Summary of SB-05-100

SB-05-100 entitled “Common interest communities - homeowners' associations - condominiums - covenants - rights and duties of unit owners - association executive boards - conflicts of interest - organization - administration - meetings - voting - dispute resolution - attorney fees - xeriscaping - political speech.”

APPROVED by Governor June 6, 2005
EFFECTIVE June 6, 2005

1. Prohibits the homeowners' association (HOA) of a common interest community from adopting covenants or rules that prevent a unit owner from:
   1. Displaying an American flag, military service flag, or political sign;
   2. Removing trees and brush or replacing flammable roofing material for fire mitigation purposes; or
   3. Parking an emergency vehicle in the community, if the unit owner is employed by a fire department or other provider of emergency services and must have ready access to the vehicle as a condition of employment.
2. Invalidates any new or existing covenant or condition, including the requirement for an architect's stamp or change fee, that prohibits or discourages a unit owner from employing xeriscape or that requires landscaping to consist exclusively or primarily of turf grass. Allows an HOA to take enforcement action against a unit owner that allows the unit owner's existing landscaping to die, except during a period of water use restrictions.
3. Requires the buyer of a home in a community subject to an HOA to receive notice and documentation regarding the need for architectural approval of any changes to the property and the right of the HOA to place a lien on the property for unpaid assessments. Also requires the seller to provide to the buyer a copy of the HOA's covenants, rules, bylaws, and current financial information. Makes the seller liable for any damages caused by the failure to provide such information unless the failure resulted from the HOA's refusal to cooperate with the seller in furnishing documents.
4. Requires the HOA to furnish to all unit owners in writing, at least once per year:
   1. Current contact information for the HOA and its management company or agent;
   2. Current financial information, including an operating budget, a list of all insurance policies, and a list of all applicable assessments;
   3. Minutes of all meetings held during the year;
   4. Copies of the bylaws, articles, rules, and responsible governance policies; and
   5. The results of its most recent annual financial audit or review, which must be conducted at least once every 2 years.
5. Clarifies that a management company must comply with all laws that govern the conduct of the HOA, when the management company acts on behalf of the HOA. Requires that the management company's contract be terminable for cause without penalty to the HOA. States that the form of organization of the HOA (as a corporation, nonprofit entity, etc.) does not affect its legal rights and obligations.
6. Encourages HOAs to enter into agreements with lenders so that a unit owner's mortgage payment and monthly assessment can be combined into a single payment.
7. Enacts open meeting provisions. Requires the HOA executive board to give unit owners a reasonable opportunity to speak before taking action on a community issue. Specifies that notice of meetings must be given in advance, by posting in a conspicuous place whenever feasible. Requires elections to the executive board and votes on other community matters to be taken by secret ballot, with the results reported by a neutral party. Invalidates any proxy obtained through fraud or misrepresentation.
8. Where notice to first mortgage holders is required for any changes to the declaration (containing the covenants), allows notice by mail to the last known address of such mortgage holders, and presumes consent if no objection is given within 60 days. Invalidates any covenant that requires greater than a 67% supermajority to amend the declaration.
9. Enacts conflict-of-interest rules for board members. Invalidates any action taken, and any contract entered into, in which a board member has an undisclosed conflict of interest.
10. Requires the board to follow generally accepted accounting principles in financial records and adopt clear policies regarding collection of assessments, conflicts of interest, conduct of meetings, enforcement of covenants, and other matters.
11. Allows board members to be reimbursed for educational meetings and seminars on good governance for HOAs. Requires some form of education/information to be offered to unit owners annually regarding the general operation of the HOA and the rights and responsibilities of unit owners and the board under Colorado law.
12. Requires the financial records of the HOA to be audited or reviewed at least once every 2 years; except that an audit is only required if the HOA has annual revenues or expenditures of $250,000 or more and at least 1/3 of the unit owners request an audit.
13. Encourages alternative dispute resolution. In cases of conflict between a unit owner and the HOA, makes the following changes to provisions governing the assessment of attorney fees:
    1. There can be no automatic liability for attorney fees and collection costs except in connection with "assessments or any money or sums due to the association". In all other cases, an award of attorney fees against a unit owner depends upon whether the unit owner was alleged to have violated a statute or covenant or rule of the HOA and, if so, whether the allegation was proven in court.
    2. If the HOA sues, or is sued by, a unit owner and the unit owner prevails, prohibits the HOA from assessing the unit owner for its attorney fees incurred in defending the action.
    3. Allows awarding of attorney fees to the prevailing party in litigation, but the HOA may be awarded attorney fees only if the unit owner's claim or defense was "frivolous".
    4. Voids all covenants requiring a unit owner to confess judgment for attorney fees or collection costs.
14. Enacts open records requirements for books and records of the HOA. Allows the HOA to charge a reasonable fee, not to exceed the HOA's actual cost, for copies. Requires that a records request be made in good faith, for a proper purpose, and adequately describe the records that are sought.
15. Exempts privileged information such as that pertaining to pending litigation or personnel matters.
16. Allows a community that was merged with another under existing law to withdraw under specified circumstances, if the withdrawal would not inhibit the remaining community's ability to enforce existing covenants, maintain existing facilities, or continue to exist.
17. When property damage occurs and there is a question of whether the property is part of a unit or part of the common property, allows a unit owner to submit a claim directly to the HOA's insurer as though the unit owner were an additional named insured.
18. Exempts time-share units, and HOAs that include time-share units, from specified provisions of the act. Delays the effectiveness of most provisions until January 1, 2006, except for those provisions pertaining to xeriscape, fire mitigation, political speech, parking of emergency vehicles, and withdrawal from merged communities.