Blog
By David Closson, HindmanSanchez, P.C.
With continued advancement in fracking technology, oil and gas operations continue to spread across Colorado. As a result of this increased development, more and more community associations are being faced with a multitude of decisions regarding the minerals underlying the community’s common areas.
Oil and gas companies perform extensive title work to determine the owner of mineral rights. After ownership is determined, the company will send a “landman” to contact the owner of the mineral rights in an attempt to acquire rights to develop those minerals. For a typical community association being contacted by a landman is the likely first indication that the association may own mineral rights.
The owner of real property in Colorado may separate or sever ownership of the surface estate of the property from the mineral estate so that ownership to the surface vests in one owner while ownership of the minerals vests in a different owner. Such separation is commonly done long before a residential subdivision is developed. This results in situations where community associations with common area parks and open space parcels may, or may not, own the minerals underlying their property.
Assuming an association owns mineral rights, the association has the following four options when approached by an oil and gas company interested in developing the underlying minerals: (i) sell the minerals; (ii) enter into a lease with the oil and gas company; (iii) become a partner in the drilling project; or (iv) do nothing and be subjected to Colorado’s “forced pooling” statute.
Sell the Minerals—As discussed above, the mineral and surface estate can be severed and separately owned. This would allow an association to sell the minerals under their common area parks, detention ponds, and open spaces while maintaining ownership of the surface estate of such property for its intended use.
Enter into a Lease—The association could enter into a lease with the oil and gas company allowing for development of the minerals. Under this option, the oil and gas company would pay a royalty to the association equal to a percentage (typically 15% - 19%) of the value of the oil and gas produced from the property.
Participate in the Drilling Project—A mineral owner is also entitled to participate in the drilling, thereby becoming a partner in the project. This option would allow the association to share in the profits from the project. However it would also require the association to pay its proportionate share of the drilling costs for the well. This option may be unappealing, as drilling and completion costs for a well today commonly exceed $5,000,000.
Do Nothing—If the association does not want to sell the minerals and refuses to enter into a lease or actively participate in the project, the association may elect to simply do nothing. The oil and gas company could seek a pooling order from the Colorado Oil and Gas Conservation Commission and the project could move forward under Colorado’s statutory pooling provisions. This option requires the other participants in the project to pay the association’s proportionate share of the drilling costs. The association will be entitled to share in the production revenue from the project, but only after the other participants recover 200% of their drilling costs. This is essentially a penalty for not sharing in the financial risk of the project.
The issues and options above implicate a myriad of legal issues for a community association holding mineral rights. For example, an association will need to determine if a proposed course of action can simply be approved by the association’s Board of Directors, or if a community-wide vote is needed. Such approval requirements will depend upon the specific nature of the proposed transaction, as well as the contents of the association’s governing documents.
In the event a lease is desired, the association should ensure that provisions within the lease addressing issues such as royalty amounts, surface use rights, warranties of title, and indemnifications adequately protect the community. Finally, although documents such as oil and gas leases may be presented as “standard forms,” they are nevertheless subject to negotiation and revision as may be necessary to protect the community.
David Closson is a partner at HindmanSanchez, P.C.. HindmanSanchez has been dedicated to representing community associations in Colorado since 1988.
By Ella Washington, Agency American Family Insurance
Do you know if you have the correct coverage on your home policy? When is the last time you reviewed your policy with your insurance agent? With today’s changing market, it is important to review your policy annually. Your home policy may be missing important coverage. But what exactly are you missing? Here are common coverages to discuss with your insurance agent about your home insurance:
Ask your agent if you have a full Replacement Cost policy on your home or if you have an Actual Cash Value policy. The Replacement Cost Policywill offer you replacement coverage (with today’s pricing of labor and construction materials). An Actual Cash Value policy will be a depreciated amount paid, on a covered claim, and you will most likely be out of pocket for damages.
Does your roof have a Depreciated Roof Scheduled (this is where insurance companies pay a lessor amount on your roof, depending on the age and condition of your roof, in the event of a covered claim).
Talk to your insurance agent to see if your roof has a Separate Wind or Hail Deductible. Many carriers have now mandated a separate deductible amount for claims arising from Wind or Hail damage.
Flood Insurance is not typically covered on a home policy (this can vary depending on your insurance carrier). Flood insurance is generally viewed, by insurance companies, as any ground water entering into a structure. If your home is not in a Flood Zone, you can still purchase Flood Insurance through your insurance agent.
HOAs are seeing more Special Assessments from wind/ hail claims. As a result we suggest working with your interior insurance agent to get Loss Assessment coverage to help pay for this deductible. Loss Assessment coverage is a simple endorsement that can be added to your interior insurance policy to cover insurance related HOA Special Assessments.
Some interior insurance companies are excluding Loss Assessment coverage when the claim itself is from Wind or Hail damage (call your agent to get clarification about your specific coverage). If your insurance carrier does cover Wind/Hail related Loss Assessments, be sure to ask if there is a cap on the amount of coverage they will offer (some carriers only offer $1,000 in coverage).
Because some claims are simple accidents of our own wrong doing or our tenant’s negligence, you could be liable for the HOA’s deductible. Be sure to ask your insurance agent how to add additional coverage to your policy, for the HOA’s deductible, in the event you are found negligent.
Ella Washington is a veteran insurance agent of 21 years offering transparent communication to her clients. Ella is DORA approved to educate Real Estate Agents and Community Association Managers for continuing education.
By Shannon Junior, Aquatic Ecologist & Senior Business Development Consultant at SOLitude Lake Management
There are few events that can occur in a community pond that cause the amount of anxiety and uproar among the residents as a fish kill. Sure, we get plenty of calls about algae blooms and clogged fountains and excessive trash, but nothing creates the level of panic that ensues when there are dead fish floating on the surface of the water. Many residents become concerned that there may have been a toxic spill or illegal dumping incident, or they think that the landscaping company must have used something on the surrounding property that killed the fish. In reality though, most fish kills occur not because of a poisonous substance, but because of low dissolved oxygen conditions in the water.
Although fish respire through gills instead of lungs, they still require oxygen to survive. Since very warm water cannot hold the same amount of oxygen as colder water, dissolved oxygen can become depleted during the summer months. Because many stormwater ponds are fairly shallow, with water only flowing in during and after rain events, sunlight is able to penetrate throughout the water column, causing the water to become very warm and stagnant. Deeper ponds may experience a phenomenon called “stratification,” where the warmer water at the surface of the pond does not mix with the colder, denser water near the bottom. The bottom water does not recharge with oxygen from photosynthesis or interaction with atmospheric oxygen, so fish can only survive in the upper part of the water column. During a large rainstorm or wind event, the pond can “turn over,” mixing the low oxygen bottom water throughout the rest of the pond. Low oxygen related fish kills can occur in both shallow and deep ponds if the conditions are right—Or WRONG, in this case.
So, what can be done to reduce the risk of a fish kill in a pond or lake? The best approach is to implement a comprehensive, ongoing maintenance program that includes integrated management strategies for algae and weed control and water quality management. One of the best practices for water quality improvement is the installation of aeration equipment to circulate the water and increase dissolved oxygen levels throughout the water column. There are many different types of aeration systems available, although the most commonly used are surface aerating fountains and submersed diffused air aeration systems. While both types of aerators can be extremely effective, each one has certain features that would make it the appropriate choice depending on the characteristics of a particular waterbody. And those without electrical access near their lake or pond are not out of luck. Solar powered and windmill aeration systems are a more ecologically friendly option, and can be used to enhance aeration in more remote locations.
Submersed diffused air aeration systems utilize pumped air to de-stratify the water column and to infuse oxygen into the pond. The typical configuration involves an air compressor that is located on the shore in a small weatherproof enclosure, which pushes air through subsurface tubing to one or more bubble diffusers located on the bottom of the pond. As the bubbles rise to the surface, they carry the low oxygen bottom water upwards, where it is mixed with the oxygen rich surface water and attached to atmospheric oxygen, before sinking back towards the bottom. This constant vertical mixing increases the overall dissolved oxygen concentration in the water column. Submersed diffused air aeration is most effective in larger lakes and ponds with depths greater than 6 feet. In very shallow water, the bubbles do not have enough depth to spread out as they rise to the surface, so less of the water column is circulated, requiring larger systems and more expense for adequate aeration.
Surface aerators, such as floating fountain aerators, are situated on the surface of the pond. These units contain a float-mounted pump that sucks water from just below the surface and sprays it up into the air. Unlike submersed diffused air aerators, surface aerators are most effective in shallow ponds and lakes. The oxygenation from floating aerators occurs when the water that is sprayed into the air splashes back down onto the surface of the pond. This interaction allows for the venting of gases and the transfer of oxygen into the water. However, because all of the oxygen transfer occurs at the surface, very little benefit is gained in the lower depths near the sediment.
A professional pond and lake management company can help you choose the appropriate aeration strategy based on the characteristics of your waterbody, your goals for the facility, and your budget for the project. But no matter which system is implemented, aeration has many benefits beyond just preventing fish kills. Aeration will improve the health of your waterbody by increasing the amount of oxygen in the system, which facilitates the conversion of phosphorus to forms that are not usable by algae as food. It also alters pH and other related water quality parameters to favor the growth of healthy green phytoplankton at the base of the food chain rather than potentially toxic cyanobacteria species. The end result is a healthier pond with fewer harmful algae blooms, and a reduction in the need for algaecide treatments.
However, aeration alone will not solve all of the problems that can afflict a pond or lake. While an aeration system may be the “heart” of a waterbody, circulating the water and bringing oxygen to all parts of the system, a comprehensive integrated management program is the backbone, providing the framework to support the overall health of the pond. Much like the human body, waterbodies become less healthy as they age, and require more intensive management strategies to remain viable. Implementing a preventive care program before problems develop is the best way to ensure a long life for your pond and the fish that call it home.
Shannon Junior is an experienced Aquatic Ecologist with SOLitude Lake Management, an environmental firm providing a full array of superior lake, pond, wetland and fisheries management services and solutions. She can be reached through the website at www.solitudelakemanagement.com.
by Lenore Mitchell
Colorado is an amazing state, with diverse topography ranging in elevation from 4,000 to over 14,000 feet. Within a few hours, one can drive from Metro Denver to the parking lot on top of Mount Evans; a world apart where vistas seem endless and the air feels crisp. Other famous roads lead to Pike’s Peak or over Trailridge in Rocky Mountain National Park. We travel to such places to experience nature, and to refresh and renew our sense of wonder. But nature is also right outside of our doors, in front and back yards, and even on patios.
From townhomes to single family dwellings, the plants which surround living spaces not only add monetary value but also connect us with nature. Trees offer shade, shrubs and herbaceous plants add greenery, and as Ralph Waldo Emerson famously said, “The earth laughs in flowers.”
Plants are essential. We know this. This brings us to native plants, a trending topic with enormous benefits, both fiscally and environmentally.
Once established, native plants can offer various monetary benefits:
Environmental benefits:
Biodiversity and habitat preservation are extremely important. As humans continue to take up more land, it’s up to us to consider the other creatures who live around us, both large and small.
The right plants vary with specific conditions, and here are a few of the many natives which can be seen on hikes as well as grown in a unique Colorado garden: • Herbaceous Perennials (non-woody plants which return yearly) • Spreading groundcover for direct sun: Callirhoe involucrata (winecups) • Groundcover for shade: Mahonia repens (grape holly) • Tall plant for sun: Gailladia aristata (blanket flower) • Tall plant for part-shade: Monarda fistulosa (bee balm) • Shrub for sun: Prunus besseyi (western sand cherry) • Tree for sun: Sabina scopulorum (Rocky Mtn. juniper)
According to the North American Pollinator Protection Campaign (www.NAPPC.org), a national collaboration including the National Academy of Sciences, 85% of flowering plants, including many crops, require pollinators. Up to three-quarters of our food supply relies on pollination by bees and other pollinators. While honey bees are important, they’re not natives, having been here for ‘only’ 400 years. Colorado has an incredible 946 different native bee species, from bumble bees to some which are not much larger than a gnat. Some native bees will only interact with native plants.
Butterflies are another creature that rely on native plants. Some butterflies lay eggs only on specific plants, for instance Monarchs who require milkweeds. When these plants decline, so does the Monarch butterfly population.
Birds are similarly no exception to requiring native plants. They nest in non-native plants, as well as native trees, but feed their young on insects and caterpillars which are often found only on natives plants. According to the wonderful book Bringing Nature Home by Douglas Tallamy, a University of Delaware entomologist and recent speaker at Denver Botanic Gardens, a pair of chickadees must find an incredible 6000 caterpillars to raise one clutch of babies! Caterpillars are much less likely to be found on non-native trees and plants.
A large garden isn’t necessary to grow natives, and non-natives can also be great, but the idea is to select the Right Plant in the Right Place with the Right Plan. Back to Mount Evans; anyone who’s hiked even a little up at the top sees the amazing alpine plants which cling to life amidst rocks and wind. These are Colorado natives, of course, but not the ones for gardens.
Promoting native plants for Colorado gardens has wide-ranging benefits for both townhomes and single dwellings.
Lenore Mitchell is a Colorado native, the current president of the Metro Chapter of Colorado Native Plant Society (www.conps.org) and teaches field-based native plant classes through CSU Extension. She is also an avid gardener.
By Justin Rohner, Agriscaping Technologies, LLC
The days of the old-fashioned backyard garden may be all but gone. With newer homes on smaller lots and some HOAs that do not allow the typical rowed vegetable gardens to be planted, a few people are getting creative. Enter Agriscaping, or edible landscaping.
Combining gardening techniques with a good amount of creativity, edible landscaping uses not only fruit and vegetable bearing plants, but herbs and yes, even edible flowers, to turn the traditional lawn into a more functional space. By bordering with attractive, flowering chive, accenting with edible flowers such as pansies, nasturtiums, and violets and using mint as a ground cover, edible landscaping encourages growth and harvest rather than tedious maintenance.
While it seems like a novel idea, it is not an entirely new one. Growing food alongside merely ornamental vegetation can be traced back to the 10th century when Benedictine monks created herb-lined gardens with neighboring roses. It wasn’t until the Renaissance that people began intentionally separating purely ornamental plants.
More recently, edible landscaping has taken up an environ-mentalist approach. To some Agriscaping supporters, traditional landscaped yards are a waste of energy due to the pesticides, fertilizers and electric lawn tools that most people use to maintain them. Yet from all of that input, you merely receive the satisfaction of a green lawn instead of fresh food in your kitchen from your own property.
Agriscaping isn’t as scary as it sounds. In fact, incorporating edible plants into your landscaping is not only beneficial to your health, but you will find it fun and rewarding as well.
If you would like to start digging in the dirt, but you aren’t sure what to grow, here are a few varieties of plants and trees that do well in the Front Range area.
Lettuce, chives, mustards, swiss chard, and kale are all easy plants to start with and can add color and vibrancy.
Several varieties of peppers such as black peppers, chili peppers, and sweet peppers along with eggplants, squash and zucchini, cabbages, artichokes and beets can be incorporated in your edible landscape.
With Colorado being known for its craft beers, even hops are a nice choice. They will beautifully cover a trellis or fence and the young strings are delicious.
For shrubs and tree choices, check into Saskatoon or Utah serviceberry, Oregon grape, prairie crabapple, and prickly pear. Pinyon pine, choke cherry, and raspberry plants are also hardy native choices for the edible landscape.
Of course, as mentioned, there are choices for edible flowers as well. Some choices include hostas (blooms), daylilies (tubers, buds), sunflowers (buds), yucca (petals, fruit), lavender (blooms), and nasturtium (leaves, petals).
Your best bet with consuming edible flowers, is to only eat what you have grown. That way you know how the plants have been handled and that they are free of pesticides.
Justin Rohner is the CEO of Agriscaping Technologies, LLC, a company that teaches everyone from novice home gardeners to community garden leaders and even landscape architects how to turn traditional yards into edible, healthy, productive landscapes. For more information visit their website at Agriscaping.com
By Jeff Kerrane, Benson, Kerrane, Storz & Nelson
The past few years have seen an unprecedented surge in the introduction of state legislation aimed at curbing construction defect lawsuits. Several states have passed major reforms with the goal of increasing hurdles for community associations to file lawsuits, providing builders with a right to repair, limiting associations’ rights to amend their governing documents, shortening the deadlines to bring claims, and taking away a right to a jury trial.
The Community Associations Institute responded in 2016 by amending and broadening its public policy toward protecting associations’ rights to pursue construction defect claims. CAI has published public policies on a broad range of topics including board member education, the mortgage interest deduction, and satellite dishes. CAI’s public policies are intended to guide local chapters and legislative action committees in their advocacy efforts.
Prior to 2016, CAI had a limited public policy, titled “Protection of Association Claims in Right to Cure Legislation.” Last April, CAI’s Government & Public Affairs Committee redrafted and broadened this policy, renaming it, “Protection of Association Claims in Construction Defect Legislation.”
CAI’s new policy on construction defect legislation includes the following tenets:
Jeff Kerrane is a partner at Benson, Kerrane, Storz & Nelson, which represents homeowners and community associations faced with construction defects throughout Colorado, Minnesota, Wisconsin, and Texas. Jeff was a member of CAI Government & Public Affairs Committee from 2015 to 2016.
By Monica Lichtenberger, Phoenix Strategies, Inc, Murray Bain, PCAM, CCAM, Summit HOA Services, Inc., and Wes Wollenweber, Feldmann Nagel, LLC
Resolution of community disputes is no longer a task left for lawyers and trained mediators. Times are changing. Managers play a major role in helping resolve disputes and, as discussed below, that role will increase in the future. This spring, mediator, Monica Lichtenberger of Phoenix Strategies, Murray Baine of Summit HOA Services, and Wes Wollenweber of Feldmann Nagel, join forces to present their 8-hour continuing education program entitled, “Conflict Management & Dispute Training for HOA and Real Estate Professionals.” This program will be certified for eight hours of continuing education credit for both community managers, as well and real estate professionals. Alternative Dispute Resolution (ADR), such as mediation, is badly needed for community disputes. Future legislation may make mediation and other forms of ADR mandatory in housing disputes. As such, community managers, property managers, and other real estate professionals can benefit greatly from conflict resolution training. We all know that HOA and real estate professionals deal with all types of conflict. That conflict is on the rise as our societal conflict increases. Conflict resolution skills not only help resolve the day-to-day challenges of community conflict but also, will be in greater demand as the legislative landscape develops. Managers equipped with these crucial skills will be seen as a major resource once it is mandatory to mediate community conflicts.
Conflict resolution has been covered in prior editions but community manager feedback suggests that more and more managers are interested in learning new and additional skills pertaining to being part of the resolution process itself. This is encouraging because community disputes face many hurdles if they are not resolved prior to litigation. Community disputes, whether involving neighborto-neighbor conflicts, disagreements between neighboring homeowner associations (e.g. easement disputes), or homeowner association-member battles, can be very expensive both in terms of money and time. As so many of us know, they are often emotionally charged legal disputes, which can lead to significant legal expense. They are time consuming and take board members and managers away from the main task of sound governance. Further, the outcome of court cases does not always justify that expense. Aside from legal disputes, community managers can benefit greatly from conflict resolution techniques as a means to problem solve on a day-to-day base basis and end disputes before they get out of hand. These skills help solve issues between board members, boards and community members, as well as broader issues.
In Monica, Murray, and Wes’s training, managers will become familiar with the PSI Collaborative and the Facilitative InterestBased (CFI) model in order to learn best practice conflict management strategies and techniques. Collaborative strategies focus on the tenet that people in conflict usually have some type of prior relationship. Given the nature of community disputes, these strategies are crucial for managers because they help use existing relationships to resolve conflict. The level of volatility or peacefulness reflected in this existing relationship is not necessarily a result of the actual conflict but rather how people communicate with and treat one another during a disagreement. People are less likely to launch a formal complaint or initiate a lawsuit against someone they feel has harmed them if they are treated with respect. Collaborative conflict managers use strategies and techniques that help connect people and foster that necessary respect. Respect leads to trust, and this heightened care and trust enables parties in a community to collaborate as partners, analyzing issues and designing optimal and mutually satisfying solutions.
Facilitative conflict managers use approaches that empower, assisting people to make their own decisions. Empowerment is based the belief that disputants are capable of making their own decisions. People in conflict know the most about their situations, and what will ultimately work. In some disputes, people do not need someone telling them or pressuring them to accept ideas from outside their situation. However, others, such as managers dealing with a board dispute, can be helpful by asking questions and/or challenging certain ideas involved in the dispute. Empowerment happens when people involved directly in the conflict reach a full understanding of the situation and believes that they have the ability to make their own decisions. This approach is equally valuable to community disputes. A manager who can help facilitate individuals in conflict talking through their own issues is a high-level manager.
The interest-based method goes beyond the surface and the positions people take in a dispute (e.g. we want to enforce this policy that we have not enforced in some time) and delve into the deeper interest that area really driving the dispute (e.g. we need the policy now because of one individual that we take issue with). This method focuses on the true needs of the parties. Often, in community disputes, this method finds the true common ground or common interest between the disputants and focuses on solutions valuable to both sides.
No matter the method, conflict resolution training places another valuable arrow in the manager and real estate professional’s quiver of people skills. In addition, as mediation and other forms of ADR become potential mandatory, managers with this training and these skills will offer another level of service to this industry that will be invaluable.
Monica Lichtenberger, Phoenix Strategies, Inc. (PSI) President, has 20 years of experience as a mediator, coach, trainer, facilitator, faith conciliator and conflict management system designer. As a conflict management specialist, she has extensive mediation experience and has delivered Home Owner Association, workplace, faith conciliation, elder care, Restorative Justice, domestic, and business/consumer conflict management training.
Murray Bain, PCAM, CCAM, is the President of Summit HOA Services Inc.
Wes Wollenweber is a senior attorney at Feldmann Nagel LLC. He has represented HOAs for 17 years.
By K. Christian Webert
Some homeowners and condominium associations have restrictions on animals within their communities. Generally, these restrictions prohibit certain animals, limit the number and size of certain animals, and prohibit certain animals from certain areas in the community. Sometimes, a resident demands that the association make an exception to its rules because the resident has a service animal or an assistance animal. The association board and manager are then left to sort through the alphabet soup of laws and government agencies, determine whether the resident’s demand is valid, and inform the resident of the association’s position. Good times. This article seeks to provide some guidance on how to respond to these demands.
A “service animal” is a dog or miniature horse individually trained to provide assistance to an individual with a disability, under the Americans with Disabilities Act (“ADA”). Most associations are not subject to the ADA because they do not have places of public accommodation. As such, most associations are not required to allow service animals. However, associations that invite the public to use the associations’ amenities might be subject to the ADA. If an association is subject to the ADA, the association must allow the service animal access.
To determine whether an animal is a service animal, the association may ask two question: (1) Is this a service animal that is required because of a disability? (2) What work or tasks has the animal been trained to perform? Please note, if it is apparent that the animal is a service animal, the association may not ask these questions. For example, a dog guiding a person who is blind may not be the subject of inquiry. All that said, the association may deny access to the animal if (1) the animal is out of control; (2) the animal is not housebroken; or (3) the animal poses a direct threat to the health or safety of others. Additionally, effective 2017, Colorado has made it a crime to intentionally misrepresent that an animal is a service animal.
An “assistance animal” is an animal that works, provides assistance, or performs tasks for the benefit of a person with a disability, or provides emotional support that alleviates one or more identified symptoms or effects of a person’s disability, under the federal Fair Housing Act (“FHAct”). Generally, an association must allow an assistance animal in the association’s community, even if the association has a rule prohibiting the assistance animal. Please note, the FHAct protects all residents, including owners, tenants, and applicants/prospective residents. When a resident asks the association to allow an assistance animal despite the association’s restrictions on animals, the resident is requesting a reasonable accommodation.
To determine whether an animal is an assistance animal, the association must follow the reasonable accommodation process required by the FHAct. There are a few guiding principles to consider. First, the Association should actively engage in the reasonable accommodation request process. Second, if the requested accommodation is not granted, the Association should propose a less restrictive alternative. Third, the association should document the reasonable accommodation request process thoroughly.
Beyond these guiding principles, the association must take the following steps. First, the association must determine whether the person making the request is disabled, i.e. a physical or mental impairment that substantially limits one or more major life activities. Second, the association must determine whether the person making the request has a disability-related need for an assistance animal. If the person’s disability is not apparent, the association may request and obtain additional information to substantiate the person’s disability and the disability-related need for the assistance animal. If the association determines that requestor is either not disabled or does not have a disability-related need for an assistance animal, the association may deny the request. However, if the association determines the requestor is disabled and has a disability-related need for an assistance animal, then the association must allow the assistance animal.
However, the association need not allow an assistance animal if any of the following applies. First, allowing the assistance animal would impose an undue financial and administrative burden. Second, it would fundamentally alter the nature of the association’s services. Third, the specific assistance animal poses a direct threat to the health or safety of others. Fourth, the specific assistance animal would cause substantial physical damage to the property of others. Additionally, effective 2017, Colorado has made it a crime to intentionally misrepresent that a resident is entitled to an assistance animal.
Christian Webert is an associate at Moeller Graf, P.C., where he has spent the past five years specializing in all areas of common interest community law. You may find out more about Moeller Graf, P.C. at www.moellergraf.com.
By Justin Bayer, Caretaker Landscape
T he idea of an HOA board member going rogue and compromising the integrity or the future of a community is not uncommon. Going “rogue” can refer to various actions, including but not limited to; making impactful decisions without consulting others on the board, acting in an uncivil manner with other board members, using volatile language or behavior toward other board members, or utilizing their position as a board member or board officer to make personally beneficial decisions. Oftentimes these power struggles or bullying through personal agendas can lead to attorney involvement and litigation, avenues that can be fiscally damaging for an HOA and its respective membership.
While there are certainly times when a lawsuit is the only action left to take against a particularly difficult or tyrannical board member, avoiding this result completely is typically a more desirable route. That being said, taking the proper steps in the early stages of this situation can be confusing and stressful.
What rights do board members have when facing a rogue board president? What if that president is newly elected? How can the board deal with a board member who is hiring contractors behind their back? This article will aim to concisely address questions like these and bring to light a board’s rights, as well as proper steps to follow when faced with a difficult situation involving a rogue board member.
While a seemingly innocuous call to action, a simple conversation can go a long way. This type of correspondence can be behind closed doors if preferred, which can be especially effective for enlightening a board member who is beginning to “go rogue.” If board members are not comfortable with an off-the-record conversation, utilizing the structure of the board meeting forum can be especially helpful. By stating issues or questioning decision making within the boundaries of an official meeting, the concerned board members can ensure that their points will be officially logged in the meeting’s minutes.
Oftentimes it is power over fellow homeowners that can get to a rogue board member’s head. They threaten the sanctity of their position by acting out on their own accord, a clear and direct violation of their commitment to the association. This sort of behavior can derive from a position of power on the board, one they were most likely elected to prior to this behavior. Rather than waiting for their term to expire (an option, to be sure, though a lengthier process in most cases), a board has the ability to remove an officer. This process typically only requires a majority vote, though many board members are unaware of this course of action.
If removal from a position of power is not enough (or the offending member refuses to step down on their own), there is the option of removing this person from the board entirely, although this can prove to be a bit more challenging. In most cases, the process of complete removal from an HOA board takes the vote of every member on the board. It should be noted that this is the bare minimum it would require to remove a member completely. As with any process that has serious legal and fiscal ramifications, it is best to become educated in the common interest-related state and federal laws that apply to your community. For Colorado, these laws can be found on the Colorado.gov website, on the Department of Regulatory Agencies (DORA) page.
If the rogue board member has already acted on their own accord and for their own interest or gain, it would be wise to notify all vendors and other community business partners that the board as a whole makes the purchasing decisions for the community. If action regarding third party businesses are not handled in a timely manner, the board could be forced to suffer the monetary consequences of the rogue member’s decisions.
In a 2016 article for HOALeader.com, Bob Kmiecik, a partner at Kaman & Cusimano LLC, advises that “You should contact contractors and say the president doesn’t have the authority to sign contracts himself and therefore those vendors don’t have a reasonable basis to rely on that authority in contracting with the association.”
A final step to ensure that the board is being properly represented legally is to involve the community’s legal representation in all emailed correspondence regarding the behavior of a rogue board member. This action can be of great importance if the decision making of a rogue board officer comes back to adversely impact the board or the community
There are instances where mediation is both beneficial and unavoidable. If the board determines that this rogue board member has acted in a manner outside his or her scope, the association may bring forth a lawsuit, and the court will likely mandate that the parties participate in mediation. The parties would participate in mediation either with or without their own respective legal counsel.
Mediation would involve both parties working toward an agreement while a neutral third party oversees and facilitates the process. All conversation and possible settlement terms in mediation are confidential and cannot be presented as evidence in a later court proceeding. This helps to ensure open negotiations. If the parties are able to come to terms and settle the dispute they would then sign a settlement agreement.
The process of mediation is non-binding, meaning if both parties are unable to come to an agreement during the process, the neutral third party cannot force the parties to reach a settlement.
Mediation varies from arbitration in that the latter is usually binding. During arbitration, instead of a neutral third party, there is an arbitrator or a panel of arbitrators who hear the arguments from both parties then make a decision as to who is right and who is wrong. The process is like a mini-trial and the arbitrator’s decision is enforceable by law.
While there is no perfect way to handle these extremely difficult situations, being well prepared and knowledgeable about the rights and authority of your board as a whole is invaluable. Always consult the proper channels of legal representation before proceeding with any action that may result in fiscally damaging or detrimental conduct to the community
By Candyce Cavanagh, Orten Cavanagh & Holmes, LLC
If you are a volunteer member of your association’s board of directors, it is in your best interests to ensure your association maintains a comprehensive directors and officers (“D&O”) liability policy. A claim against board members may or may not be justified, but defense may be an expensive undertaking and in some instances awards for damages may be substantial.
Colorado law address indemnification of directors and officers. Association bylaws sometimes also address indemnifying committee members or other volunteers. However, without D&O liability insurance to fund the indemnification obligation, an association is faced with the prospect of funding defense as an association common expense of the association.
What are the most common types of D&O claims? This past month at the CAI Luncheon, Adam Collins with Ian H. Graham Insurance identified the following claims as the most common: breach of fiduciary duty; failure to adhere to bylaws; challenges to assessments; failure to properly notice elections or count votes; improper removal of board members; challenges to architectural review decisions; Fair Housing Act discrimination claims; challenges regarding easements and variances; board’s failure to maintain common areas; defamation by the board of a member; and failure to properly disburse funds. This list represents the most common claims, but there are many other types of claims an association may face.
All directors and officers policies are not created equal. In general, there are two types of policies: package policies and stand-alone policies. Package policies often limit coverage to monetary claims and may only cover lawsuits, but not administrative proceedings (i.e., fair housing claims before state civil rights division) or alternative dispute resolution proceedings (i.e., mediation or arbitration). Additionally, insured persons may be only directors, officers and the association. The policy may not cover committee members or the association’s manager.
Stand-alone policies typically cover monetary and nonmonetary claims and also cover administrative proceedings and alternative dispute resolution claims as well as lawsuits. Further, insured entities typically include not only the directors, officers and association, but also employees, committee members, volunteers and community association managers.
Even stand-alone policies are not created equal. Types of coverage the board may consider when reviewing D&O policies include the following: defense for breach of contract; defense outside policy limits (i.e., attorneys’ fees included within or above the coverage limit); third party employment discrimination and harassment; employment practice liability; cyber liability, lifetime reporting period; full prior acts coverage; defense for libel and slander; defense for failure to maintain insurance; employees recognized as a claimant (i.e., standard insured vs. insured exclusion would not apply); and coverage extended to a spouse or partner. Basic definitions such as the definition of a claim may not be the same on every policy and can have a substantial impact on coverage. If you do not know why these types of coverage are beneficial for your association or why policy definitions are important, then do not hesitate to ask questions.
How do these differences in coverage play out in the real world? Here is a real world example. A single mother moves into a community of primarily age 55+ residents, but the community is not a 55+ community under the terms of federal law. The board adopts a rule prohibiting play structures and after receiving a complaint, the board modifies the rule to prohibit play structures that can be seen above the fence line. The single mother files a complaint based on discrimination against families with children. After the complaint is filed, the rule is rescinded, but the discrimination action proceeds. The D&O insurer provides a defense, but this association’s D&O policy only covers defense costs and not damages in the event of a finding of discrimination. Ultimately, two fines of $15,000 each for each of the two rules are imposed and damages of $28,000 are awarded to the claimant. Although the association had its legal defense costs covered, it was uninsured for a total of $58,000. If this association had a policy that covered the damages award, the policy premium difference would have been well worth the investment.
In addition to administrative claims, there are also lawsuits that could be covered by D&O insurance. For example, the Colorado Court of Appeals ruled in 2015 on a case involving validity of a rule limiting short term leasing (Houston v. Wilson Mesa). The owner filed an action to contest two $500 fines for violating a short term leasing rule. The court ruled that short-term leasing is not a commercial use and the minimum lease term had to be in the declaration because the lack of any minimum term in the declaration means that there is no restriction and a rule cannot amend the declaration. We do not know if D&O insurance was involved in this case, but ideally the association had D&O insurance that covered non-monetary claims. If not, the association would have to pay its legal fees for the trial court and appellate court actions out of association funds.
The costs for claims that may be covered by D&O policies can be substantial, whether defense costs or awards for damages. It is important for boards to ask questions of their insurance professionals and not automatically select the least expensive policy without comparing available coverage offered on policies in the marketplace. Boards may also consult with their legal counsel if they have D&O policy questions.
Candyce Cavanagh is a founding member of Orten Cavanagh & Holmes, LLC, a law firm that advocates a preventive approach in providing legal representation to community associations. Candyce is long time member of CAI and also a fellow in CAI’s College of Community Association Lawyers.
