Community Association 101
Sometimes we get inquires from owners and managers unfamiliar with Colorado law addressing homeowners associations. This article is intended as an introduction to the field of community association law in Colorado. Feel free to contact one of our attorneys if you have any questions regarding the application of CCIOA to your community.
Homeowners Associations in Colorado
Homeowners associations are entities organized to govern the operation of common interest communities in Colorado. They are generally created by the developer (also called the declarant) of a new community and organized before the first unit is conveyed to a purchaser. Most commonly they are organized as nonprofit corporations, although they may also be organized as for-profit corporations or LLCs.The Colorado Common Interest Ownership Act (“CCIOA”), C.R.S. 38-33.3-101 et seq., was enacted in 1991 with the purpose of establishing a clear, comprehensive, and uniform framework for the creation and operation of common interest communities (including homeowners associations) in Colorado. A common interest community is defined in CCIOA as a community in which ownership of real property within the community obligates an owner to pay for the real estate taxes, insurance premiums, maintenance, or improvements of other real property (typically the common elements) within the community. Common interest communities are classified by CCIOA into three categories, (1) condominium communities, (2) cooperatives and (3) planned communities. Planned communities are typically single family home communities that
have their own private common areas, such as open space, playgrounds, recreation center, or pools, but can also be mixed use communities that include retail units and/or condominiums. A community that does not contain common property is not considered a common interest community under CCIOA.
CCIOA generally applies to all common interest communities formed on or after July 1, 1992. However, there are exceptions for small cooperatives and limited expense planned communities and large planned communities. Only certain provisions of CCIOA apply to pre-existing common interest communities formed before July 1, 1992, although any pre-existing common interest community can elect to have all the provisions of CCIOA apply to it. The terms of CCIOA do not apply to communities that are not considered common interest communities.
If a common interest community is subject to the terms of CCIOA, membership in the homeowners association is mandatory and shall at all times consist exclusively of unit owners in the common interest community. In such communities, homeowners associations (referred to in CCIOA as a “unit owner’s association” or simply “association”) are subject to the terms of CCIOA, as well as the association’s declaration (the recorded instrument that creates the community), bylaws, and rules. If the association is organized as a nonprofit corporation it is also subject to the terms of the Colorado Revised Nonprofit Corporation Act (“Nonprofit Act”).
If a community is not subject to CCIOA, either because it qualifies for one of the exceptions or is not considered a common interest community, the homeowners association is only subject to the provisions of the declaration, its bylaws and rules. It may also be subject to the Nonprofit Act if organized as a nonprofit corporation.
The board of directors and officers of a homeowners association function similar to that of other nonprofit corporations. However, homeowners associations often contract with property management companies to handle the daily functions of the association. Under CCIOA, Board members and officers not appointed by the declarant are generally not liable for actions taken or omissions made in the performance of their duties except for wanton and willful acts or omissions.
There are many parts of CCIOA that address the management and operation of homeowners associations. For example, Section 302 of CCIOA sets forth the general powers and duties of the homeowners association. This includes the power to adopt a budget for common expenses, maintain and regulate the use of the common elements, impose late charges for the late payment of assessments, and levy fines for violations of the declaration, bylaws, or rules of the association. CCIOA also contains numerous provisions addressing governance matters, including procedures for meetings and voting, conveyance of the common elements, insurance requirements, and maintenance of association records. The association’s declaration, bylaws, or rules may set forth additional provisions addressing association governance that do not conflict with CCIOA.
One particular provision to be aware of is Section 303(4)(b), which addresses budget procedures for homeowners associations. This section requires that within ninety days of the adoption of any proposed budget for the community, the executive board deliver a summary of the budget to the owners and set a date for a meeting of the owners to consider the budget. Unless the declaration requires otherwise, the budget proposed by the executive board is deemed approved by the unit owners in the absence of a veto by a majority of the owners, or such larger amount as set forth in the declaration.
CCIOA also has certain requirements pertaining to the audit or review of the association’s books and records. In general, an audit is required when (1) the association has annual revenues or expenditures of at least two hundred fifty thousand dollars; and (2) an audit is requested by the owners of at least one-third of the units represented by the association. A lesser review of the association’s books and records, which may be performed by a qualified person other than a certified public accountant, is required when requested by the owners of at least one-third of the units. An audit must be performed using generally accepted auditing standards, or a review, using statements on standards for accounting and review services, and made available to the owners no later than thirty days after its completion.
It is also important to note that CCIOA imposes a number of disclosure requirements on homeowners associations. Section 209.4 requires associations to annually disclose the following documents:
- The date on which its fiscal year commences;
- Its operating budget for the current fiscal year;
- A list of the association's current assessments, including special assessments, if any;
- Its annual financial statements, including any amounts held in reserve for the fiscal year immediately preceding the current annual disclosure;
- The results of its most recent available financial audit or review for the fiscal year immediately preceding the current annual disclosure;
- A list of all association insurance policies, including, but not limited to, property, general liability, association director and officer professional liability, and fidelity policies. Such list shall include the company names, policy limits, policy deductibles, additional named insured, and expiration dates of the policies listed;
- The association's bylaws, articles and rules and regulations;
- The minutes of the board and member meetings for the fiscal year immediately preceding the current annual disclosure; and
- The association's responsible governance policies adopted pursuant to Section 2.095 of CCIOA.
Section 209.5 further requires that associations adopt and disclose eight responsible governance policies concerning (1) collection of unpaid assessments, (2) handling of conflicts of interest among board members, (3) conduct of association meetings, (4) enforcement of covenants and rules, (5) inspection and copying of association records by owners, (6) investment of reserve funds, (7) procedures for the adoption and amendment of policies, procedures, and rules, and (8) procedures addressing disputes arising between the association and owners.