By Lindsay Smith, Winzenburg, Leff, Purvis & Payne LLP
This article is written by an attorney, but is not intended to be legal advice. It is general in nature. This article is intended to provide you with a broad understanding of the declaration amendment process and highlight some common problematic provisions so you can better discuss with community members, but it is not an in depth analysis. Every situation differs, and you should consult with your association’s attorney before undertaking a declaration amendment.
The declaration creates the community. C.R.S. § 38-33.3-103(13). It is common for attorneys and developers to work closely together to ensure that the declaration that is created properly reflects the community that is created, but this doesn’t happen in every instance. Sometimes, a declarant “saves money” by copying from another community’s declaration. Other times, miscommunications between attorney and client result in a declaration that reflects what the attorney understood to be the declarant’s intent, which actually has nothing to do with the declarant’s intent.
The difficulty in creating a declaration that properly governs a particular community can be exacerbated by the passage of time. Communities created before the adoption of the Colorado Common Interest Ownership Act (“CCIOA”) are not required to have the same declaration provisions as communities formed on or after July 1, 1992. These older declarations may have definitions that aren’t aligned with CCIOA, missing assessment and maintenance provisions, or provisions that are now contrary to public policy. While many of these provisions are superseded by CCIOA, their presence in your declaration can make governance and management an expensive headache. When your declaration does not allow the association to properly govern or function without constant legal opinions, you need an amendment.
Common Problematic Provisions
We see a lot of common problems in declarations. Some provisions that may need to be amended out, either by a limited amendment or by an amended and restated declaration, follow.
- Errors in allocated interests. When a declarant annexes in properties by phase or at the time of conveyance, they often record a supplemental declaration that revises allocated interests to reflect the addition. Sometimes these documents are recorded without appropriate legal oversight, and the allocated interests are not properly reallocated. Other times, a phased development results in allocated interests that do not total 100% (or one) as required by CCIOA. When this happens, the only option is a declaration amendment.
- Incomplete definitions. You will see declarations that treat certain words as defined terms, but never actually define the term.
- Unreasonable restraints on Board power. Some Declarations prohibit all assessment increases, restrict Boards from adopting reasonable rules, and hamstring normal operations.
- Assessment ambiguities. Some declarations and bylaws will both speak to assessments and collections, but their provisions (e.g., late fees, interest, due dates) will conflict.
- Other assessment problems. Assessment limits tied to the CPI and assessment caps can prevent an association from performing necessary maintenance.
- Obsolete or inappropriate provisions. Some declarations contain provisions that are contrary to public policy, such as prohibitions on solar panels. Very old declarations may even include provisions that directly violate the Federal Fair Housing Amendments Act. These provisions are unenforceable, confusing, and can create strife in a community.
- Ambiguous or missing maintenance provisions. CCIOA specifies default maintenance if the declaration is silent on the issue, but this default doesn’t apply to pre-CCIOA communities. Similarly, missing or ambiguous insurance provisions create coverage gaps.
- Ambiguous unit boundaries. When you can’t figure out whether the drywall is part of the condominium unit or part of the common elements, you will likely turn to legal counsel for an opinion. While CCIOA defines unit boundaries in the event the declaration has failed to, that section also does not apply pre-CCIOA communities. If your unit boundaries are ambiguous, you will have problems determining insurance and maintenance obligations.
- Insurance provisions. Some declarations limit all insurance deductibles to $5,000. These provisions are economically impossible when insurance companies charge wind and hail deductibles based on a percentage of the building’s value.
- Special assessments. Documents that are silent on the power and process to levy special assessments hurt communities that have suffered unfunded losses, such as catastrophic hail damage.
- Certified mailings. Some declarations mandate certified or registered mailings for all but “non-routine” notices. The declarations do not define a routine notice, leaving associations to wonder whether the reminder letters that go out to a third of the community are routine or non-routine. Certified mailings are expensive, and do not benefit from any presumption that the letter reached its intended recipient.
- Declarant provisions. If your community is complete and the declarant is gone, the declarant provisions are obsolete. While the presence of these provisions may not harm the community, they tend to make the declaration more confusing for the average homeowner. Amend these provisions out, but make sure you have obtained any declarant consent you may require.
- Construction defect provisions. With the passage of HB 16-1279, many existing provisions intended to address construction defect lawsuits are presumably obsolete. However much you may want to amend the declaration to remove such provisions, be aware that you may have to obtain declarant consent – even if the community is built out, special declarant rights have expired, and the declarant has been dead for thirty years.
- Leasing restrictions. Leasing restrictions are restrictions on the “alienation” of real property and need to be in the declaration. If you want to limit short term rentals, set minimum lease terms, restrict the total number of units rented, or take other substantive actions that impact leasing, you need a declaration amendment.
The Amendment Process
CCIOA governs declaration amendments in section 38-33.3-217. “Section 217” provides the process by which an amendment can be made, exceptions to that process, lender approval guidelines, and the judicial approval process. Your legal counsel should review your existing declaration to ensure that any unusual amendment provisions are appropriately addressed.
Section 217(1) creates the maximum threshold for most document amendments. Declarations – especially for older communities – frequently require approval by members representing 75% or more of the community. These provisions effectively precluded amendment in many communities, so the legislature took action in 2005 to amend the law. Now under Section 217(1), any amendment percentage greater than 67% is declared void as contrary to public policy. The amendment percentage can be as low as a simple majority of all votes in the association, but it cannot be higher – except when it is.
Sections 217(4) and 217(4.5) allow for higher percentage thresholds for amendments that create or increase special declarant rights, increase the number of units, change the boundaries of any unit, change the allocated interests of any unit, or change the uses to which any unit is restricted. Section 217(4) applies to pre-CCIOA communities; section 217(4.5), governing use restrictions, does not (don’t worry, it gets more complicated soon). These types of amendments require a minimum of 67% of the votes in the association, but are governed by any higher percentage specified in the declaration. Thus, a community could be forced to obtain unanimous consent for a change in how common expenses are allocated, if the original document required unanimous consent for such an amendment. The community would have to obtain unanimous consent to decrease this amendment threshold for future amendments as well.
If the association does not reach whatever percentage threshold is required by CCIOA and/or the declaration itself, all hope is not lost. Section 217(7) sets forth a process by which an association can obtain judicial approval of an amendment where the failure to reach the voting threshold is due to non-response (as opposed to substantial opposition). To ensure your community can proceed with judicial approval, make sure that you discuss the amendment at a meeting of the association, send out at least two notices of the amendment, and obtain at least half of the votes you would need to approve the amendment outright. Consult with your association’s attorney to make sure the meeting notice is appropriate for the proposed amendment, as document amendments have been a favorite topic of the Colorado appellate courts in recent years.
If you are proceeding with judicial approval, section 217(1) does not apply to the amendment. Appellate courts have not clarified whether this inapplicability is simply recognition that the court is approving an amendment rather than the homeowners, or whether this inapplicability means that the 67% threshold established by that section is ignored when calculating whether you obtained at least half of the votes you would need to approve the amendment outright. The cautious approach is to proceed under section 217(7) with whatever higher percentage is contained in the Declaration.
In addition, courts are not entitled to approve amendments that change the allocated interests, except to the extent that they change the portion of the allocated interests that is the common expense liability. You cannot obtain judicial approval of an amendment that changes the ownership interests in the common elements in a condominium, or the votes in the association in any community.
Declaration amendments, contrary to a statement made to me by an owner at a document amendment meeting, are not easy. You need to engage with legal counsel early to determine the appropriateness and viability of an amendment and create a roadmap to get from where you are to where you need to be. Do not try a declaration amendment on your own, but don’t be afraid of the hard work associated with an amendment. They may take years in some circumstances, but the benefit to the community is long term.
Lindsay Smith is a community association attorney with Winzenburg, Leff, Purvis & Payne LLP. Her practice focuses on general community association matters such as document amendments, governance, and document interpretation.