Colorado's New Construction Bill: What Developers Need to Know

On May 12, 2025, Governor Jared Polis signed HOUSE BILL 25-1272, a significant piece of legislation aimed at reforming the construction defect process, particularly for middle market housing (multifamily, attached housing of two or more units), to promote the construction of affordable homes in Colorado. This bill introduces several changes that will impact developers, builders, and other stakeholders in the construction industry. Below, we outline the key provisions and their potential effects on your projects.

Key Provisions of the Bill

1. Multifamily Construction Incentive Program (MCIP)
   

   Builders can opt into this program by providing the specified warranty (1-2-6), conducting third-party inspections, and recording a notice of election in the property records. Participants benefit from limitations on damages and defenses to liability provided for by the MCIP.

   For example, claims against MCIP participants are limited to specific types of damages (e.g., actual damage/loss, substantial system functionality, or safety issues), and there are defined statutes of limitations (6 years post-completion if claim is against architect or engineer or a construction professional that provides a warranty). Further, if a construction professional provides the specified warranty, the claimant must pursue all remedies available under the warranty before initiating a lawsuit. 

2. Affidavit Requirement for Defect Claims
   

   When filing a construction defect action against an architect or engineer that has opted into the MCIP, claimants must now include an affidavit from a third-party licensed professional detailing the alleged negligence or error. This measure ensures that unsubstantiated and frivolous claims will be dismissed by the court.
   

3. Executive Board Approval
   

   An executive board may not initiate a construction defect action without obtaining authorization from unit owners holding at least 65% of the votes in the association (up from a simple majority). Further, any monetary damages recovered must first be used to repair the construction defect. This decreases the likelihood that a condo association would be able to obtain the votes necessary to initiate litigation.
   

4. Mandatory Disclosures
   

   A construction professional must provide certain documents, including plans, specifications, maintenance recommendations, and insurance policies related to the claimed defects by the earlier of when the offer of settlement is made or sixty days after the professional receives notice of the claim. 
   

5. Mitigation
   

   Claimants must mitigate damages caused by the alleged defects before filing a complaint, and cannot recover damages that were caused by the claimant’s unreasonable failure to mitigate. This protects construction professionals from liability for damages caused by a homeowner’s failure to take adequate measures upon discovery of a defect. 

6. Attorneys’ Fees and Costs
   

   If a claimant rejects a reasonable offer of settlement and sues the construction professional the court may award attorneys' fees and costs to the professional. On the flip side, if the professional fails to make a reasonable written offer it cannot rely on the limitations of damages and defenses to liability and the court may award attorneys' fees and costs to the claimant.
   

7. Insurance Protections

   Insurers cannot cancel or deny liability insurance based on offers to repair or settle, providing stability for developers.

8. Fast-Track Approvals

   Local governments must establish fast-track approval processes for multifamily condominium projects receiving state affordable housing fund assistance, streamlining development.

Impact on Developers

• Reduced Litigation Risk

  The requirement to provide a certificate of review and the threat of liability for the builder’s attorneys’ fees if an offer is unreasonably rejected may deter baseless lawsuits and encourage settlement, saving developers time and resources on legal battles.

• Quality Incentives

  The MCIP encourages higher construction standards through warranties and inspections, potentially enhancing project quality and developer reputation. However, participating in the program requires additional upfront costs and effort.

• Market Opportunities

  With legal safeguards in place, developers may find it more attractive to invest in middle market housing, particularly affordable housing, knowing there are protections against frivolous claims.

• Compliance Considerations

  Developers must ensure their projects meet the new standards, especially if opting into the MCIP. Additionally, the higher threshold for executive board approval may make it harder for homeowners to pursue legitimate claims, but it also protects developers from overzealous boards.

Effective Date

The bill will take effect on August 6, 2025, with the MCIP coming into effect after January 1, 2026. Developers should begin preparing now to understand how these changes will affect their current and future projects.

Conclusion

HOUSE BILL 25-1272 represents a significant shift in how construction defects are handled in Colorado, particularly for multifamily housing. By understanding and adapting to these new regulations, developers can position themselves to take advantage of the incentives and protections offered while ensuring their projects meet the highest standards of quality and compliance.

Next Steps for Developers

• Review your current practices and contracts to ensure alignment with the new requirements.

• Consider participating in the MCIP for eligible projects to gain additional legal protections.

• Stay informed about local government fast-track approval processes for affordable housing projects.

By staying ahead of these changes, developers can continue to thrive in Colorado’s evolving construction landscape. Please feel free to contact me at chris.yost@arlaw.com if you would like to discuss the new law and how it impacts your business.