Colorado Common Interest Ownership Act-how it Is Doing
| Publication year | 1996 |
| Pages | 17 |
| Citation | Vol. 25 No. 11 Pg. 17 |
1996, November, Pg. 17. Colorado Common Interest Ownership Act-How it is Doing
Colorado enacted the Colorado Common Interest Ownership Act in 1992 ("CCIOA" or the "Act"),(fn1) which, in part, replaced the Condominium Ownership Act ("COA") that became law in 1963.(fn2) CCIOA is based on the Uniform Common Interest Ownership Act ("Uniform Act"), adopted by the National Conference of Commissioners on Uniform State Laws. The Uniform Act developed in response to rising land costs in the 1960s and 1970s, as well as consumer demand for housing and recreational amenities that were affordable only when the costs of ownership were shared with others.(fn3) CCIOA has been in use for four years, providing a body of law for the creation and self-governance of Common Interest Communities ("CIC").(fn4)
This article first looks at CCIOA in the creation and governance of a post-1992 urban Denver condominium---CCIOA's advantages and drawbacks. It then discusses CCIOA's relationship with COA when changes, not in the creation but in the governance, of a pre-1992 mountain resort condominium are contemplated in the area of restrictive use covenants. Although CCIOA receives high grades for accommodating the establishment of new CICs, it provides less flexibility when it comes to the adoption of restrictive covenants, where statutory prescriptions are subject to broad judicial interpretation. Finally, recent Colorado law affecting CCIOA is noted. This article is not intended only for real estate practitioners, but for anyone interested in different development alternatives for business clients.
Examination of CCIOA, like most complex statutes, requires a context within which to consider its "real life" application. This analysis, therefore, is based on the tale of two condominiums: one located in the heart of Denver's lower downtown, and one in an established mountain resort. The urban condominium provides the backdrop for considering options in creating a CIC, while the resort allows consideration of changes to an existing CIC to adapt to the personality of the community residents.
Three historic buildings in Denver's lower downtown district provided the building blocks for a "mixed use" condominium. The buildings were slated to be internally converted and rehabilitated for both residential and commercial uses. One of the commercial occupants was already in place. The financing mix included commercial bank loans, subordinated debentures, public bond financing, and various tax incentives. When completed, the unit owners would lease the unit space to both commercial and residential tenants.
The entire mix had to satisfy not only the developer but the lenders, Denver city officials, certain Denver and Colorado public agencies, and partners in the developer's partnerships and their tax counsel, while still complying with CCIOAs requirements. CCIOA provided both the structure and the flexibility to get the job done.
In contrast, the mountain condominium, initially created under COA, was well established. From the 1970s to 1990s, the mountain condominium and its long-time owners "grew-up"---its owners demanded changes to accommodate their new-found maturity. The majority of unit owners wanted to restrict leasing activity that, in turn, would create community stability and certainty regarding the neighbors. Recalcitrant owners wanted to use the property not as a personal retreat but as an income-generator through rental. The unit
owners' association and certain owners had differing views on how to maintain the quiet character of the community and the social cohesiveness of its owners.(fn5)
The condominium was still governed, to the extent provided for in CCIOA, by COA. Reformulating the community's identity required examination of COA, along with CCIOA, against the backdrop of the developing law of restrictive covenants.
A brief overview of common interest ownership should aid in considering creation and change against these backdrops.
The initial choice in creating any community is determining whether a common interest ownership scheme achieves development goals. At its core, common interest ownership entails a property owner's obligation to pay for costs associated with "commonly" owned real estate, including real estate taxes, insurance premiums, maintenance, or improvements.(fn6) Although the emphasis here is on condominiums, practitioners should recognize that CCIOA also applies to certain cooperatives and planned communities.
Cooperatives, by definition, do not contain separately owned real property, but instead are comprised of property owned solely by an association.(fn7) Association membership carries with it the right to possess a designated portion of a cooperative. A planned community is simply any common ownership scheme that is not exclusively a cooperative or a condominium. Planned communities may contain either cooperatives or condominiums.(fn8)
The Act defines a condominium as "a common interest community in which portions of the real estate are designated for separate ownership and the remainder of which is designated for common ownership. . . ."(fn9) In practice, creating a condominium requires more than dealing with who owns the real estate. Attention also must be given to individuals who will ultimately comprise the community. Counsel cannot assume natural persons are the only participants in CICs---businesses, partnerships, or other forms of business organizations are often involved.
What makes a condominium a condominium under the Act is common ownership of some portion of the real estate dedicated to condominium use.(fn10) After this requirement is met, the Act affords a great deal of flexibility in defining the community, depending on its locale and purpose. While "community" has no single definition, it has been defined as "a group of people with common interests living in a particular area; a body of person or nations having a common history or common social, economic, and political interests."(fn11)
Condominiums are comprised of two types of property interests: units and common elements.(fn12) A unit is the "physical portion of the common interest community which is designated for separate ownership or occupancy and the boundaries of which are described and determined from the declaration."(fn13) Common elements comprise the balance of the condominium not designated a unit.(fn14) Limited common elements are a subset of common elements and comprise any portion of the common elements "allocated by the declaration [or by statute] for the exclusive use" of more than one but less than all unit owners.(fn15)
The Act provides "default" unit boundaries which, while helpful, are not practical in every community. Typically, unit ownership entails ownership of the unit interior and related interior "airspace."(fn16) The Act's default definition for unit boundaries mirrors this traditional notion by providing that when walls, floors, or ceilings are designated unit boundaries, the unit includes only interior walls and their airspace.(fn17)
The Act also provides a default designation for internal structural fixtures located both inside and outside of the unit.(fn18) According to the default designation, any chute, flue, duct, wire, conduit, bearing wall, bearing column, and other fixture located partially within and partially outside the unit are limited common elements if they service only that unit and, if they service additional units, are part of the common elements.(fn19)
Units, common elements, and limited common elements for a specific project all find their genesis in the condominium declaration, the starting point for creating any condominium. No condominium exists until the declaration is recorded; no declaration should be recorded until the details unique to the community have been fully addressed.(fn20) As the community charter, the declaration is often compared to a constitution defining not only the airspace and property dedicated to each unit, but also the rules and regulations associated with community living.(fn21)
When drafting the declaration, care must be taken to comply with the Act's mandatory provisions. Act § 104 spells out this mandate: "[e]xcept as expressly provided in this article, provisions of this article may not be varied by agreement, and rights conferred by this article may not be waived."(fn22) Thus, only those provisions of the Act that specifically allow variation can be modified by the declaration. Fortunately, the mandatory provisions do not exhaust the potential to mold a declaration to meet varied needs.
As an initial matter, the practitioner must focus on the basic requirements contained in Act § 205, "Contents of the Declaration," which outlines the information the declaration "must" contain. Section 207(a), "Allocation of Allocated Interests," requires the allocation of the commonly owned property to individual unit owners. Typically, this is done by creating a fraction that contains in the numerator the numeric value assigned to each individual unit and, in the denominator, the figure that reflects the sum of all unit allocations.(fn23) In addition, § 209, "Plats and Maps," states that plats and maps are part of...
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