Many boards struggle with the question of whether or not to amend their governing documents. Below are some standalone reasons to amend certain governing documents in order to protect your community, property values, and the volunteers who serve on the board.
Articles of Incorporation
Limit Liability of Directors
The Colorado Revised Nonprofit Corporations Act (“Nonprofit Act”) allows associations to eliminate or limit the personal liability of a director to the association or to its members for monetary damages for breach of fiduciary duty as a director. In order to take advantage of this provision, the limitation must be included in the association’s articles of incorporation.
Bylaws
Provide for Indemnification of Directors and Officers
The Nonprofit Act includes expanded indemnification (i.e., reimbursement) provisions that should be included in the Bylaws for the Association. While the Act provides that directors’ liability may be limited, this does not mean that a suit cannot be filed. To the extent a lawsuit is filed, the directors, officers, and committee members should be indemnified by the association so they do not have to pay their own legal fees.
Add Director Proxy Authority
Although owners frequently assign proxies when they are unable to attend meetings, the same does not go for board members attending board meetings. Pursuant to the Nonprofit Act, directors may only assign proxies to other directors if the bylaws allow for this. If the bylaws are silent, directors who do not attend board meetings lose their vote. Therefore, it is very important to have a provision specifically addressing director proxies.
Declaration
Remove Restrictions that are not Being Enforced
Associations and boards have fiduciary duties to enforce their covenants as they are drafted. When older covenants get outdated and certain restrictions become inapplicable, boards will oftentimes stop enforcing them. However, to the extent that a covenant is still “on the books”, the association is required to enforce it, whether it wants to or not. Therefore, failure by a board to enforce a covenant exposes the association and board to liability.
Remove Requirements Association Cannot Comply With
Oftentimes, especially with older documents, developers add requirements that, over time, become impossible to comply with. For example, older documents frequently contain association insurance requirements that are no longer feasible to obtain. Nevertheless, such requirements continue to exist and associations who do not comply with them, may be subject to liability exposure. Therefore, the best and safest solution to these types of provisions is to amend them out of your declaration.
Allow Assignment of Future Income for Loans
Given the increased cost of insurance and the high rate of insurance deductibles, many associations have been forced to take out bank loans to pay for various maintenance and repairs. As security for loans, banks demand assignments of associations’ future income (i.e. assessments). However, if your association was created after July 1, 1992, you must have specific authority to assign your income stream in the declaration or your community cannot lawfully provide the necessary security for a loan, and in turn, cannot take out a loan.
Remove Assessment Cap
Many older communities, and some modern ones, have caps on how much they can raise assessments in any one fiscal year. This oftentimes creates difficulties for the boards with obtaining the necessary funds to ensure the community adequately functions and pays its bills. As mentioned above, costs are not decreasing and many associations are struggling to figure out how they are going to pay for their daily maintenance and services. Therefore, it is extremely important for boards to consider removing their assessment cap language through a declaration amendment.
If you have questions regarding directors and officers, please contact an Altitude attorney at 303.432.9999 or at [email protected].