By Lee Freedman, Feldmann Nagel, LLC
Whether ‘tis nobler in the minds of the community to live with governing documents that were the creation of the developer or to suffer the slings and arrows of the expense of amending the governing documents to fit the current makeup of the community. That decision many times is the ultimate question a Board of Directors for and owners in a common interest community must make.
Owners, board members, and managers should understand that most community associations are created by developers who do not have any intention to live in the community for many years. However, the developers create communities based on their own interest, and not the future interests of the owners that eventually will buy into the community. The interests of the owners may differ substantially from those of the developer either immediately or over time. As such, the needs of the community also change over time from the needs of the original development.
To effectuate their interests, the developers create governing documents that suit their needs, and likely do not suit the future needs of the community.
Many common interest communities deal with governing documents that are either so incomplete, so outdated, or so out of touch with the current makeup of the community, that the communities are having difficulty utilizing them to suit the needs of the community and the community association. However, the expense to modify the governing documents to fit such current needs, and the apathy in a community can make it difficult to obtain the necessary votes to approve such amendments. The governing documents consist generally of the Articles of Incorporation, the Declaration, and the Rules and Regulations (which also include the governance policies and any design guidelines).
To have such governing documents suit the needs of the community, a community would need to change the documents by amendments. Whether to amend or not to amend is not a simple question . Amending just the Declaration can sometimes cost an Association $10,000 or more, depending on whether the community proceeds with wholesale changes to the Declaration or amends just a few of the covenants in the Declaration, how contentious the amendments are in the community, how difficult it may be to obtain approval of the amendments, and how much the community association’s counsel charges.
Before the board of directors for a community association adopts amendments (if they may do so without member approval) or proposes such amendments to the membership, the board should first analyze the sufficiency of the governing documents, the needs of the community, and the difficulty, time and effort necessary, and cost to obtain such approval. Basically, the board needs to determine if such amendments are necessary and whether the time and expense to be incurred is in the best interests of the association and the community.
The Declaration is the covenants governing the community, including any lots, units, common area or common elements in the community. The Declaration is typically the most difficult document to amend. That is why the Declaration should generally contain those covenants that the community wants to clearly maintain in the community for years to come, as they would be difficult to amend in the future. Any needs or requirements that could change over time or from board to board (such as parking restrictions, painting restrictions, etc.) should be in the other governing documents that may be easier to change by board approval or approval of a lesser number of owners.
Generally, except in a few limited situations, the Declaration may be amended by the approval or consent of between a minimum of a majority and a maximum of 67% of the total voting power of the owners in the community, depending on the specific amendment language in the Declaration.
However, the consent of first mortgagees (the holders of first mortgages on the lots or units in the community) may be required for approval of Declaration amendments. Although the Colorado Common Interest Ownership Act (CCIOA) provides a process to make it easier for a community association to obtain such first mortgagee consent without having to actually obtain written consent, it still may be difficult to get the requisite approval where the consent of all or most of the first mortgagees is required or where the amendments negatively impact the rights of the first mortgagees.
The Articles, the governing document that forms the community association, may be amended by approval of the Board or the members, depending on its amendment provision. If by the members, it is important to understand if such approval is by a vote of the entire membership or only those present at a member meeting where quorum is present. Some Articles can be substantially difficult to amend because they require all or nearly all of the owners to approve amendments.
A community association may want to modify the Articles to, among other things, adopt CCIOA, amend the purposes of the association, provide for a range of members of the board of directors, or change the termination provisions (as to the latter, many older Articles provide that they terminate after a specific period of time if not extended rather than having perpetual life).
As with the Articles, the Bylaws, which outline how the community association is to be governed, may generally be amended by approval of the Board or the members, depending on the amendment provision in the Bylaws. However, if quorum at a member or board meeting is to be changed by amendment, such amendment requires the approval of the members. If the Bylaws are silent as to how member approval is to be obtained, then such approval is to be by the vote of the members at a member meeting called for the purpose of obtaining approval of the amendments at which quorum is present.
A community association may want to amend the Bylaws by, among other things, allowing for proxies, changing quorum requirements, changing voting requirements, changing duties or rights of the Board or officers, changing the board election or removal process, or outlining hearing requirements.
The Rules and Regulations, governance policies, and design guidelines, on the other hand, may be adopted and amended by the board of directors unless there is some provision in the other governing documents stating otherwise.
Full scale amendments (typically referred to as “Amended and Restated” documents) are not always required. Community association can choose to address specific, more immediate needs by amending only specific provisions of a governing document rather than amending the entire document. This could save the association expenses, although it does not guaranty an easier approval process nor does it mean that ultimately full scale amendments are not in the best interests of the community.
The board of directors should also consider the appointment of a committee of interested members in the community to participate in the amendment process, even though the Board has the final decision as to whether to propose the amendments to the membership. A committee can help address the true needs of the community, consider questions and comments from other owners in the community, determine appropriate amendments to address the community’s needs, and communicate with the board. Having members with different opinions on amendment may also help sell proposed amendments to the membership as a joint product addressing everybody’s concerns.
To this latter issue, marketing of the proposed amendments is an important step to obtain approval, especially for contentious amendments or where apathy permeates the community. Such marketing techniques may include, among other things, door-to-door discussions, newsletter articles, and member or board meetings at which the proposed amendments are discussed.
Even with such efforts, it could take considerable time and expense to obtain the necessary approvals. However, if done appropriately and successfully, the final amendments should better suit the current needs of the community, make the management and operation of the community, and aid in the compliance with the current law affecting the community.
Lee Freedman is a senior attorney at Feldmann Nagel LLC. He has represented HOAs for 17 years.