Chapter 12 - § 12.6 • THE ASSOCIATION

• Jurisdiction: Colorado

§ 12.6 • THE ASSOCIATION

The COA does not define the term "association." The Restatement says an association is "an organization created to manage the property or affairs of a common-interest community."¹⁷⁰ The CCIOA definition,¹⁷¹ which is applicable to pre-existing condominiums,¹⁷² describes an association as an entity organized under another statute that requires an association to be formed as a nonprofit, not-for-profit, or for-profit corporation or as a limited liability company no later than the date the first unit is conveyed to a purchaser, the membership of which must at all times consist exclusively of all unit owners.¹⁷³

Not only does the COA not define what an association is, it makes only a few brief mentions of condominium associations, providing that:

• Declaration provisions making association membership mandatory or providing for payment of charges assessed by an association on condominium units are considered covenants running with the land.¹⁷⁴
• The declaration must allocate to each unit a portion of the votes in the association and a percentage or fraction of the association's common expenses.¹⁷⁵
• The declaration must make reasonable provisions for the way in which the association gives notice of matters affecting the condominium property to unit owners.¹⁷⁶
• The bylaws must state whether the association is a not for profit corporation, an unincorporated association, or a corporation.¹⁷⁷
• The bylaws must state whether the work of maintenance, repair, replacement, and improvement of the common elements requires prior approval of the association when it would involve a large expense or exceed a certain amount.¹⁷⁸
• The bylaws must include a list of the services provided by the association that are paid for out of the regular assessment.¹⁷⁹
• When there is a suit or arbitration against an association and damages are awarded or a settlement is made, the liability of individual unit owners is limited.¹⁸⁰

§ 12.6.1—Association Powers

Generally, a condominium association may exercise its powers only within the constraints of its declaration and bylaws.¹⁸¹ The COA does not explicitly identify any powers of an association. The Restatement says that, in addition to any powers granted by statute or the governing documents,¹⁸² a common interest community has the powers reasonably necessary to manage the common property, administer the regime, and carry out any functions set forth in the declaration.¹⁸³ Under the Restatement, those powers include (1) raising funds through assessments, fees, and borrowing;¹⁸⁴ (2) managing, acquiring, and improving common property;¹⁸⁵ (3) adopting rules governing use of property;¹⁸⁶ (4) enforcing the governing documents, the rules and regulations, and the obligation to pay assessments and other charges;¹⁸⁷ (5) design control;¹⁸⁸ (6) amending the declaration;¹⁸⁹ and (7) suing and defending suits.¹⁹⁰

In a statute made partially applicable to pre-existing condominiums for "events and circumstances occurring on or after July 1, 1992,"¹⁹¹ 13 association powers are listed that may be exercised without specific authorization in the declaration.¹⁹² Those powers are to:

1) Adopt and amend bylaws and rules and regulations;¹⁹³
2) Adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from unit owners;¹⁹⁴
3) Hire and terminate managing agents and other employees, agents, and independent contractors;¹⁹⁵
4) Institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the common interest community;¹⁹⁶
5) Make contracts and incur liabilities;¹⁹⁷
6) Regulate the use, maintenance, repair, replacement, and modification of common elements;¹⁹⁸
7) Impose and receive any payments, fees, or charges for the use, rental, or operation of the common elements other than limited common elements;¹⁹⁹
8) Impose charges for late payment of assessments, recover reasonable attorney fees and other legal costs for collection of assessments and other actions to enforce the power of the association, regardless of whether suit was initiated, and, after notice and an opportunity to be heard, levy reasonable fines for violations of the declaration, bylaws, and rules and regulations of the association;²⁰⁰
9) Impose reasonable charges for the preparation and recording of amendments to the declaration or statements of unpaid assessments;²⁰¹
10) Provide for indemnification of association officers and the governing board and maintain directors' and officers' liability insurance;²⁰²
11) Exercise any other powers conferred by the declaration or bylaws;²⁰³
12) Exercise all other powers that may be exercised in Colorado by legal entities of the same type as the association;²⁰⁴ and
13) Exercise any other powers necessary and proper for the governance and operation of the association.²⁰⁵

§ 12.6.2—Incorporation

Under the COA, a condominium association does not need to be incorporated.²⁰⁶ The Act requires the bylaws to provide a statement regarding whether the association is a not-for-profit corporation, an unincorporated association, or a corporation.²⁰⁷ By comparison, a CCIOA statute requires common interest community associations to be organized as nonprofit, not-for-profit, or for-profit corporations or as a limited liability companies, although an association's failure to incorporate or organize as a limited liability company does not adversely affect either the existence of the community for purposes of the CCIOA or the rights of persons acting in reliance on that existence.²⁰⁸ That statute is one of those that applies to pre-existing condominiums for events and circumstances occurring on or after January 1, 2006.²⁰⁹

§ 12.6.3—Membership

The COA does not require unit owners to be members of the association, but does provide that to the extent the declaration has a mandatory requirement that all condominium unit owners be members of an association or corporation, that requirement will be considered a covenant running with the land binding on all owners and their successors in interest, and any common law rule terminating agency on death or disability of a principal may not be applied to defeat or limit that covenant.²¹⁰ In contrast, the CCIOA states that "[t]he membership of the association at all times shall consist exclusively of all unit owners or, following termination of the common interest community, of all former unit owners entitled to distributions of proceeds . . . or their heirs, personal representatives, successors, or assigns."²¹¹ That is one of the requirements made applicable to pre-existing condominiums for events and circumstances occurring on or after January 1, 2006.²¹²

§ 12.6.4—Assessments for Common Expenses

The COA does not explicitly grant an association the authority to levy or collect assessments. It leaves those matters to the declaration and bylaws.²¹³ Clearly it intends for associations to be able to levy and collect assessments for common expenses. First, it says that if the declaration provides for payment of charges assessed by the association on condominium units, that provision is considered a covenant running with the land binding on all condominium owners and their successors in interest.²¹⁴ Second, it requires the declaration to allocate a percentage or fraction of the association's common expenses to each condominium unit.²¹⁵ Finally, the bylaws must include "the manner of assessing and collecting from the unit owners their respective shares of such estimated expenses and of any other expenses lawfully agreed upon" and a "statement clearly and separately indicating what assessments, debts, or other obligations are assumed by the unit owner on his condominium unit."²¹⁶ Noting those requirements in the statute on bylaws, one Colorado court said that a unit owner would be liable, under the COA, for assessments accrued during his or her ownership of a unit and that, pursuant to the declaration, a unit owner was personally liable for unpaid assessments.²¹⁷

Nonetheless, the COA does not specifically grant condominium associations the authority to levy assessments or a lien to enforce them.²¹⁸ In contrast, the Restatement says that "except as limited by statute or the declaration," common-interest communities have the power to raise funds reasonably necessary to carry out their functions by levying assessments against individually owned property — that is, units — and that assessments may be allocated among the individually owned properties and are secured by a lien against those properties.²¹⁹ A comment says that under the Restatement, the power to raise funds reasonably necessary to carry out the functions of a common interest community will be implied, even if not expressly granted by a declaration or statute.²²⁰

Under two CCIOA statutes made applicable to pre-existing condominiums,²²¹ it is not necessary to imply an association's authority to raise funds. The Act specifically says that associations have the power to collect assessments for common expenses from unit owners,²²² and have a statutory lien on a unit for any assessment levied against that unit.²²³ The extensive treatment of the statutory lien authority in the statute is discussed elsewhere.²²⁴ Additionally, under another CCIOA provision applicable to pre-exiting condominiums,²²⁵ associations may impose charges for late payment of assessments and recover reasonable attorney fees and other legal costs for collection of assessments regardless of whether suit was initiated.²²⁶

A statute providing limitations on collecting past-due assessments and other delinquent payments applies to all common interest communities created in Colorado before July 1, 1992, "with respect to events and circumstances occurring on or after July 1, 1992."²²⁷

While an association may have general authority under the various applicable statutes and its governing documents to...