Chapter 12 - § 12.7 • GOVERNANCE

• Jurisdiction: Colorado

§ 12.7 • GOVERNANCE

§ 12.7.1—Generally

The COA leaves the development of a governing structure to the documents. It does not, unlike most basic condominium legislation, provide a definition of an "association" or outline the powers and responsibilities of associations. It also does not define "board of managers," the entity it assumes will act as the association's governing board.

The Act says that the administration and operation of "multi-unit condominiums" will be governed by the declaration, "unless exempted."²⁵¹ It does not explain how an "exemption" might occur. Because that language appears at the beginning of the statute on bylaws, presumably the intent is that the declaration — the instrument that "defines the character, duration, rights, obligations, and limitations of condominium ownership"²⁵² — will govern administration and operation unless the statute on bylaws provides otherwise. That interpretation seems to be supported by a subsection in the statute on bylaws that says a declaration recorded on or after January 1, 1976, may not conflict with the provisions of the bylaw statute or with bylaws made in accordance with it.²⁵³ This represents a departure from the usual rule in condominium law in which, when there is a conflict between the declaration and the bylaws, the former prevails.²⁵⁴ The Colorado Common Interest Ownership Act takes that approach,²⁵⁵ and the CCIOA statute that accords supremacy to the declaration is one of those that applies to all common interest communities created within Colorado before July 1, 1992, "with respect to events and circumstances occurring on or after July 1, 1992."²⁵⁶

In actuality, the COA only requires the declaration to address two matters related to governance. First, it must include "reasonable provisions" on the way in which notice of matters affecting the property may be given to unit owners by the association.²⁵⁷ Second, the declaration must allocate to each unit an undivided interest in the general common elements, a portion of the votes in the association, and a percentage or fraction of the common expenses of the association.²⁵⁸ These allocations are very important. Sometimes the ownership share is linked to the voting rights. The COA does not appear to require linkage, and it has been argued that there is no really good reason to link them.²⁵⁹ No matter how the ownership share is allocated, voting rights are often assigned on a one vote per unit basis, and nothing in the COA appears to proscribe that allocation of voting rights.

§ 12.7.2—Responsible Governance Policies

A CCIOA statute that applies to pre-existing condominiums for events and circumstances occurring on or after January 1, 2006,²⁶⁰ requires associations to maintain "accurate and complete accounting records"²⁶¹ and to adopt "responsible governance policies." These policies must address the following topics:

• Collection of unpaid assessments;²⁶²
• Handling of conflicts of interest involving board members;
• Conduct of meetings, which may refer to applicable provisions of the nonprofit code or other recognized rules and principles;
• Enforcement of covenants and rules, including notice and hearing procedures and any schedule of fines;²⁶³
• Inspection and copying of association records by unit owners;
• Investment of reserve funds;²⁶⁴
• Procedures for the adoption and amendment of policies, procedures, and rules; and
• Procedures for addressing disputes arising between the association and unit owners.²⁶⁵

§ 12.7.3—Board of Managers

Under the COA, the "mechanics" of governance must be outlined in the bylaws. They must provide for the election "from among the unit owners" of a board of managers.²⁶⁶ The requirement that board members be elected "from among the unit owners" indirectly answers one question that sometimes arises: Must the members of the board be unit owners? The COA also requires that the bylaws establish how many members a board must have and state that the terms of at least one-third of them expire annually.²⁶⁷ It appears that the language of the COA would allow the bylaws to state a range for the size of the board by fixing a minimum and maximum number. Ordinarily, a board will have from three to nine members. The requirement that at least one-third of the terms must expire annually is too specific. While in general it is a good idea to stagger terms so that at least some of the board members will have experience, the COA requirement is difficult to apply to a five-member board. The bylaws must state the compensation, if any, of the members of the board. Condominiums — at least residential ones — rarely compensate board members.²⁶⁸

The bylaws are also required to state generally the powers and duties of the board.²⁶⁹ In addition, two issues must be specifically addressed. The bylaws must "contain or provide for" authorization to the board to designate and remove personnel for the operation, maintenance, repair, and replacement of the common elements.²⁷⁰ Additionally, the bylaws must state whether the board may engage the services of a manager or managing agent, or both, and specify which of the powers and duties granted to the board may be delegated to a manager or managing agent.²⁷¹ However, if the board delegates any of its powers and duties, it is not relieved of its responsibility under the declaration. Because the COA does not require the declaration to assign any responsibilities to the board — indeed, it does not mention the board at all — the "responsibilities under the declaration" would be those the drafter placed there. It is not clear if, by specifically referring to responsibilities under the declaration, the COA intends for board members to be relieved of responsibilities under the bylaws.

The COA does not impose any particular standard of conduct on members of the board of managers, but the Restatement says that both directors and officers of associations have a duty to act in good faith, to act in compliance with the law and with the governing documents, to deal fairly with the association and its members, and to use ordinary care and prudence in performing their functions.²⁷² If the association is incorporated, the members of the board have a fiduciary duty.²⁷³

One section of the CCIOA made applicable to pre-existing condominiums for events and circumstances occurring on or after January 1, 2006,²⁷⁴ addresses governing board conflicts of interest by imposing the Nonprofit Corporation Act statute on conflicting interest transactions on common interest community board members.²⁷⁵ It is discussed elsewhere.²⁷⁶ Another CCIOA statute that applies to pre-existing condominiums for events and circumstances occurring on or after January 1, 2006,²⁷⁷ allows the board to authorize board members to attend educational meetings and seminars on responsible governance of associations and to cover the costs as a common expense.²⁷⁸

A 2009 amendment makes a third CCIOA statute applicable to pre-existing condominiums.²⁷⁹ It addresses a problem that can occur when there are dissident members on the board and the majority attempts to keep information away from those dissidents. Under the statute, all members of the board must have available to them all information related to the responsibilities and operation of the association obtained by any other member, including reports of detailed monthly expenditures, contracts to which the association is a party, and copies of communications, reports, and opinions to and from any member of the board or any managing agent, attorney, or accountant employed or engaged by the board to whom the board delegates responsibilities.²⁸⁰

A 2017 amendment made a statute requiring governing boards to deliver a summary of the budget to all the unit owners and to set a date for a meeting of the unit owners to consider the budget applicable to all common interest communities created within Colorado before July 1, 1992, with respect to events and circumstances occurring on or after July 1, 2017.²⁸¹

§ 12.7.4—Officers

The COA requires the bylaws to provide for three offices: a president, secretary, and treasurer. The president's only stated responsibility is to preside over the meetings of the board and of the unit owners.²⁸² The secretary is charged with keeping the minutes of all meetings of the board of managers and of the unit owners and, in general, performing "all the duties incident to the office."²⁸³ The treasurer has the responsibility to keep the financial records and books of account.²⁸⁴ The COA says the president is to be elected "from among the board of managers," but makes no similar requirement for the other officers, evidently meaning the secretary and treasurer need not be board members. The Act also allows the same person to serve as both secretary and treasurer. The Act refers to the "election" of the officers, but does not say whether they are to be elected by the board or the unit owners. In most condominiums, the officers are all board members and are elected by their colleagues.

§ 12.7.5—Committees

The COA does not mention committees. It does not authorize, limit, or forbid their creation or use. However, the CCIOA has a provision concerning committees that applies to pre-existing condominiums.²⁸⁵ It requires that anyone appointed after August 15, 2009, to preside over a committee must meet the same qualifications as are required by the governing documents for election or appointment to the governing board.²⁸⁶ It also mandates that association committees be appointed "pursuant to the governing documents of the association," or if those documents contain no applicable provisions, then pursuant to the Nonprofit Corporation Act statute on committees.²⁸⁷ The CCIOA also establishes some basic rules regarding "committees of the executive board" that apply to all meetings of any committee occurring on or after July 1, 1995.²⁸⁸ All regular and special meetings of board committees must be open to attendance by all members of the...