As we turn the page to a new year, we are often asked what boards should do in the upcoming year. While this is a great question, there are times that a board should reflect on its previous year and ask what it should not do in efforts to improve the community.
#1: DO NOT BE PROUD OF CHOOSING NOT TO RAISE ASSESSMENTS IN SEVERAL YEARS
We often hear directors proudly state they have not raised their annual assessments in 3, 4, or 5 years. Unfortunately, failing to raise assessments, especially over the course of several years, jeopardizes an association’s financial well-being and may lead to decreased property values.
Why you ask? Assessments are essential for an association’s operations, which include, but are not limited to, maintenance obligations, services provided to owners, engaging with contractors and vendors, and funding reserves. It is important to remember that the cost of materials and services continue to rise year over year, such as insurance, water, and the cost of living, which means the association’s costs also rise. Board members have a fiduciary duty to make prudent financial decisions with association funds, and failing to do so is a violation of that duty.
While we understand the desire to be fiscally prudent, which is a great idea, by choosing not to raise assessments to address increased costs, a board by necessity, is cutting costs elsewhere. By way of example, a board may select a cheaper contract to save money, not understanding that receiving lower quality services or materials not only reduces property values, but likely increases future maintenance and repair costs. Essentially, it is robbing Peter to pay Paul while putting a disguise on Paul to look like a prince.
In addition to selecting cheaper contractors to save money, a board may also choose to reduce or get rid of services an association needs or may be required to provide pursuant to its governing documents. For example, a board may decide not to consult with experts to cut costs, such as reaching out to legal counsel regarding a maintenance and repair obligation, or kick the can on needed (required) maintenance. By not consulting with legal counsel or other professionals, in the event the board makes a decision regarding repairs that turns out to be wrong, the board has a liability exposure, in addition to losing its protection by not relying on an expert, i.e., legal counsel. Moreover, failing to provide required services is also a liability exposure for both the association and the board and may result in legal action.
Furthermore, if a board decides to forego assessment increases, the association becomes underfunded particularly in its reserves. This puts the association at risk when it comes to large scale projects or insurable events, e.g., a hail storm that requires roof replacements in the entire community. When this happens, a number of things can occur when large projects come up, such as:
- Levy a large special assessment to owners to cover the cost, putting the owners in the position to make an unexpected, unbudgeted payment to the community
- The association must obtain a loan to pay for projects, increasing cost to owners
- Pull from reserves, depleting the association’s ability to pay for planned maintenance in the future or for emergency repairs
The bad outcomes discussed above can be avoided easily if, when the board adopts the association’s budget every year, as it has a duty to do so, it increases assessments to account for rising costs, materials, and services.
If you are unsure what your governing documents require with respect to increasing assessments, we recommend reaching out to the association’s legal counsel to ensure compliance with same.
#2: DO NOT DRAFT AMENDMENTS OR VOTING DOCUMENTS ON YOUR OWN
Speaking of relying on legal counsel, many boards believe it is both cheaper and easier to prepare its own amendments to the declaration, bylaws, or articles, and prepare the voting documents for the same instead of engaging with the association’s attorney.
It is important to note that amendments and voting documents are legal documents and are subject to a number of statutory requirements (both the Colorado Common Interest Ownership Act (“CCIOA”) and the Colorado Revised Nonprofit Corporation Act (“Nonprofit Act”) depending on the type of amendment and the voting process. For example, the approval requirements for an amendment may be different depending on whether the association is pre- or post-CCIOA, and the specific language in its governing documents and in some cases, what is being amended.
In addition to the approval requirements, the proposed amendment must be compliant with Colorado law, which requires an attorney prepare the amendment to ensure its compliance and its enforceability. Moreover, the revisions must work in conjunction with the rest of the governing documents, so it may require changes to more than one provision, and this is often missed when legal counsel is not involved in drafting the amendment.
Further, there may be additional amendment requirements in the governing documents, such as mortgagee approval or declarant consent, that are hidden in a different section than the amendment provision and may be missed by a board, resulting in an invalid amendment.
By failing to engage with legal counsel when preparing amendments and voting documents, boards end up spending more of the association’s money to make changes to its governing documents by having to 1) reach out to legal counsel and start over with the proposed amendment and voting documents, and 2) if the vote already took place, redo the vote, causing confusion amongst owners and increased administrative costs.
There are many nuances when it comes to amending governing documents, and the general discussion above only touches the surface, which is why we recommend boards utilize legal counsel when it comes to amendments and voting documents.
#3: DO NOT AVOID MAKING DIFFICULT DECISIONS BECAUSE IT WILL MAKE HOMEOWNERS ANGRY
If you have ever served on a volunteer board, or even attended an annual owner meeting, you have probably dealt with or observed angry homeowners. Homeowners will always find something to be upset about when it comes to living in a covenanted community, and the focus of the anger is usually directed at the board of directors because it is the body that acts on behalf of the corporate entity, the association.
It is important to remember that directors serving on a board have a fiduciary duty to the association, not to individual homeowners, or a group of homeowners. That being said, a board must act in the best interests of the association, regardless of the reaction from homeowners. A good example of an action that often upsets homeowners is discussed in this blog – increasing annual assessments; however, as noted above, there are consequences for failing to act in the association’s best interests, likely resulting in a violation of a board’s fiduciary duty. When it comes to making difficult decisions as a board, remember that it is impossible to make everyone, i.e., every homeowner, happy, and the board’s duty is to the corporation. While we strongly encourage a board to seek owner input and build consensus, there are times where the board needs to make the decision and move forward. With this said, don’t be afraid to discuss these topics with the owners. When you do, we encourage you to be prepared with the facts and be ready for questions. If a question is asked that you don’t know, state that it is a great point and will be reviewed and addressed. Understand, these are the owner’s homes and they would like to know how the money is spent. While they may not like the answer, if it is well reasoned, they will accept it.
By avoiding the “what you shouldn’t do as a board member”, it allows you to concentrate more on the “what you should do as a board member”, which is always more fun.
Please do not hesitate to contact an Altitude attorney at 303-432-9999 or [email protected] for more information on what not to do in 2026 and for all HOA legal questions in general!
Good article, keep them coming