Distinctions between Commercial and Residential Property Owners
While both residential and commercial owners suffer from construction defects, most Coloradans may not realize that commercial owners are not treated equally and enjoy substantially diminished rights and remedies compared to their residential counterparts. Why is this so? The main justification is that Colorado statutes and courts generally presume that commercial owners are legally sophisticated, or have access to legal counsel, and that they are in a better position than residential owners to negotiate arm’s-length contracts to protect their interests.
Such a distinction is arbitrary because there are many commercial owners, especially small business owners, who have no legal or construction experience to justify disparate treatment. For example, is it really fair to suggest that an owner of a hair salon, a chiropractor, or a physician is in a better position to understand their legal rights in a construction contract? How would a small business owner’s level of expertise compare to a construction lawyer buying a house? Under Colorado law, the residential owner is presumed to be at a disadvantage regardless of the circumstances and granted additional protections under the law.
Colorado law affords a series of legal protections to residential property owners which may not apply to commercial owners, including: (1) statutory protections preventing builders from negotiating waivers in residential purchase contracts; (2) implied warranties in residential purchase contracts; and (3) additional categories of damages available to residential owners.
Colorado’s Homeowner Protection Act, C.R.S. § 13–20–806(7)(a), provides that any contractual waiver of a residential property owner’s rights under Colorado’s Construction Defect Action Reform Act (“CDARA”) are void. This means builders cannot waive their responsibility to construct homes non-negligently or limit the measure of damages arising from defective work. They also cannot alter the time periods that residential owners have to bring claims for construction defects.
However, these protections do not apply to commercial property owners who must vigilantly review their construction contracts for exculpatory language. It is not uncommon to see damage limitation clauses and provisions shortening the limitations period in construction contracts, but this standard presumes that all commercial property owners are legally sophisticated enough to identify and analyze it. In a commercial context, these types of clauses are often deemed valid by Colorado courts.
Residential owners are also entitled to bring breach of implied warranty claims that hold contractors accountable to build homes in a good and workmanlike manner and free from defects. See, e.g., Roper v. Spring Lake Dev. Co., 789 P.2d 483, 485 (Colo. App. 1990). These implied warranties are read into residential construction contracts even if the builder tries to expressly disclaim them. On the other hand, commercial property owners are typically bound to the contracts they sign and the warranty rights they agree to. Most standard one-year warranties are significantly inferior to the rights available under an implied warranty claim.
Finally, residential property owners may have additional categories of damages that may not be available to commercial owners. The Colorado Court of Appeals has held that residential property owners may seek damages for annoyance, aggravation, inconvenience, and emotional distress resulting from construction defect claims. Technically, there isn’t anything in the language of CDARA that would prohibit a commercial owner from claiming such damages, but based on the existing case law, courts have focused on the impact of construction defects on the plaintiff’s home or personal sanctum. See, e.g., Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159, 1171 (Colo. App. 2010) (police officer testified that his basement was his “sanctuary,” and construction defects rendered him angry and sleepless).
CDARA also provides for “other economic damages related to loss of use” which applies to residential property owners, but not to commercial owners. Excluding commercial property owners from this broad category of damages could be significant depending on the case. In a medical office, for example, a commercial owner may not recover for the loss of use of some of its operating rooms while the construction defects are repaired. In an apartment building, a landlord may not recover for lost rental income due to construction defects if he or she did not negotiate for such losses in the construction contract. Depending on the circumstances, these damages limitations could be very significant to commercial property owners.
Because commercial property owners may have limited protection, it is imperative that they take the time to negotiate adequate remedies into their construction contracts. Some important remedies include a robust warranty, reasonable timelines for defects to manifest, and specific damages for loss of income, delay, or other damages that could affect the business.
Most important, commercial property owners—possibly assisted by an attorney—should review contracts carefully for provisions designed to limit statute of limitation periods or the measure of damages.
Duncan Griffiths focuses his practice on difficult and complex civil litigation and family law matters. In having resolved over sixty large cases ranging in value from $50,000 to as much as $13.5 million, Duncan has overall recovered in excess of $50 million in damages for his clients after attorney fees and litigation costs were paid.