Chapter 2 - § 2.7 • ALLOCATION OF COMMON ELEMENT INTERESTS, VOTES, AND COMMON EXPENSE LIABILITIES, AND PARTITION

• Jurisdiction: Colorado

§ 2.7 • ALLOCATION OF COMMON ELEMENT INTERESTS, VOTES, AND COMMON EXPENSE LIABILITIES, AND PARTITION

§ 2.7.1—Common Element Interests, Votes, and Common Expense Liabilities

One of the basic mandates of the CCIOA is that the declaration must contain an allocation to each unit of the "allocated interests."²⁹⁶ The meaning of "allocated interests" varies according to the type of common interest community.

In a condominium, "allocated interests" means the undivided interest in the common elements, the common expense liability, and the votes in the association.²⁹⁷ The declaration must allocate to each condominium unit a fraction or percentage of undivided interests in the common elements and in the association's common expenses and, to the extent not allocated in the bylaws, a portion of the votes in the association.²⁹⁸ The sum of the common expense liabilities and undivided interests in the common elements allocated at any time to all the units must, if stated as fractions, equal one or, if stated as percentages, 100 percent, except for minor variations due to the rounding of fractions or percentages. If there is a discrepancy between an allocated interest and the result derived from application of the pertinent formula, the allocated interest prevails.²⁹⁹

In a cooperative, "allocated interests" means the common expense liability, the ownership interest, and the votes in the association.³⁰⁰ In cooperatives, the declaration must allocate an ownership interest in the association, a fraction or percentage of the association's common expenses, and, to the extent not allocated in the bylaws, a portion of the votes in the association.³⁰¹ The sum of the common expense liabilities allocated at any time to all the units must, if stated as fractions, equal one or, if stated as percentages, 100 percent, except for minor variations due to the rounding of fractions or percentages. If there is a discrepancy between an allocated interest and the result derived from application of the pertinent formula, the allocated interest prevails.³⁰²

In a planned community, "allocated interests" means the common expense liability and the votes in the association.³⁰³ In planned communities, the declaration must allocate a fraction or percentage of the association's common expenses and, to the extent not allocated in the bylaws, a portion of the votes in the association.³⁰⁴ The sum of the common expense liabilities allocated at any time to all the units must, if stated as fractions, equal one or, if stated as percentages, 100 percent, except for minor variations due to the rounding of fractions or percentages. If there is a discrepancy between an allocated interest and the result derived from application of the pertinent formula, the allocated interest prevails.³⁰⁵

The allocation of the ownership share of the common elements is very important. Ordinarily, it will also determine voting rights and proportionate share of common expenses and liabilities. Three different formulas are commonly used to calculate ownership share:

1) An equal ownership share for each unit.
2) A percentage share based on the value of each unit in relation to the value of the whole property.³⁰⁶
3) A percentage based on the size of each unit in relation to the aggregate size of all units.³⁰⁷

There is not a "correct formula" to use to distribute ownership shares, although the second formula is probably the most common.³⁰⁸

The argument has been advanced that there is no particularly good reason to link voting rights and ownership share.³⁰⁹ The Uniform Common Interest Ownership Act accepts the argument and "departs radically" from the usual statutory requirement of a single common basis — ordinarily "value" — used to allocate common element interests, votes in the association, and common expense liabilities.³¹⁰ The CCIOA follows that approach. Like the Uniform Act, the CCIOA says the declaration must state the formulas used to establish allocations of interests and those allocations may not discriminate in favor of units owned by the declarant or an affiliate of the declarant.³¹¹

The CCIOA provides that if units may be added to or withdrawn from the community, the declaration must state the formulas to be used to reallocate the previously allocated interests among all units included in the common interest community after addition or withdrawal.³¹² This requires there to be a comprehensive scheme for reallocation of allocated interests subject to development rights, and it affords advance disclosure to purchasers in a first phase of an expandable common interest community of how interests will be reallocated if additional units are added.³¹³

Unlike other state legislation³¹⁴ — and following the Uniform Act — the CCIOA allows for different allocations of votes to be made to units on particular matters specified in the declaration,³¹⁵ and for both cumulative voting³¹⁶ and class voting.³¹⁷ However, cumulative voting is limited to the election of members of the governing board, and a declarant is prohibited from using it to evade any limitation imposed on...