On August 1, 2017, Minnesota will join Colorado in revising a host of construction defect laws that some policymakers say have contributed to the State’s failing real estate market, according to legal reporting firm JD Supra.

Minnesota Construction Defect Reform Infographic

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Shrinking Housing Supply Worries Legislators

In both Colorado and Minnesota, developers have turned away from new condominium construction in favor of building apartment units and single-family homes, citing the relatively high number of construction lawsuits filed by condo homeowners’ association (HOA). Large metropolitan areas, including Denver, have seen their stock of affordable housing dwindle as a result. To stem the alleged tide of building defect litigation, legislatures in both states have now moved to clamp down on the rights granted to HOAs.

Do Condo Laws Lead To “Excessive” Litigation?

Most state-based construction defect laws allow condominium associations to file suit against developers or contractors without securing the go-ahead from their constituent members. In New Jersey, a characteristic state law allowed one condominium association in West New York (a town nestled on the Hudson River) to secure $10 million from a developer that allegedly built a six-story condominium in violation of local fire codes.

Colorado Reform Stalls, Minnesota Pushes Ahead

Surprisingly, Minnesota’s path to construction defect reform has been far easier than the legislative avenues chosen in Colorado. A recent decision of the latter State’s Supreme Court  held that condominium associations are not allowed to remove a binding arbitration clause from their founding documents without the consent of the developer. More sweeping changes, however, are still making their way through Colorado’s legislature.

Condominum Development

To date, only one of the State’s proposed legal changes has been signed into law: House Bill 17-1279, which requires condo associations to secure a majority vote from all unit owners before proceeding with construction defect litigation. Other legislative alterations, including a bill that would force all construction-related disputes into arbitration, remain pending before Colorado’s two Chambers of Congress.

5 Big Changes To Minnesota Condo Defect Law

In Minnesota, on the other hand, legislators found a simpler way to exert their will, amending the Common Interest Ownership Act to make five major changes to the State’s construction defect landscape:

  1. Maintenance Plans – Condo associations will now be required to draft, pass and comply with their own official maintenance plans, placing a premium on preventative upkeep. A set maintenance schedule and appropriate budgeting must be maintained.
  2. Notice Before Suit – Before starting a lawsuit, a condo association has to inform every unit owner in writing, describing what defects are being alleged, what form of compensation is being pursued and how the litigation will be financed.
  3. Democratic Control – Condo associations can only sue over a construction defect after a majority of unit owners vote to do so. No construction defect lawsuit can be filed without the consent of at least 51% of owners.
  4. Mandatory Mediation – Prior to the commencement of a lawsuit, all construction defect disputes must be submitted to mediation (a form of alternative dispute resolution) before a neutral third party. Ideally, mediators will be appointed by agreement, but if the sides of a dispute cannot agree on an appropriate adjudicator, they can turn to a district court to appoint a mediator for them. The statute of limitations for construction defect claims (generally two years from the date that a home owner discovers a defect) will be paused while mediation is underway.
  5. Refined Construction Defect Definition – Unlike Minnesota’s previous construction law, the State’s newly-approved statute explicitly rules out claims filed over defects related to modifications, maintenance or repairs performed after the initial construction is completed.

The law’s changes are set to go into effect on August 1, 2017. Condo associations established prior to that date will be required to create and adopt maintenance plans by January 1, 2019.

Construction Defect Changes Prove Divisive

Minnesota’s legal changes have drawn both support and condemnation from interested parties. Needless to say, developers and contractors have hailed the State’s new rules as a necessary improvement that will kickstart construction and provide more affordable housing for needy residents. Opponents of construction defect reform, on the other hand, argue that restricting their right to sue is a violation of Constitutional rights, plain and simple.

Some condo owners, however, are looking at Minnesota’s new construction landscape with cautious optimism, noting how the State’s old regulations forced owners who didn’t experience their own problems to be drawn into lengthy litigation against their own wishes.