HOA LEGAL UPDATE

Lenard Rioth, Attorney

CONO – May 3, 2008

I. HOA Legal Documents.

A. Declaration/Covenants – recorded document in Clerk and Recorder’s office. May include

architectural review, use restrictions, creation of homeowners association, covenant enforcement, and

assessments. May be amended to create an HOA or impose assessments.

B. Articles of Incorporation – filed with Colorado Secretary of State. Creates HOA, usually

as non-profit corporation.

C. Bylaws – establishes the procedures for operation of HOA including meetings and

elections, powers and duties of board and officers, and rights and duties of homeowners (voting, records,

etc.).

D. Rules – may not conflict with above documents, but may “interpret” or “supplement”. For

example, imposing fines after notice and opportunity for hearing.

II. HOA Statutes.

A. Colorado Revised Nonprofit Corporation Act regulates most rights, duties, and procedures

of HOA as a nonprofit entity.

B. Colorado Common Interest Ownership Act (CCIOA) applies fully to all “new” “common

1. "Common interest community" is subdivision where owners are obligated to pay

for real estate taxes, insurance, maintenance, or improvement of common property. --Excludes voluntary

homeowners associations. Provides exemption for certain “small" HOA's.

2. SB100/89 (see CONO website for full memo-cscono.org)

a. a. Requirements as to HOA Operations.

(1) Rules. Adoption of “governance policies” – rules regarding

assessments, conflicts of interest, meetings, enforcement, records, reserve funds, rules and dispute

resolution.

(2) Disclosure. Send annual notice to owners. Make certain records

available to owners. Make available certain records for sellers to provide to buyers.

(3) Owner Rights. Meetings of owners require certain notices and

owners may attend board meetings. Elections may require secret ballots and counting by impartial

parties. Maintain financial records and make audits as required. Provide annual “education” to owners.

(4) Board Duties. Board members must comply with duties under

Nonprofit Act, including conflict of interest rules.

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C. Covenant Overrides

b. 1. SB100 Overrides. Xeriscaping, flags and political signs, fire or emergency vehicle,

landscaping for fire safety, and roofing materials. Also architectural decisions must not be “arbitrary or

capricious”.

2. Modifications for Disabled. HB1135 now states that CIC’s cannot prohibit

“reasonable modifications” to a unit or common element as are necessary to afford a person with

disabilities full use and enjoyment of the unit in accordance with the Federal “Fair Housing Act of 1968.”

3. Energy Devices/Efficiency.

a. Existing Law. Covenants that “effectively prohibit or restrict the

installation or use of solar energy devices” are void.

b. New Law. HB 1270 states that an HOA shall not “effectively prohibit”

“renewable energy generation devices” which are solar energy devices or wind electric generators (that is

windmills which meet certain standards) or the installation or use of “energy efficient measures” which

are awnings, shutters, trellis, ramada, or other shade structure, a garage or attic fan and vents, an

evaporating cooler, energy efficient outdoor lighting device, or a retractable clothesline.

As to energy generators, the HOA may impose “reasonable” aesthetic restrictions as to the dimensions,

placement, and appearance of the device so long as they do not (1) significantly increase the cost of the

device, or (2) significantly decrease its performance or efficiency. In addition, HOA may require bona

fide safety requirements and reasonable restrictions to reduce interference with use and enjoyment by

residents of properties situated near the generators as a result of sound. In any lawsuits regarding

generators, the prevailing party is entitled to recover reasonable attorneys fees.

As to energy efficiency measures (“EEM”), the HOA may impose “reasonable” aesthetic restrictions

which consider (1) the impact on the purchase price and operating costs of the EEM, (2) the impact on the

performance of the EEM, and (3) criteria contained in the HOA’s governing documents. In addition, may

impose bona fide safety requirements.

As to generators and EEM’s, the owner has no right to place such items on (1) property owned by another

person, (2) leased property, except with permission of the landlord, and (3) a “limited common element or

general common element” of a common interest community (condo and/or townhouses).

D. New Requirements (2008) Regarding Fines.

1. Existing Law. CCIOA provides that an CIC may impose “reasonable fines” for

violation of the declaration, bylaws, and rules “after notice and an opportunity to be heard.”

2. New Law. HB1135 states that an CIC may not fine an owner unless (a) the CIC

has adopted and follows a “written policy governing imposition of fines”, and (b) the policy requires “a

fair and impartial fact-finding process” as to whether the violation “actually occurred” and whether the

owner is the “one who should be held responsible for the violation.” The process may be informal, but

must “guarantee” the owner notice and an opportunity to be heard before an “impartial decision-maker.”

An impartial decision-maker is a person or group of persons who have authority to make a decision and

have no “direct personal or financial interest in the outcome” which means that the decision-maker “will

not, as a result of the outcome, receive any greater benefit or detriment than the general membership” of

the CIC. However, if the owner is held not responsible for the violation, the CIC may not allocate to such

owner’s account “any of the association’s costs or attorneys fees incurred in asserting or hearing the

claim.” (Colorado Legislature “specifically endorses and encourages” CIC’s to agree to use “all available

public and private resources for alternative dispute resolutions”).