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Brooktree Village Homeowners Association, Inc. v. Brooktree Village, LLC.

2020 COA 165. No. 19CA1635.  Construction Defects—Common Interest Communities—Standing—Implied Warranty—Successor Developer.

November 19, 2020

Brooktree Village Townhomes (the development) is a residential common interest community as defined in the Colorado Common Interest Ownership Act (CCIOA). The original owner of the development sought protection under the Bankruptcy Code after it had completed and sold several townhomes to residential purchasers but before it completed construction of the development. The lender took possession and conveyed the common areas to Brooktree Village Homeowners Association, Inc. (Association), the homeowners association formed by the original developer. Association owns and manages the development’s common areas for the use and benefit of its members pursuant to the Declaration of Covenants, Conditions, Restrictions, and Easements of Brooktree Village Townhomes. Association members are the owners of the townhomes at the development.

A second developer, Brooktree Village, LLC (Developer), later acquired the remaining undeveloped portions of the development other than the common areas. Rivers Development, Inc. (Builder), a construction company affiliated with Developer, completed construction of the development. Developer sold all the newly constructed townhomes to individual homeowners. After discovering construction defects throughout the development, Association sued Developer and Builder. Association sought damages for the costs of repairing the construction defects in the common areas, as well as in one of the townhomes caused by construction defects in the common areas. Association asserted claims on behalf of itself and its member homeowners pursuant to CRS § 38-33.3-302(1)(d), under theories of breach of implied warranty, negligence, and negligence per se. Following a trial, a jury found Developer and Builder liable for breach of implied warranty and negligence and awarded Association $1.85 million in damages. The trial court awarded the entire amount to Association on the breach of implied warranty claim.

On appeal, Developer and Builder argued it was error to allow Association to pursue implied warranty claims against them on behalf of Association members. They contended that because the direct purchasers bought their townhomes from Developer, not Builder, Builder lacked contractual privity with the direct purchasers. Persons that can assert an implied warranty claim are first purchasers from a builder or seller. Under CCIOA, a homeowner’s association has standing to bring a breach of implied warranty claim on behalf of itself and its members to redress construction defects in the common areas of the community. It may also bring an action for breach of implied warranty to redress construction defects in individual units.

Here, Builder created Developer to market and sell the townhomes that Builder constructed at the development, and both Builder and Developer signed the purchase agreements providing express warranties. Therefore, Builder provided implied warranties to the direct purchasers. Further, the fact that Developer and Builder never owned the common areas and fewer than half of Association’s members purchased townhomes from Developer does not preclude Association’s standing to pursue implied warranty claims for construction defects in common areas; while Developer and Builder were not in privity with Association or with townhome owners that did not purchase from them, the 23 direct purchasers from Builder and Developer have implied warranties of workmanship and habitability from them, and those purchasers have easement rights to use the common areas. Consequently, a defect in the common areas affects the rights of every owner in the development, and Association may recover damages to repair such defects.

Developer and Builder further contended that the trial court erred by not reducing the jury’s damage award by 10% to reflect Association’s comparative negligence. However, the jury found that Association prevailed on its breach of implied warranty claim, to which comparative fault does not apply, so Association is entitled to a judgment in the full amount the jury awarded.

The Court of Appeals also considered and rejected Developer’s and Builder’s arguments about the appropriateness of certain evidence and jury instructions.

The judgment was affirmed.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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