Chapter 10 - § 10.3 • COMMON INTEREST OWNERSHIP ACT
| Jurisdiction | Colorado |
In 1991, Colorado adopted, with some changes, portions of the Uniform Common Interest Ownership Act (UCIOA), effective July 1, 1992. Colorado's Common Interest Ownership Act (CCIOA) provides a comprehensive scheme controlling the creation, governance, management, and operation, including tort and contract obligations, of common interest communities such as condominiums, townhomes, cooperatives, and some platted subdivisions.30 CCIOA provides that a unit owners' association may institute, defend, or intervene in litigation in its own name on behalf of itself or two or more unit owners on matters affecting the common interest community, and that any person or class of persons adversely affected by a failure of another to comply with CCIOA or any provision of the declaration, bylaws, articles, or rules and regulations may obtain reimbursement for any resulting collection costs, attorney fees, and costs.31
CCIOA applies to most residential Colorado communities created since 1992 that have covenants that include an obligation to pay assessments.32 The need for lower-cost housing, the requirements of local governments, the graying of America, and the desire for covenant-controlled communities have fueled the common interest community trend. These mini-governments or "Privatopias" engender a plethora of unique social and legal problems.33 Such problems are magnified during the period of "declarant control," during which a for-profit developer runs a not-for-profit homeowners' association, and acts as the homeowners' fiduciary and trustee of the property.34 These problems may be further amplified during economic hard times that squeeze developers financially.35 Interesting issues can arise if, for example, a significant construction defect is observed during the period of declarant control, and tough decisions need to be made regarding suing the persons responsible — especially if those persons include the developer-builder, who is also acting as declarant and controlling the association's board, and if statutes of limitations have potentially begun to run.36
The contours of the developer's liability under CCIOA have not yet emerged. For example, Colorado courts have not fully defined the scope of relief available to a homeowners' association, or to individual "unit owners" joined together in a class or collective action, due to a developer's failure to complete or properly construct the development's common elements, such as condominium roofs, or infrastructure, such as roads.37 For a related discussion, see § 10.3.4, "The Homeowners' Association's Exclusive Right to Payments for Common Element Property Damage."
A class action or suit brought by an association on behalf of individual unit owners under CCIOA may allow certain claims, such as fraud in the inducement38 or breach of contract, not otherwise directly available to a CCIOA homeowners' association.39 A class action also may avoid problems attendant to the developer-declarant's continuing control over the CCIOA homeowners' association board, and its unwillingness to commence litigation against the developer-declarant.
§ 10.3.1—CCIOA Summary
CCIOA is divided into three parts: (1) General Provisions,40 (2) Creation, Alteration and Termination of Common Interest Communities,41 and (3) Management of the Common Interest Community.42 CCIOA applies to multi-family developments, such as condominium and townhome complexes, as well as single-family residential developments. With certain exceptions, some or all of CCIOA applies to common interest communities created on or after July 1, 1992.43 Pre-existing common interest communities can voluntarily elect to submit to the requirements of CCIOA by proper vote.44 Some communities may become impliedly subject to CCIOA or a CCIOA declaration of covenants.45 Certain sections of CCIOA apply to common interest communities that existed before CCIOA's enactment.46 The following discussion focuses on those CCIOA provisions most frequently implicated by construction defect disputes.
General Provisions
One of CCIOA's explicit purposes is to establish "more certain powers in the [homeowners'] association to sue on behalf of the owners."47 CCIOA defines such important terms as "common interest community," "executive board," "association," "master association," "declarant," "affiliate of a declarant," "special declarant rights," "bylaws," "declaration," "map," "plat," "rules and regulations," "common elements," "common expenses," "real estate," "development rights," "purchasers," and "unit owners."48
Except as CCIOA expressly provides, its provisions may not be varied by agreement, and the rights it confers may not be waived.49 A declarant may not act under a power of attorney or use any other device to evade the limitations or prohibitions of CCIOA or the declaration.50 The declaration (and the bylaws, since the bylaws may not confer powers not permitted by the declaration or CCIOA) "may not impose limitations on the power of the association to deal with the declarant that are more restrictive than the limitations imposed on the power of the association to deal with other persons."51 "A building code may not impose any requirement upon any structure in a common interest community which it would not impose upon a physically identical development under a different form of ownership; except that a minimum one hour fire wall may be required between units."52
General principles of law and equity, such as the law of corporations and unincorporated associations, real property, contract, principals and agents, estoppel, fraud, misrepresentation, duress, coercion, and mistake supplement the provisions of CCIOA, except to the extent they are inconsistent with CCIOA.53 CCIOA states it shall be interpreted to be uniform among all states enacting similar uniform laws.54
Two relatively untested but potentially powerful sections of CCIOA concern unconscionability and good faith.55 A court may refuse to enforce, in whole or in part, any contract or contract clause to avoid an unconscionable result. CCIOA also provides,
Whenever it is claimed, or appears to the court, that a contract or any contract clause relating to a common interest community is or may be unconscionable, the parties, in order to aid the court in making its determination, shall be afforded a reasonable opportunity to present evidence as to: (a) the commercial setting of the negotiations; (b) whether the first party has knowingly taken advantage of the inability of the second party reasonably to protect such second party's interests by reason of physical or mental infirmity, illiteracy, or inability to understand the language of the agreement or similar factors; (c) the effect and purpose of the contract or clause; and (d) if a sale, any gross disparity at the time of contracting between the amount charged for the property and the value of that property measured by the price at which similar property was readily obtainable in similar transactions. . . .56
This test of unconscionability is broader than Colorado's common law test.57
In addition, every contract or duty governed by CCIOA imposes an obligation of good faith in its performance or enforcement.58 Colorado has not yet defined the meaning of the phrase "good faith" as used in CCIOA. However, in other contractual contexts, the "good faith" doctrine has been held to effectuate the intention of the parties or to honor their reasonable expectations.59 "Good faith" includes "honesty in fact" and "observance of reasonable standards of fair dealing."60 The doctrine is most often employed when the parties to a contract agree to a provision that leaves one party some discretion in its performance of the contract. Generally, the implied covenant of good faith does not give rise to an independent tort duty.61
CCIOA's unconscionability and good faith provisions empower courts to fashion appropriate remedies to relieve CCIOA unit owners from unconscionable contract provisions62 and to ensure the good faith performance of every contract and duty governed by CCIOA. CCIOA provides that its remedies "shall be liberally administered to the end that the aggrieved party is put in as good a position as if the other party had fully performed."63 "However, consequential, special, or punitive damages may not be awarded except as specifically provided by [CCIOA] or by other rule of law."64 Declarants and developers argue that this limitation suggests that by enacting CCIOA, the legislature did not intend to create a "private right of action" under CCIOA for damages for breach of CCIOA's provisions, except as specifically allowed by CCIOA, but did intend to permit damages claims under other law, such as for breach of fiduciary duty, negligence in tort, breach of contract/covenant, punitive damages, negligence per se, etc.65
Unit owners counter that CCIOA imposes "specific obligations" within the uniform structure of a common interest community development that "extends through the transition to owner control."66 Unit owners then argue that CCIOA statutory claims properly arise from a declarant or declarant-appointed board member's violation of express CCIOA obligations, relying on C.R.S. § 38-33.3-114(2), which provides that "[a]ny right or obligation declared by this article is enforceable by judicial proceeding," and the argument that, generally, a statutory private right of action exists where a statutory scheme expressly provides a method for enforcement of its provisions.67 Even if CCIOA does not expressly contain a private right of action, unit owners argue that three factors support recognizing an implied private right of action based on a CCIOA violation: (1) that the plaintiff is "within the class of persons intended to be benefited by" CCIOA; (2) that "the legislature intended to create, albeit implicitly, a private right of action"; and (3) that "an implied civil remedy would be consistent...
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