for builders willing to meet higher construction and warranty standards, thereby reintroducing condominiums and townhomes into the housing market for first-time and moderate-income buyers.

Multifamily Construction Incentive Program (C.R.S. § 13-20-803.3)

Beginning January 1, 2026, builders of multifamily, attached housing can opt in to the program by:

• Providing written warranties for:
  • One year on workmanship and materials,
  • Two years on plumbing, electrical, and mechanical systems, and
  • Six years on structural components
• Submitting their projects to third-party inspections, as defined in C.R.S. § 13-20-802.5(6), which must be performed by licensed construction professionals or certified inspectors (e.g., ICC-certified) with no connection to the builder.  These inspections are designed to catch and correct deviations during construction.

Litigation Protections for Participating Projects

If a builder complies with the program’s requirements, the following litigation protections apply:

Certificate of Review for Architects and Engineers

Claimants must file a certificate of review, signed by a third-party licensed professional, for claims against design professionals.  The bill changes current law, which requires such certificates of review to be filed within sixty days of serving a claim against a licensed professional, C.R.S. § 13-20-602, by requiring the certificate of review to be filed with the complaint naming the licensed professional.  The certificate must assert that the defendant deviated from professional standards.  The same requirement applies to a builder who designates a design professional as a nonparty at fault.

Threshold for Actionable Defects

Claims are limited to those involving:

• Functional failures
• Loss of use of property
• Safety risks
• Bodily injury or death
• Significant physical damage

Superficial or minor code deviations alone are not actionable.

Rebuttable Presumption from Certificate of Occupancy

If a project receives a certificate of occupancy from a governmental entity, there is a rebuttable presumption that the property does not contain a construction defect.

Statute of Repose

The statute of repose for defect claims is:

• 10 years generally
• Reduced to 6 years if the builder provided the statutory warranty or if the claim is against a compliant architect or engineer

Tolling is available for both the notice of claim process and during mitigation efforts, capped at one year.

Affirmative Defenses

Builders participating in the program may assert affirmative defenses if damages were caused by:

• Extreme weather or third-party actions beyond design criteria
• Owner neglect or failure to maintain
• Post-sale alterations or misuse
• A valid release
• A successful repair performed during the notice process

I am not sure whether this actually changes anything in construction defect litigation.  If a builder could prove any of these to exist, there would be a defense to the owners’ claims anyway.  Proving that the damage was caused by extreme weather, owner neglect, or misuse would already defeat the causation element of the owners’ claim.  In short, these are issues frequently litigated in construction defect cases today.  Adding them as enumerated affirmative defenses will not change the litigation landscape.

Fee-Shifting: A Major Change—With a Limited Scope

H.B. 25-1272 introduces a new attorney fee-shifting provision — but only for projects governed by C.R.S. § 13-20-803.3 (i.e., projects in the Multifamily Construction Incentive Program).

If the builder makes a written offer to repair or settle, and the claimant unreasonably rejects that offer, the court may award attorney fees to the builder.  Conversely, if the builder fails to make a reasonable offer, the court may award fees to the claimant.

Importantly, the bill now defines what is and is not “reasonable,” removing ambiguity from prior drafts.  Under C.R.S. § 13-20-803.5(12)(d):

• If the claimant recovers less than or equal to the amount offered (or the reasonable value of the proposed repair), the builder’s offer is deemed reasonable, and the rejection is deemed unreasonable.
• If the claimant recovers more than the offer or repair value, the offer is deemed unreasonable, and the rejection is deemed reasonable.

This bright-line rule improves clarity and predictability, but fee awards remain discretionary and subject to court interpretation of “reasonable value” where repairs are involved.

Why Fee-Shifting Is Still Problematic

As we have discussed in our prior blog post, “Attorney’s Fee Clauses Are Engraved Invitations to Sue,” fee-shifting mechanisms often have unintended consequences:

• They raise the stakes of litigation, especially in lower-value or ambiguous claims
• They create pressure to settle for fear of being hit with fees—even in meritorious cases
• They incentivize strategic behavior rather than resolution on the merits

While H.B. 25-1272 wisely limits its fee-shifting rule to a subset of projects, the provision still risks making settlement decisions less about fairness and more about fear.  It will deter plaintiffs’ attorneys from working with builders to extend the notice of claim deadlines in order to make it exponentially more difficulty for builders to make “reasonable claims” within the tight deadlines found in C.R.S. § 13-20-803.5.  Giving builders only thirty days to inspect a multi-family project and another 30 days to formulate a repair plan, price it out, and get carrier authority to extend an offer is a Herculean task.  The current language of the bill will entice plaintiffs’ attorneys to refuse any extensions in order to ensure that it is as difficult as possible to make a reasonable offer, opening the floodgates of litigation and demands for attorneys’ fees.

HOA Litigation Rules Updated

The bill also amends C.R.S. § 38-33.3-303.5:

• Increased approval threshold: HOA boards must now secure approval from 65% of unit owners (up from a simple majority) before initiating a defect claim
• Use of proceeds: Any damages recovered must first be applied to repairing the defects that were the basis of the claim

Increasing the percentage vote required appears to be an attempt to fix the 2017 legislative reform, which dropped the percentage a builder could require in its declarations, capped at 67%, to a simple majority.  See Colorado House Bill 17-1279 – A Misguided Attempt at Construction Defect Reform – Higgins, Hopkins, McLain & Roswell, LLC.

Conclusion

House Bill 25-1272 is a bold and largely thoughtful effort to address the risk environment that has chilled condominium development in Colorado.  By offering builders a choice — to receive greater protections in exchange for enhanced warranties and inspections — the bill creates a parallel track for responsible developers and provides meaningful consumer protections.

However, the inclusion of attorney fee-shifting, even with clear standards, still runs the risk of overcorrection.  The legislature would be well advised to monitor the implementation of this provision closely or consider refining it further before final passage.

While the bill may be a step in the right direction, the inclusion of attorneys’ fees alone would be enough for us to consider recommending to Colorado’s construction community that they not enroll their projects in the Multifamily Construction Incentive Program.  Even for builders that do opt in to the program, I do not think that the benefits outweigh the risks, and I do not believe that the new legislation would appreciably reduce the size or frequency of construction defect litigation, nor do I think that the bill goes far enough to spur the multi-family construction that the state so desperately needs.

For more insights on Colorado construction law, visit our blog.  If you have questions about H.B. 25-1272 or how it may affect your business or your clients, contact Dave McLain at mclain@hhmrlaw.com or (303) 987-9813.