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Summary of Villagio Case – Blog

Recently, the Colorado Supreme Court, in Villagio at Inverness Residential Condo. Ass’n v. Metro. Homes, Inc., 2017 CO 69, confronted the issue of whether a developer-declarant can retain a right of consent to certain proposed amendments to a common interest community’s declaration under the Colorado Common Interest Ownership Act (“CCIOA”), C.R.S. §§ 38-33.3-101 to 402. Respondent, Metro Inverness, LLC, which developed the Vallagio at Inverness residential project and also acted as the declarant for the project, included a provision in the original declaration that all construction defect claims concerning the project be resolved through binding arbitration. Metro also provided in the declaration that the arbitration provision could not be subsequently amended without Metro’s written consent.

The Petitioner HOA, Vallagio at Inverness Residential Condominium Association, challenged the arbitration provision and Metro’s ability to restrict later amendment of that provision. Prior to initiating a construction defect action against Metro, the HOA, without Metro’s consent, voted to amend the declaration and delete the arbitration provision. Upon entering the district court litigation, Metro moved the trial court to compel arbitration, which the trial court denied, holding that the consent-to-amend provision violated CCIOA and was void. Metro appealed to the Colorado Court of Appeals, which reversed the trial court and found that the provision did not violate CCIOA. The HOA then appealed to the Colorado Supreme Court, which upheld the ruling of the Colorado Court of Appeals. Finding that the provision did not conflict with CCIOA and that the HOA did not receive Metro’s consent to delete the arbitration provision, the Court held that the HOA could be compelled to arbitrate its defect claims.

The HOA principally relied on a section of CCOIA that provides, “Any provision in the declaration that purports to specify a percentage larger than sixty-seven percent [of an affirmative vote of the unit owners to amend the declaration] is hereby declared void as contrary to public policy.” C.R.S. § 38-33.3-217(1)(a)(1). The HOA contended that Metro’s consent-to-amend provision imposed an additional amendment requirement above the 67% threshold, rendering that provision void under CCIOA. The Court disagreed, reasoning that the limitations contained in C.R.S. § 38-33.3-217(1)(a)(1) only apply to percentage-based requirements for amendments to the declaration and finding that CCIOA does not restrict non-percentage based requirements for amendments. The Colorado Supreme Court also held that other provisions in CCIOA contemplate non-percentage based requirements for amendments, such as the ability of a declarant “entitled by the declaration to vote” to object to a HOA’s petition to a district court to order an amendment. C.R.S. § 38-33.3-217(7)(d)(I)(C).

The Court also relied upon language contained in CCIOA’s legislative declaration, where the Colorado legislature “specifically endorses and encourages associations, unit owners, manager, declarants, and all other parties to disputes arising under this article to agree to make sure of all available public or private resources for alternative dispute resolution.” C.R.S. § 38-33.3-124(1)(a)(II). Citing this language, the Court held that the consent-to-amended provision does not conflict with the purpose of CCOIA.

Finally, the Court also rejected the HOA’s argument that its claims brought under the Colorado Consumer Protection Act cannot be compelled to arbitration because Colorado Consumer Protection Act claims “shall be available in a civil action for any claim against any person who has engaged in or caused another to engage in any deceptive trade practice listed in this article.” C.R.S. § 6-1-113(1). The Court held that the Colorado Consumer Protection Act does not include a non-waiver provision and that, therefore, any right to a “civil action” under C.R.S. § 6-1-113(1) that would potentially defeat a mandatory arbitration provision is waivable. The Court then held that the subject arbitration provision effected that waiver.

In light of the Villagio decision, community developers in Colorado will now have more control over the dispute resolution process for any defect litigation resulting from the construction project. Those developers will also have more flexibility in directing that type of litigation into the more cost-effective and efficient arbitration process, saving construction professionals and their insurance carriers significant costs and attorney fees.

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