Our legislature continues to tinker with the responsible governance policies made mandatory several years ago. This year Governor Ritter signed H.B. 1135 which amends Section 209.5 of the Colorado Common Interest Ownership Act (CCIOA). Section 209.5 first became law in 2005 by what has commonly been referred to as S.B. 100 which required every association to adopt a responsible governance policy concerning enforcement of covenants and rules, including notice and hearing procedures and a schedule of fines. Prior to adoption of S.B. 100, CCIOA permitted an association to levy reasonable fines for violations of the declaration, bylaws and rules and regulations, but only after notice to the offending owner and an opportunity for a hearing.

H.B. 1135 continues to refine the ability to fine. While most associations try to make sure that their fine process is fair and reasonable, H.B. 1135 further defines what the legislature believes is fair, and now provides that the association may not fine any owner for an alleged violation unless the association has adopted and follows a written policy governing the imposition of fines and the policy includes (1) a fair and impartial fact finding process concerning whether the alleged violation actually occurred and (2) whether the unit owner is the one who should be held responsible for the violation. The process may be informal, but at a minimum, must guarantee that the owner is entitled to notice and an opportunity for a hearing before an impartial decision maker.

The term “impartial decision maker” is expressly stated as being a person or group of persons who have the authority to make a decision regarding the enforcement of the association’s covenants, architectural requirements and other rules and regulations, and who does not have any direct personal or financial interest in the outcome. A decision maker is not deemed to have a direct personal or financial interest in the outcome if the decision maker will not, as a result of the outcome, receive any greater benefit or detriment than will the general membership of the association. Generally, an impartial decision maker could refer to the members of the board or a separate hearing committee.

One of the questions we have been asked is whether the new impartial decision maker requirement requires associations to revise their existing policies. The answer is “no, not necessarily.” Each association will need to examine its policy and how the decision maker is selected. It may be that, if the association’s policy is not clear that the decision maker must be fair and impartial, and cannot have a direct personal or financial interest in the outcome, it may be best to amend the policy to include these requirements. On the other hand, if the policy already contains these, or reasonably similar requirements, then no amendment to the policy may be required.

Another question we have been asked is whether the new requirement prevents board members appointed by a declarant during a declarant control period from being a decision maker. The answer is a very lawyerly “that depends.” It depends on how the declarant might be impacted by the outcome, and whether the declarant would have a direct personal or financial interest in the outcome, but only if the declarant does not receive any greater benefit or detriment than the general membership of the association. In other words, just because a declarant appointed representative sits on the decision making board or hearing committee and imposes a fine, does not mean that the declarant receives any greater benefit than the membership generally. However, if the declarant did receive any disproportionate benefit (e.g., the only homeowner being fined for failure to landscape happened to live next door to the declarant’s model home), the declarant appointed representative ought to consider whether the process might be better served by recusing himself/herself from the hearing process, and whether they can truly serve as an impartial decision maker.

If you have questions about whether your policy needs to be amended, or whether your declarant appointed representative can serve in the hearing process, please feel free to contact us.