The Top 5 Challenges of Litigating Construction Defects in Colorado.
Complex new state laws in Colorado.
Litigating these defects is highly complex. The legal landscape shifted dramatically with the passage of the "Colorado American Dream Act" (HB25-1272), which took full effect in 2026. For property owners, community associations, and commercial investors, recovering the costs of poor builder workmanship requires navigating a maze of procedural and statutory hurdles.
Colorado's rapid population growth over the last decade has driven massive development across the Front Range. From expansive single-family neighborhoods in Aurora to high-rise commercial and condominium projects in downtown Denver, the pace of construction has been relentless. Unfortunately, fast-tracked development, combined with Colorado’s challenging soils and climate, frequently leads to severe construction defects. Here are the top five challenges property owners face when pursuing a construction defect claim in Colorado today.
1. Achieving the New 65% HOA Voting Threshold (Condos & Townhomes)
For Homeowners Associations (HOAs) managing multi-family communities, the initial hurdle to litigation is now significantly steeper. Historically, an HOA board only needed a simple majority vote from its unit owners to authorize a construction defect lawsuit against a developer.
Under the recent legislative changes implemented in 2026, the threshold has been raised. An HOA must now secure affirmative approval from 65% of all unit owners in the community before initiating a claim. In large condominium buildings or sprawling townhome communities in cities like Aurora, achieving a 65% consensus requires a massive logistical and educational effort. Boards must proactively communicate the severity of the defects, share independent engineering reports, and explain the financial risks of inaction long before a formal vote is ever called.
2. Beating the Clock on Strict Statutes of Limitations and Repose
Time is one of the most unforgiving factors in Colorado construction defect law. Property owners are bound by two distinct clocks:
The Statute of Limitations: Owners generally have only two years to file a claim from the moment they discover—or reasonably should have discovered—the physical manifestation of a defect.
The Statute of Repose: Regardless of when a defect is discovered, there is an absolute deadline based on the project's completion date. Traditionally, this is six years from substantial completion, with a possible two-year extension if the defect is discovered late in that window.
Adding to the complexity, the newly created Multifamily Construction Incentive Program (MCIP) alters this timeline. If a developer voluntarily opted into the MCIP by offering specific upfront warranties and utilizing third-party inspectors during the build, the statute of repose is strictly capped at six years. Identifying hidden structural issues, such as improperly compacted soils under a foundation, before these arbitrary deadlines expire requires vigilant property management and early expert intervention.
3. Overcoming the "Economic Loss Rule" (Commercial Properties)
Commercial property owners and investors face a unique set of challenges compared to residential homeowners. Colorado courts generally presume that commercial entities are sophisticated enough to negotiate comprehensive contracts. Consequently, commercial defect claims are heavily restricted by a judicial doctrine known as the "Economic Loss Rule."
This rule prevents a plaintiff from recovering damages under tort claims (such as negligence) if those duties are already covered by the terms of a contract. For example, in a recent high-profile case involving a Denver restaurant, the Colorado Supreme Court ruled that a negligence claim could not proceed because the allegedly defective wall installation was already governed by the construction contract. For commercial owners, this means that boilerplate contract waivers limiting damages or restricting recovery for business interruption are highly likely to be enforced by a judge, making early contract review vital.
4. Navigating the Notice of Claim Process and Fee-Shifting Penalties
Before filing a lawsuit, Colorado’s Construction Defect Action Reform Act (CDARA) requires claimants to serve the responsible builder with a formal Notice of Claim (NOC). This process grants the builder the right to inspect the property and make an offer to repair the damage or provide a monetary settlement.
Recent legal updates have attached aggressive financial risks to this pre-litigation phase. Under new fee-shifting provisions, if a claimant rejects a builder’s settlement offer and subsequently takes the case to court, they must win a judgment greater than the builder's original offer. If the court awards the same amount or less, the claimant may be forced to pay the builder’s attorney fees and legal costs. This dynamic forces property owners to rely on highly accurate, independent cost estimates to evaluate settlement offers objectively, ensuring they are not pressured into accepting inadequate "caulk and walk" repairs.
5. Fulfilling the Duty to Mitigate and Mandated Repair Spending
Colorado law now places strict, enforceable responsibilities on the victims of construction defects. Property owners—whether a single-family homeowner or a large community association—have an affirmative duty to mitigate damages. If a roof is leaking, the owner must take reasonable, temporary steps (such as tarping or sealing) to prevent further water intrusion and interior mold growth. Failing to mitigate can legally bar the owner from recovering damages for any subsequent deterioration.
Furthermore, the law dictates exactly how recovered funds must be utilized. If an HOA successfully secures a settlement or jury verdict, the monetary damages cannot be deposited into general reserve funds or used for unrelated community upgrades. The proceeds must be strictly and exclusively used to repair the alleged defects first. This requires meticulous accounting, isolated bank accounts, and early coordination with construction managers to ensure compliance.
Protect Your Property & Community with Hearn & Fleener’s Expert Knowledge.
Litigating a construction defect case in Colorado demands a highly strategic, evidence-driven approach. Whether you are managing an Aurora townhome community facing structural settlement, or a Denver commercial asset dealing with building envelope failures, understanding these five challenges is the first step in holding negligent builders accountable and protecting your property's value.
Reach out to our team at 303-993-6835, email us at info@hearnfleener.com, or visit us online at www.hearnfleener.com to schedule your free consultation.