Supreme Court Affirms Declarant Consent

Supreme Court Affirms Declarant Consent Required for Removal of Arbitration Provision for Construction Defect Claims

On June 5, 2017, the Colorado Supreme Court issued its ruling in Vallagio at Inverness Residential Condominium Ass’n, Inc. v. Metropolitan Homes, Inc. et al. (Supreme Court Case No. 15SC508).  The Supreme Court affirmed the court of appeals and ruled:

1. The Colorado Common Interest Ownership Act (“CCIOA”) permits a declarant to reserve the unlimited right to approve any declaration amendment altering the mandatory arbitration provision for construction defect claims; and
2. The Colorado Consumer Protection Act (“CCPA”) does not prohibit arbitration of construction defect claims.

The Court reviewed CCIOA and determined that the statute’s plain language expressly envisions situations where a declarant can retain the right to object to a proposed declaration amendment despite the fact that the amendment to remove arbitration was approval by 67% of owners.  Further, the Court stated it is permissible under CCIOA to require certain disputes be resolved by binding arbitration which is also consistent with Colorado’s public policy favoring arbitration as a preferred method of alternative dispute resolution.  The Court held the declarant’s consent-to-amend provision remains enforceable and the attempted removal by the Association owners was ineffective.   They noted that its approval of the declarant’s consent-to-amend provision was limited to the resolution of the construction defect claims before it, and expressed no opinion on whether other consent-to-amend provisions would be upheld in other contexts.

The Court also found that although the CCPA provides a right to a civil action, that right may be waived.  The declaration’s mandatory arbitration provision validly waived the right to any civil action and the CCPA claims may be arbitrated.

The Vallagio ruling means that developers will continue to include consent-to-amend provisions in the original declaration in order to preserve arbitration as the preferred venue for resolution of construction defect claims.