In Shaw Construction, LLC v. United Builder Services, et al., 2012 Colo. App. LEXIS 172 (Colo. App. 2012), the Colorado Court of Appeals recently addressed the issue of when the statute of repose begins to run on a multi-phase construction project. The Court held that "an improvement may be a discrete component of the larger project, which can be substantially completed before the entire project is finished." (Id.) Thus, it is possible that more than one statute of repose periods will apply to one project.
In Shaw, a homeowner's association filed suit against the builder alleging various construction defects in a condominium project built in three phases. The builder filed a third-party complaint against its subcontractors including a drywall installer and a roofer. The subcontractors argued that the statute of repose had run on the date the final certificate of occupancy was issued. The builder argued that the statute did not begin to run until the architect certified completion of the entire project. The trial court awarded summary judgment, finding that the final certificate of occupancy indicated substantial completion of the project.
The Court of Appeal upheld summary judgment, but on a different ground. The Court noted that the Construction Defect Action Reformation Act ("CDARA") does not define "improvement" or "substantial completion." The builder argued that in a multi-stage project, improvement means the entire project. The subcontractors responded that the statute of repose is triggered "when the subcontractor completed its own work and not when the entire project was completed." (Id. at *36.) The Court found that "an improvement may be a discrete component of an entire project, such as the last of multiple residential buildings." (Id.) Thus, the Court found there was no need to define improvement "even more narrowly on a trade-by-trade basis." (Id.) The Court noted that an improvement must have some permanence, and the last building on which a certificate of occupancy is issued would meet this requirement. However, the Court also found that an improvement must be "essential and integral to the function of the construction project." (Id. at *41.) Thus, re-painting apartment complexes had been found by Colorado courts to constitute an improvement. (Highline Village Assocs. v. Hersh Cos., 996 P.2d 250, 254 (Colo. App. 1999). The Court found that the last building in which a certificate of occupancy was issued was not shown by the record to be "essential and integral" to the overall project. Moreover, "[i]n previous statute of repose cases involving multi-phase construction projects, the statute had expired so long before the defect at issue became apparent that the courts did not need to distinguish between completion of a component and that of the overall project." (Id. at *42.)
The Court held that "the last building on which the subcontractors worked—as contrasted with the entire project—constituted an improvement for purposes of the statute of repose." (Id. at *47.) Thus, the Court did not need to resolve whether "substantial completion of an entire construction project occurs only when the architect certifies the project as complete," as argued by the builder. Instead, the statute of repose on claims against the subcontractors began to run when the certificate of occupancy on the last building where the subcontractors worked was issued.
In Colorado trial courts, general contractors had argued that the statute of repose begins to run when the entire project is substantially completed, which is usually indicated by the date the last certificate of occupancy is issued. This deadline provided one general date by which the statute of repose began, and alleviated the complication caused by multiple statute of repose deadlines for multiple subcontractors. The Shaw decision changes this analysis, and now requires general contractors to bring claims based upon when the last building worked on by a subcontractor was substantially completed. This holding will likely result in different deadlines for the statute of repose when more than one subcontractor was involved in a multi-phase project. Practitioners will need to evaluate the work of each subcontractor and when the last building worked on by each was completed. This decision thus increases the burden on general contractors to timely file third-party claims based on potentially different deadlines for the statute of repose.