The Third Division of the Colorado Court of Appeals recently interpreted the Homeowner Protection Act of 2007 (the “HPA”) in Heights Healthcare v. BCER, 2023 COA 44, decided on May 25, 2023. The Court held that a senior living community that is located on a parcel zoned “commercial” or “mixed use” constitutes “residential property” that is protected by the HPA, regardless of the zoning designation.
The claims in Heights Healthcare arose from a contract between BCER and Heights Healthcare for BCER to provide mechanical and electrical services relating to the installation of Packaged Terminal Air Conditioner units at the senior living community. The contract between the parties included a limitation of liability clause, limiting BCER’s liability to a total of $22,500 for the total cost of services rendered. After the installation, Heights Healthcare discovered that the air conditioner units were malfunctioning, causing too few of the eighty-four units to run and tripping the breaker—shutting down the entire system—when the outdoor temperature dropped too low. Following the discovery of the malfunction, Heights Healthcare filed suit against BCER for breach of contract under the Construction Defect Action Reform Act (“CDARA”).
The suit was filed under CDARA, which the HPA amends to provide that “any express waiver of, or limitation on, the legal rights, remedies, or damages” provided by CDARA to “claimants asserting claims arising out of residential property” “are void as against public policy.” C.R.S. § 13-20-806(7)(a), (c). Prior to trial, BCER filed a motion for determination of a question of law, seeking a determination from the trial court that the contractual limitation of liability was enforceable as the senior living community is a commercial property because it is zoned commercial. The trial court agreed and granted BCER’s motion because the property was zoned commercial at the time the contract was formed.
Following a bench trial, Heights Healthcare appealed the trial court’s finding that the limitation of liability was enforceable, arguing that the HPA precluded the limitation of liability because the senior living community is factually a residential property, regardless of the zoning designation.
In analyzing Heights Healthcare’s assertion that the HPA applied and rendered the limitation of liability unenforceable, the Court first turned to the City of Longmont’s definitions of “C commercial” and “mixed-use corridor” zoning, which specifically allow for residential uses. BCER, however, asserted that the actual designation of the zoning district as commercial in fact rendered all properties in that district commercial properties, relying on a sub-definition of “commercial property” found within the CDARA definition of “construction professional.” The Court was not persuaded. Rather, the Court turned to—and heavily relied on—a case from the Fifth Division of the Colorado Court of Appeals, Broomfield Senior Living Owner, LLC v. R.G. Brinkman Co., 2017 COA 31. In Broomfield Senior Living, the court was tasked with determining whether a senior living community located in an area zoned residential but owned by commercial entities qualified as a residential property under the HPA. In its analysis, the Broomfield Senior Living court relied on the common usage of the word “residential,” even citing to the dictionary definition of the word, concluding that it means, in essence, a place where people live. Ultimately, the Broomfield Senior Living court held that the senior living community was a residential property because it wasn’t used for any purpose other than as a residence for the seniors living there.
Despite not being bound by the decision in Broomfield Senior Living, the Court found its reasoning persuasive and determined that the same logic that drove the analysis in that case drove the analysis here. That is to say, the issue became whether the property is one that is used as a residence, not whether it is zoned or otherwise merely identified as something other than a residence. Thus, the Court turned to the facts of the case, finding that Heights Healthcare’s residents live at the facility. Indeed, the Court noted that the residents sleep, eat, dress, bathe, engage in fitness and leisure activities, and receive mail at the facility. At bottom, as the trial court found, it is undisputed that residents live in the facility, regardless of the zoning designation. With those simple facts outlined, the Court concluded that the senior living community is a residential property and Heights Healthcare is a residential property owner. Therefore, the protections of the HPA apply and the limitation of liability clause in the contract is unenforceable as against public policy.
With this ruling in conjunction with Broomfield Senior Living, it is increasingly clear that the protections of the HPA applying to residential properties cannot be overcome by mere zoning designations or ownership by corporate entities. Rather, the inquiry will be what the actual use of the property is, i.e., whether people reside in the property subject to litigation. If they do, it is unlikely a court will find that the property is commercial and that a limitation on liability is enforceable. Parties seeking to include such a limitation should therefore be cautious about what types of properties will be included in the construction projects, evening in areas zoned commercial.