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Supreme Court Rules in Favor of Association Declaring Amendment Adding a Covenant to Pay Assessments Valid
Board members and managers should be aware of the holding in a case recently decided by the Colorado Supreme Court. In the decision of the Court in Evergreen Highlands Association v. West, the court upheld an amendment to the Community's declaration and determined the Community had implied assessment authority, even before the amendment adding the covenant to pay assessments had been adopted. The case decision received some initial inaccurate media that reported the case gave all Owner Associations unrestricted assessment authority. That reporting was incorrect, yet the inaccurate reports were seen by many homeowners, board members and managers. We want you to be aware of what the court did hold in the Evergreen Highlands Association case and the incorrect reporting about the case.
INTRODUCTION
Orten & Hindman was co-counsel to the Association along with Davis, Graham & Stubbs on the appeal of this case to the Colorado Supreme Court. The association was successful in persuading the Court to uphold a 1995 amendment added by the Evergreen Highlands community. In finding the amendment adding a covenant to pay assessments valid, the court ruled that the scope of the amendment was within the modification clause of the declaration. The court found the amendment valid based on the following factors:
a) The amendment was made according to the modification clause of the declaration (a modification clause allowing owenrs to "change or modify" the declaration allows for adding new covenants).
b) The owner that challenged the amendment knew that the declaration was subject to modification (subject to the consent of 75% of the owners).
c) The amendment was reasonable and not burdensome (the Association’s current annual assessment is at $50.00).
d) The amendment supported the purposes of the Evergreen Highlands community (maintenance of the common area of the community “undoubtedly enhances” property values).
Additionally, the Court found that the Association had the implied power to assess after the declarant deeded common area to the Association.
MEDIA CONFUSION
With the law on adding covenants now clear, some local media took a negative angle on the Court’s ruling on implied assessment authority. One media source reported that the decision gives all Colorado homeowner associations more assessment power, allowing all owner associations to assess homeowners for repairs and improvements, without limitation. This media source also commented that the decision was a blow to homeowners, who may now be charged with unexpected fees. These media angles are inaccurate and misleading and have prompted some Colorado board members to inquire how they can use this new unlimited assessment power.
The ruling does not give unrestricted assessment authority to any owner association. The Court determined that the Evergreen Highland Association, which did not initially have a covenant requiring owners to pay assessments, had implied assessment power because the Association was deeded common area by the declarant. The Court’s ruling on implied assessment authority will only apply to those communities that have an owners association that is responsible for maintaining common area, but do not have a covenant obligating owners to pay assessments. What is uncertain, however, is whether the implied assessment authority may also extend to communities that have deficient assessment authority (those that have an artificial cap or limit on assessments that preclude the association from generating sufficient assessments to maintain the common areas).
Assessments at the Evergreen Highlands community (and other communities that maintain common area) cannot be called unexpected, as owners in the community should be aware of the property the owner association maintains. In Evergreen Highlands, most owners (if not all owners) were also aware of the 1995 amendment that added the covenant to pay assessments, which amendment apparently confirmed the implied assessment authority the Court ruled existed in communities such as Evergreen Highlands.
BACKGROUND
The Evergreen Highlands Community was created in the 1970's and initially did not have covenants requiring owners to pay assessments even though the developer deeded a 22 acre park to the Association. The Association initially used voluntary dues contributed by many owners to maintain the park area and to provide other services. In 1995, over 75% of the owners approved an amendment that added an assessment covenant obligating each owner to pay assessments to the Association. The amendment also made membership in the Association mandatory for all owners and established lien rights of the Association. Currently, and for the past several years, the assessment of the Evergreen Highlands Association is $50.00 per year. The trial court determined that the 1995 amendment was permissible and within the scope of the modification clause that permitted seventy five percent of the owners to change or modify the Declaration. The trial court's decision was appealed to the Colorado Court of Appeals where it was reversed. The Colorado Court of Appeals held, in November of 2001, that adding a new covenant was not permissible under the modification clause of the declaration, because that clause “only allows changes to the existing covenants.”
The modification clause of the Declaration provided as follows:
These covenants shall run with the land and shall bind all parties and all persons claiming under them . . . provided, however, that the owners of seventy-five percent of the lots which are subject to these covenants may release all or part of the land so restricted from any one or more of said restrictions or may change or modify any one or more of said restrictions, by executing and acknowledging an appropriate agreement . . . and filing the same . . . .
PRACTICE POINTERS
The ruling of the Colorado Supreme Court in Evergreen Highlands Association v West, confirms several practical points:
• Boards and managers should be aware of the case and possible questions based on inaccurate media reports.
• All amendments and modifications to a declaration should be made according to the amendment and modification terms of the declaration.
• Periodically remind all owners that your declaration is subject to change by following the terms of the declaration or applicable state law.
• Periodically remind all owners of various provisions in your declaration.
• Amendments that are reasonable and not burdensome are most likely to be held valid, if challenged.
• Before raising assessments, educate and make owners aware of the value of association services, and how these services add to property values, quality of life and a sense of community.
• Involve owners in budget committees and establishing or changing the goals and objectives of the community.
RECOMMENDATIONS
We recommend that communities with covenants and declarations keep their covenants relevant to their community with periodic amendments or modifications. Additionally, if there are parts of the covenants/declaration that are not working well, those provisions should be amended, in a manner that will be upheld if challenged. Finally, if your community does not yet have assessment authority, this recent case should be carefully reviewed to determine if an amendment should be pursued or if implied assessment authority is available. If you would like our assistance in any of these determinations, please contact us.
For a complete copy of the Colorado Supreme Court’s decision click here.
[PRINTER FRIENDLY VERSION]
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