July 30, 2003
Association Special Assessment Found Invalid - Declaration and Limited Asessment Authority Preclude Special Assessment
In Quinn v. Castle Park Ranch Property Owners Association, Inc., decided April 10, 2003, the Colorado Court of Appeals held that a bylaw provision requiring approval of a majority of the owners for expenditures over $1000 did not create authority for a majority of owners to approve a special assessment in the amount of $17,500 per lot. The Court held that limitations in the declaration on assessments (assessments were limited to an average of $300 per year) precluded the special assessment imposed by the Association under the Bylaws.
BACKGROUND OF THE CASE
The Declaration limited assessments to an average of $300 per year, while the Bylaws required a majority of owners to approve Association expenditures in excess of $1,000 per year. With the $300 per year limitation on assessments, the declarant qualified the Community as a limited expense community, exemption from the Colorado Common Interest Ownership Act (CCIOA). With that exemption, the declarant did not have to draft the declaration to include provisions required under CCIOA, and the declarant exempted itself from the transition audit and other requirements of CCIOA.
The Association imposed a $17,500 assessment to pave dirt roads after approval from a majority of owners obtained after two member meetings. Interestingly, the case decision is silent about the amendment terms of the Declaration which allows a majority of owners to amend the Declaration, but only on the day of the first ten-year anniversary of the Declaration. With the Declaration recorded August 30, 1993, it could be amended effective on August 30, 2003.
As of the date of the writing of this article, a petition for appeal to the Colorado Supreme Court is pending on this case. The Colorado Supreme Court has no obligation to take the case, but may if it determines the public is served by taking the appeal.
PROBLEMS FROM THE DECISION
The Quinn decision ignores several problems facing many owner associations with similar covenants including:
Assessment caps or limits imposed by the declarant (in the Quinn case, the assessment limits were inaccurately attributed to being chosen by the Association) are viewed by the courts as binding.
Covenants drafted by declarants that are not perpetual continue to have peculiar renewal and amendment clauses that offer little opportunity to remedy a declarant drafted declaration.
Many communities have covenants that are antiquated in how they can be amended. In the Quinn case, they can only be amended effective on one day, once every ten years!
When declarants make a community exempt from CCIOA, many general and specific modern operating provisions of CCIOA are not available to owners, the association or the community. In the Castle Park Ranch Community, the court sanctioned declaration amendment process of CCIOA is not available.
PRACTICE POINTERS
This ruling confirms several practice pointers for associations.
The declaration also binds and limits, by covenant, owner associations.
Common interest communities are created by and governed by their declarations. If the declaration contains provisions that were never appropriate, or that are no longer appropriate for the community, or that do not allow the Association to properly function, the declaration should be amended.
Associations are obligated to enforce the covenants in the declaration.
Assessment limits in the declaration, especially if based on an exemption from CCIOA, must be strictly followed and observed.
Bylaw provisions are not given the same weight and significance as declaration provisions (again, especially where the declaration provisions are the basis for an exemption from CCIOA).
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