The Colorado Common Interest Ownership Act (CCIOA) has required responsible governance policies for many years now. In 2005, the Colorado Legislature passed a bill that amended CCIOA to require associations to adopt policies, procedures, and rules and regulations concerning multiple areas of governance. There are currently nine required policies, each of which is discussed in this article.
1. Collection Policy
Collecting assessments is the life blood of community associations. The board of directors has a fiduciary duty to collect assessments from owners. If the board fails to fulfill its fiduciary responsibility to ensure assessments are received from all owners in a timely manner, it will, in many instances, be unable to carry out its other responsibilities in the administration of the association and the preservation, protection, and enhancement of property values in the community. The minimum terms that must be contained with the policy (including the updates as of January 1, 2014) are as follows:
• The due date of assessments;• The date on which assessments are considered late;• The amount of any late fees and/or interest that will be charged on late payments;• The amount of any fee if a payment is not honored by a financial institution (the “NSF” fee);• The circumstances under which an owner may make a payment plan and the minimum length of that payment plan, which must be at least six (6) months;• How payments are applied to owners’ accounts;• The legal remedies available to the association to collect the unpaid assessments; and• That a notice must be given to the owner before their account is turned over for collection efforts.
In addition to the provisions required by statute, the collection policy should also contain a detailed progression of the steps which should be taken by the manager, treasurer, or other person who has the primary responsibility for collecting delinquent assessments.Adopting a policy which provides a systematic, disciplined approach to collecting delinquencies forms the foundation of a successful program for avoiding financial loss to the association as a result of owner delinquencies. To see how your Collection Policy measures up, please see our Scorecard for Your Collection Policy.
2. Covenant Enforcement Policy
Community associations use covenants, rules, and architectural standards/guidelines to maintain, preserve, enhance, and protect property in the community, as well as to promote harmonious community living, and preserve the common scheme and design of the community. In order to achieve this, an association’s covenants must be enforced consistently and uniformly. Many associations contract with a manager who regularly drives through the community and inspects the properties. In other communities, these inspections are performed by board members and committees. All community associations are required to have a policy in place setting forth the steps to be taken to enforce an association’s covenants.While enforcement of covenants is different in each community, the anatomy of good covenant enforcement practices should encompass notice requirements, hearing procedures, and schedule of fines.
3. Conduct of Meetings Policy
Running an association meeting can be stressful. The Colorado Legislature required community associations to have a Conduct of Meetings policy in order to provide structure and control to meetings. This policy should address several items, including how long homeowners can speak about a particular issue, what is inappropriate behavior at a meeting, notice requirements, proxies, electronic voting, etc. Your policy must also be updated to include provisions related to the board making decisions outside of a meeting and may outline the proper purposes for executive session of the board. Proper purposes are set forth in CCIOA as follows:
• Matters pertaining to employees of the association or the managing agent’s contract or involving the employment, promotion, discipline, or dismissal of an officer, agent, or employee of the association;• Consultation with the association’s legal counsel regarding pending or imminent litigation or matters that are privileged or confidential between attorney and client;• Investigative proceedings concerning possible or actual criminal misconduct;• Matters subject to specific constitutional, statutory, or judicially imposed requirements protecting particular proceedings or matters from public disclosure;• Any matter the disclosure of which would constitute an unwarranted invasion of individual privacy;• Review of or discussion relating to any written or oral communication from legal counsel.
Here’s a practice pointer: At the beginning of every meeting, refer to the Conduct of Meetings Policy and have copies available to distribute if you think the meeting might be contentious. If the rules of the meeting are presented at the beginning, everyone in attendance can be aware of the rules of conduct and expectations for the meeting. To see how your Conduct of Meetings Policy measures up, see our Scorecard for Your Conduct of Meetings Policy.
4. Inspection of Records Policy
Prior to January 1, 2013, community associations in Colorado were required to keep “financial and all other records” reasonably available for examination and copying by a unit owner and such owner’s authorized agents. On January 1, 2013, the law changed with a bill (HB 12-1237) which amended CCIOA to provide an exclusive list of documents considered records of an association for purposes of inspection by owners.Pursuant to this revised law, in addition to any records specifically defined in an association’s governing documents, associations must maintain the following records (for purposes of this article, the list is limited to financial records): 1) detailed records of receipts and expenditures; 2) financial statements for the past three years and tax returns for the past seven years; and 3) financial records sufficiently detailed to enable the association to comply with C.R.S. §38-33.3-316(8) (i.e. production of a statement of unpaid assessments).The revised records laws further provide that all records maintained by an association must be available for examination and copying by a unit owner or the owner’s authorized agent. As such, owners must be provided access, with limited exceptions, to the financial records referenced above.Your Inspection of Records Policy should clearly address the following:How Does an Owner Request Information? An association may require unit owners to submit written requests, describing with reasonable particularity the records sought, at least ten (10) days prior to inspection or production of the documents. Examination and copying times can also be limited to normal business hours or the next regularly scheduled board meeting if the meeting occurs within thirty (30) days after the request. Most importantly, the policy cannot require owners to demonstrate a proper purpose for the inspection and cannot request that a purpose be stated.Can you Charge for the Document Production? Yes. The cost of production does not have to be met by the association. A reasonable charge may be imposed and can be collected in advance to cover the costs of labor and materials incurred for the production of requested documents. The policy should clearly state how the association will calculate charges for production.Remember, board members are fiduciaries, meaning that they are entrusted to protect the assets of the association and be accountable. You do not want to find yourself or your fellow board members in a situation involving the failure to follow the requirements of records inspection rights. Additionally, when boards are perceived to be anything less than transparent, owners become distrustful of the association and begin to question everything the Board does. Help combat that by having a thorough Inspection of Records Policy.
5. Conflict of Interest Policy
Owners have the right to have the directors be loyal to just the interests of the common interest community, and not to the self-interests of the directors. Where a conflict arises, a director is responsible for notifying the board of the conflict and removing himself from participation in any decisions regarding the subject matter of the conflict.In 2011, the Legislature addressed conflicts of interest again and passed a bill that required community associations’ conflict of interest policies to:
• Define when conflict of interests exist;• Adopt procedures to follow when a conflict of interest exists, including disclosure rules and when a conflicted board member must recuse themselves from voting; and• Require a periodic review of conflict of interest policies.
The intent of the statute is to promote open disclosure of conflicts of interest that would benefit the director separate from his or her interest as an owner. For more information about conflicts of interest, you can reference our article regarding same here.
6. Investment Policy
Every board is faced with the difficult task of raising money and managing association funds while trying to keep annual assessments low and special assessments to a minimum. Colorado law requires that community associations have a policy regarding the investment of reserve funds. The association’s investment policy should address all objectives, delegation, asset mix, ability and diversification, investment manager accountability, transactions, reporting requirements, and cash flow requirements.Investment policies should also be developed for a variety of other reasons, including:
• It is far easier to earn money than it is to raise it. An incremental 3-4 percent of total return can, over time, make an enormous difference in the association’s financial health;• Income from investments can reduce the need for special assessments;• Many associations likely already have an informal investment policy. However, large sums invested for long periods of time are better invested under a standard investment policy; and• A carefully developed investment policy discharges the fiduciary duty and helps protect board members from investment liability.
7. Adoption of Rules and Policies Policy
Community associations are also required to have a policy which discusses the procedures for the adoption and amendment of policies, procedures, and rules. This policy should clearly state the process for adoption and/or amendment of your policies. Your declaration, articles of incorporation, and bylaws will generally guide the specifics for governance; however, this document will supplement those and provide owners with more information about how the association’s actions are managed.
8. Alternative Dispute Resolution (ADR) Policy
The legislature required that community associations have an Alternative Dispute Resolution (ADR) Policy, although it does not mandate what needs to be included. CCIOA encourages community associations to utilize mediation as part of their dispute resolution process. The declarations for some communities may require mediation, arbitration, or both, for resolving at least some disputes. Even without mandatory mediation provisions, virtually all Colorado courts now require parties in a lawsuit to participate in some form of mediation process before going to trial.
9. Reserve Study Policy
Under Colorado law, community associations are not required to have a reserve study. Associations are, however, required to have a policy that addresses when a reserve study is going to be done and how often it will be updated, whether the study is based on a physical and financial analysis, and whether there is a funding plan for the work recommended by the study.All community association policies must also be consistent with your governing documents. If you have questions or would like more information on any of these required policies, please contact our office at 303-432.9999. Last, but certainly not least, FOLLOW YOUR POLICIES!