Mountain Law: Colorado court of appeals clarifies aspects of amending restrictive covenants (column) | SummitDaily.com

Mountain Law: Colorado court of appeals clarifies aspects of amending restrictive covenants (column)

Noah Klug
Mountain Law

Recent Colorado court decisions clarify aspects of amending the declaration of restrictive covenants in common interest communities (CICs).

CICs, which include most condominiums and covenant-controlled subdivisions, are generally governed by a comprehensive statute known as the Colorado Common Interest Community Ownership Act (CCIOA) that went in effect in 1992. Vis-à-vis CICs created before 1992 (so-called "pre-CCIOA communities"), only certain provisions of CCIOA apply. The list is set out in Section 117 of CCIOA, which I refer to as the "secret decoder ring" because it is often necessary to turn to this provision to decode whether given provisions of the statute apply.

Another provision of CCIOA, Section 217(1), states that a declaration cannot require greater than 67 percent vote for an amendment. Any provision in a declaration requiring more than 67 percent vote for an amendment is "declared void as contrary to public policy" and is reduced to 67 percent. For example, if a declaration states that it requires 75 percent vote to amend, that may be automatically reduced to 67 percent under this provision. The secret decoder ring says that Section 217(1) applies to pre-CCIOA communities.

However, there is an exception to the above rule because Section 217(1) further states that it is preempted by Section 217(4) of CCIOA. In turn, Section 217(4) says that certain types of amendments, including amendments to increase the number of units or change the boundaries or allocated interests of any unit, require the greater of 67 percent vote or any larger percentage the declaration specifies. "Allocated interests" refers to the critically important issues of common expense liability (i.e. how much dues each unit pays) and voting rights. Section 217(4) is not mentioned in the secret decoder ring. (A curious older decision of the Colorado Court of Appeals, Giguere v. SJS Family Enterprises, Ltd, states that Section 217(4)'s use of the phrase "any unit" means it does not apply to amendments that affect "all units" in the community, but that was not raised or followed in the recent cases.)

CICs ... are generally governed by a comprehensive statute known as the Colorado Common Interest Community Ownership Act (CCIOA) ... The list is set out in Section 117 of CCIOA, which I refer to as the “secret decoder ring” because it is often necessary to turn to this provision to decode whether given provisions of the statute apply.

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That brings us to the two recent cases of DA Mountain Rentals, LLC v. The Lodge at Lionshead Phase III Condominium Association Inc. and Francis v. Aspen Mountain Condominium Association, Inc. In each case, the Declaration for a pre-CCIOA community stated that any amendment changing the allocated interests required unanimous consent. In Francis, the association adopted an amendment directly changing the allocated interests and, in DA Mountain Rentals, the association adopted an amendment changing the voting percentages for all amendments to 67 percent. Both cases were appealed by a homeowner to the Colorado Court of Appeals, which struck down the amendments and held that Section 217(4) of CCIOA preserved the unanimous voting requirements in the Declarations for the types of amendments at issue.

The association in DA Mountain Rentals stressed that its amendment did not technically change the allocated interests; it changed the voting requirement for all amendments. However, the court rejected that argument because, if the first amendment were allowed to go into effect changing the vote needed for all amendments, then the association could subsequently adopt a second amendment changing the allocated interests using the lower voting requirement, and this two-step process would undo the unanimous consent requirement for changing the allocated interests in the declaration. Thus, the amendment was rejected even though it was not directly a type of amendment to which Section 217(4) applies.

In Francis, the association argued, among other things, that Section 217(4) doesn't apply because it's not mentioned in the secret decoder ring. However, the court rejected that argument because Section 217(1) incorporates Section 217(4) by reference.

In sum, two recent decisions of the Colorado Court of Appeals have clarified that, in the case of certain types of amendments to a declaration, including changes of allocated interests, the greater of 67 percent vote or a higher percentage stated in the declaration will apply.

Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at 970-468-4953 or Noah@TheKlugLawFirm.com.