Planning Ahead by Gabriel Stefu Esq.
The following piece, written by Gabriel Stefu, was published in Common Interests Magazine’s 2022 Issue.
Colorado has many Homeowners’ Associations and they are subject to a number of governing documents such as Articles of Incorporation, Declarations, Bylaws, Plat/Maps, Policies, Rules & Regulations, etc. There are times when a Homeowners’ Association may need to amend its governing documents. There are multiple reasons as to why an amendment may be in order and some of the reasons for amending the governing documents are:
• The documents no longer comply with current statutes and laws
• The documents reference the Declarant or Developer rights or other general references to the same
• The documents contain certain restrictions or covenants that are no longer practical or applicable
• The documents contain very restrictive clauses regarding how much assessments can be raised, late fee amounts, interest and fines
• Certain documents may not properly limit liability for the Board of Directors and do not contain indemnification provisions for the Board of Directors
• Documents do not give Boards of Directors the authority to borrow funds or pledge assessments as collateral
• Certain provisions in the documents may conflict with one another or current legislation
• Documents may be unclear regarding the maintenance responsibilities or other obligations
• Physical changes to the common areas, easements, etc. will need to be reflected on the Plat Map. The process for amending the governing documents can be intense and involved.
The type of governing document being amended will dictate the procedure for the amendment itself. Legal counsel will ensure to remove any outdated information and insert current legislation requirements, etc.
The Board of Directors should confer with the Association’s legal counsel in an effort to ensure a smooth amendment process. The Board of Directors should also:
• Make a list of practical issues with the documents that need to be amended
• Involve the owners in the process through surveys or newsletters
• Develop a plan to determine the best avenue for amending the governing documents.
Keep in mind that certain documents require owner approval. The Declaration of Covenants, Conditions, and Restrictions (CCRs) is such a document. There are different options to obtain an amendment to the Declaration of Covenants:
1. Through a vote of the Owners. The current Declaration would provide for the percentage of Owner approval needed for the amendment. The percentage is limited by Colorado State statute (“CCIOA”) to 67% of Owners voting in favor of the amendment if the current Declaration lists a higher percentage requirement.
2. Through a Court Petition. Although the option above is an easier procedural way to amend the Declaration, due to the higher percentage approval requirement, there is no guaranteed results. Therefore, a better option would be to follow CCIOA guidelines and if at least half of the required approval percentage of votes is obtained, then the Association could petition a Court to approve the Declaration amendment.
Both can be challenging, and certain rules must be followed in order to ensure success. For example, if the Board of Directors proceeds with the first option, then a copy of the proposed changes will need to be sent to all the Owners of the Association and Owners must vote via a mail in ballot or directed proxy in favor or against the proposed amendment(s). To ensure success though, Board members may have to organize meetings with the Owners, send emails or make phone calls in order to explain the proposed changes, appeal to Owners to vote in favor of the proposed amendments, and obtain the required percentage of Owner approval.
The second option is sometimes the more desirable option as the process, while more cumbersome, will provide a more assured way that the amendment will pass. For this option, all Owners would need to have received at least two notices regarding the proposed Declaration amendment(s), the Association would need to hold at least one meeting with the Owners to discuss the proposed Declaration amendment(s) and have a vote for the proposed amendment(s). If at least half of the Owners required under the existing Declaration vote in favor of the proposed amendment, then a Petition would be prepared and filed with a Court requesting that the Court approve the amendment.
Either option may require approval of the mortgage companies, thus additional work will be required for mailing out notices to the mortgage companies, which will take additional time, therefore please ensure to plan the timeline with the Association’s legal counsel.
The process of amending governing documents should not be undertaken lightly. The Board of Directors is encouraged to work with the Association’s legal counsel to ensure that all the necessary steps are taken, and all the legal requirements are met for the process to be as smooth as possible. Once the documents are amended, the Board of Directors and homeowners will benefit from having documents that are clear, up to date and easier to understand by all involved.