Rocky Mountain Rumble

A law blog post from Colorado highlights some interesting HOA declaration policy.  First some background.

When a developer wants to build a condominium, he (and they are almost always he’s) starts by recording a declaration of covenants, conditions, and restrictions on the property.  In Idaho and most states, this declaration puts the property under the Condominium Act, and, as implied in the title, binds future owners to the covenants, conditions and restrictions stated.   The Colorado case highlights two common clauses.

One is an arbitration clause that demands that all disputes be resolved by arbitration rather than in the courts.  Arbitration is very much preferred by developers and builders as it is seen as much more friendly than the courts.  Conversely, associations prefer to use courts.

The second clause at issue is an amendment clause.  These allow condominium owners to amend their declarations, usually with a super-majority vote.  Developers almost always retain veto power, in one way or another, over the amendment provisions, so that owners cannot take control of  the declaration amendment process before developers are finished building and selling units, etc.  Otherwise, the developer-friendly terms in the declaration might be amended out to the detriment of the developer.  Owners are presumed to have read, understood, and agreed to all the terms included by their decision to purchase.

With that background in place, it is easier to see why the arguments made in Colorado are interesting.  Per Messrs. Berg and Mill:

Residents began reporting the alleged defects, and the Residential Association (the “Association”) retained construction defect counsel. Shortly thereafter, the Association voted to amend the declarations to remove the arbitration clause without seeking the developer’s or GC’s consent. The Association then filed a construction defect suit against the developer and general contractor.

From this association-side lawyer’s point of view, the developers’ position is nearly comical.  The developers unilaterally drafted a document with total control of the language it contains.  Then they retain absolute control of the association while they build the condominiums and sell them.  Finally they turn over the condominium to the owners’ control and exit stage left.  When the owners discover defects, they amend the declaration in their favor.  Now the developers challenge the legality of the amendment, saying their interests were not fairly represented in the amendment process.  Remember, these are the folks that drafted the entire original document with absolutely no give-and-take with the future owners.

I’ll have to try to get a copy of the opinion and briefing, but it sounds like the Colorado judge got it right, finding that there was no language in the Declaration requiring developer consent to amendments, so the owners were free to amend the Declaration under its explicit language.  Good luck to those condo plaintiffs in Colorado fighting the good fight.

http://www.lexology.com/library/detail.aspx?g=b768d3c2-c021-4701-83eb-59bdc1998b87

 

Advertisements

Tags: , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: