Chapter 3 - § 3.3 • CREATING THE COMMON INTEREST COMMUNITY
| Jurisdiction | Colorado |
§ 3.3.1—Recording the Declaration
A declaration is any recorded instruments, by whatever name, that create a common interest community, including any amendments to those instruments and plats and maps.25 The only way a common interest community can be created under the CCIOA is by recording a declaration, together with a plat or map, executed in the same manner as a deed26 and, in a cooperative, by conveying the real estate subject to that declaration to the association.27 The Uniform Act has the same requirement, and a comment to it notes that while other covenants, conditions, or restrictions applicable to the real estate in the community might be recorded before or after recording of the instruments that divide the real estate into units and common elements, no common interest community has been created until the documents that accomplished that result are actually recorded.28 However, the fact that a common interest community has not been "lawfully" created does not mean that it will not be subject to the CCIOA. Any project that meets the definition of a "common interest community" — real estate described in a declaration with respect to which a person, by virtue of his or her ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration29 — would, according to the commentary, be subject to the Uniform Act and presumably is subject to the CCIOA.30
§ 3.3.2—Declaration Contents
It will be the declarant who drafts the original declaration and, in addition to the contents prescribed by the CCIOA,31 the declaration may contain any matters the declarant considers appropriate.32 As the party creating the declaration, the declarant will be concerned with all of its contents, but must take special note of several requirements that affect the declarant's rights. The declaration must contain:
• A description of any development rights and other special declarant rights reserved by the declarant, together with a description sufficient to identify the real estate to which each of those rights applies and the time limit within which each of those rights must be exercised.33
• If any development right may be exercised with respect to different parcels of real estate at different times, a statement to that effect together with either a statement fixing the boundaries of those portions and regulating the order in which they may be subjected to the exercise of each development right or a statement that no assurances are made in those regards.34
• A statement regarding whether, if any development right is exercised in any portion of the real estate that is subject to the development right, the right must be exercised in all or in any portion of the remainder of the real estate.
• In a large planned community,35 a general description of every common element that the declarant is legally obligated to construct within the large planned community together with the approximate date by which each is to be completed.36
• A statement of the maximum number of units that the declarant reserves the right to create.37
With regard to the last of these requirements, the Uniform Act has identical language.38 Commentary to the Act notes that it does not impose a time limit measured by an absolute number of years after which the declarant must relinquish control of the association.39 Instead, the Act — and the CCIOA40 — provides for a flexible transition from declarant control that allows the declarant to respond to market changes. The commentary says that, in theory, a declarant could overstate the maximum number of units to artificially extend the period of control; however, there are provisions in both the Uniform Act and the CCIOA that would frustrate that effort.41 The CCIOA says that any period of declarant control terminates no later than the earlier of three contingencies, two of which are two years after the last conveyance of a unit by the declarant in the ordinary course of business and two years after any right to add new units was last exercised.42 The primary contingency is 60 days after conveyance of 75 percent of the units that may be created to unit owners other than a declarant. While the declarant could overstate the maximum number of units to artificially extend the period of control, since the time might never come when a declarant had sold 75 percent of that number of units, as a practical matter the practice would not likely achieve long-term control. For example, if the declarant were to reserve the right to create 10 times as many units as could practically or legally be constructed on the property so that even when all were sold it would still not constitute 75 percent of the units that could be created, developer control would still terminate two years after the last unit was sold in the ordinary course of business.
§ 3.3.3—Allocation of Common Element Interests
The declaration must state the formulas that establish allocations of interests, usually undivided interests in the common elements and common expenses and votes in the association.43 However, the allocations may not discriminate in favor of units owned by the declarant or an affiliate of the declarant. While the declaration may provide for cumulative and class voting for limited purposes, the declarant may not use cumulative or class voting to evade any limitation imposed by the CCIOA on declarants, nor may units constitute a class because they are owned by a declarant.44 Additionally, where class voting is established, the declaration may designate classes of members on a reasonable basis, but the designation must not allow the declarant to control the association beyond the period provided for in the CCIOA.45
§ 3.3.4—Development Rights
A "development right" is any right or combination of rights reserved by a declarant in the declaration to add real estate,46 create units,47 create common elements, create limited common elements, subdivide units or convert them into common elements, or withdraw real estate.48
The declaration must include a description of any development rights — and other special declarant rights49 — the declarant is reserving with a characterization sufficient to identify the real estate to which each of those rights applies and the time limit within which each of them must be exercised.50 A limit, by definition, is something that has an end, and thus, a provision that is automatically renewable indefinitely cannot be considered a time limit.51 That the CCIOA provides for a description in the declaration of development rights, including the right to add real estate, means it recognizes that, even after a community has been created, the declaration that created it may address "property subject to development rights" as a category of land distinct from the property included in the community from its inception.52
If the declarant wants any of the development rights to be exercised at different times for different parcels, the declaration must have a statement to that effect.53 Any other conditions or limitations under which the rights may be exercised, or will lapse, must also be included in the declaration.54 A declaration statement must fix the boundaries of those portions and regulate the order in which they may be subjected to the exercise of each development right, or it must say that no assurances are made about those matters.55 There also has to be a statement about whether, if any development right is exercised in any portion of the real estate subject to that development right, that right must be exercised in all or in any other portion of the remainder of that real estate.56
The declarant's counsel has to be extremely careful when drafting the declaration to follow the statutory requirements or risk having his or her client lose those rights. In Silverview at Overlook, LLC v. Overlook at Mt. Crested Butte Limited Liability Co.,57 for example, the declaration purported to reserve future development rights, but failed to include a time limit within which they were to be exercised. The court held that the lack of a time limitation on the development rights in the declaration rendered them void ab initio. The requirement that the declaration describe any development rights and "the time limit within which each of those rights must be exercised" is part of a subsection listing what the "declaration must contain."58 "Must," said the court, connotes a requirement that is mandatory, and when used by the legislature, unambiguously requires any reservation to include a time limit.59 The court refused to view the time limit as "insubstantial"60 or to consider a court-imposed amendment to the declaration to remedy what was likely a mere oversight.
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Practice Pointer
The declarant's counsel needs to know exactly what the declarant is trying to accomplish when reserving development rights.61 Counsel should carefully review the development rights language in the declaration and check it against the
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