By: Elina B. Gilbert, Esq.
Although a large number of communities suffer from “our governing documents suck syndrome” many boards still refuse to move forward with amending or rewriting their communities’ governing documents. The refusal is most often based on fear, but fear of what? Fear of the process? Fear of the unknown? Fear of owners? It has been our experience that most often the fears are based on various myths and mistruths circulating in the HOA industry.
To address these fears, and allow boards to make decisions based on fact, this article dispels some of the most problematic myths below.
Myth: If a declaration contains a mortgagee approval requirement, it is impossible to amend.
False. The Colorado Common Interest Ownership Act (“CCIOA”) provides two methods to circumvent this onerous requirement. First, CCIOA allows associations to file court petitions with the District Court seeking approval of declaration amendments. Using the court petition process allows associations to bypass mortgagee approval requirements and only requires membership approval of one-half the number required by the declaration. Another avenue for associations to circumvent the mortgagee approval requirement is a certified mailing process, by which associations send notice of the proposed amendment to mortgagees by certified mail and publish notice of same in a local publication. If the mortgagees do not object within a specified time frame, they are deemed to have approved the amendment.
Myth: Our declaration contains an extremely high owner approval requirement that we can never obtain. This means we cannot amend our declaration.
False. As discussed above, the CCIOA sanctioned court petition process allows associations to petition the District Court and seek approval of the proposed declaration amendments. The petition may be filed if the association obtains approval from owners representing the voting interests of at least ½ of the requirement currently contained in the declaration. So for example, if the declaration requires approval from 80% of the voting interests to be amended, an association could petition the court if it obtains approval from at least 40% of the voting interests (i.e. half of the 80% requirement).
Myth: Most communities cannot obtain the requisite owner approval to pass their document amendments.
False. It has actually been our experience that most communities do, in fact, obtain the necessary owner approval to pass their proposed amendments. Obtaining owner approval is based on working with owners and building consensus through open discussion as to why amendments are needed and what the proposed amendments mean for individual owners. Although owners may be wary at first, information and open communications most often will dispel most of the concerns. And even though there will always be some owners that refuse to approve proposed document amendments, the good news is that associations typically only need approval from 67% of the voting interests.
Myth: If a declaration is too difficult to amend, the bylaws may be amended to address the problematic provisions in the declaration.
False. First, the declaration has a higher priority than the bylaws; this means that any conflicts between the bylaws and declaration will be resolved in favor of the verbiage contained in the declaration. Thus, the declaration may not be changed through a bylaws amendment. Second, CCIOA requires any provisions containing restrictions or requirements impacting owners’ property rights to be contained in the declaration, which is a recorded document and legally binding on all current and future owners. Adding such restrictions to the bylaws may be challenged and are not likely to be enforceable in a court of law.
Myth: A complete rewrite of our governing documents will cost at least $30,000 and we cannot afford this.
False. The cost to amend governing documents can vary widely depending on the type of amendment, the size of the community, age of the documents, number of drafts, and board involvement. Variables that tend to increase legal costs of amending include, but are not limited to repeated revisions, meeting with legal counsel multiple times, asking counsel to help the board obtain consensus from the membership, and having counsel prepare the ballot, proxy, and notice of vote. Typically, a complete rewrite of an association’s governing documents can run between $10,000 and $15,000 depending on whether the community petitions the court to pass the declaration.
Myth: A complete rewrite of an association’s governing documents can be accomplished in three months or less.
False. The entire amendment process typically takes between 8 and 12 months depending on the time dedicated by the board to this process, size of the community, and whether the association is required to utilize the court petition process or certified notice to mortgagees process.
Myth: All document amendments have the same approval requirements.
False. The amendment requirement for each governing document of an association will be contained within the specific document. Typically, however, articles of incorporation and bylaws will have lower consent requirements then the declaration. Additionally, Colorado law provides “default” amendment requirements when documents are silent as to amendment.
Please do not hesitate to contact an Altitude Community Law attorney at 303.432.9999 if you have any additional questions concerning the document amendment process.