COLORADO CONDOMINIUM LEGAL TERMS
Common Terms in Declarations & Bylaws
A
Allocated Interests: Your share of:
- Common expense costs
- HOA voting rights
- Ownership of common elements
Usually based on your unit's size or value
Appurtenances: property (as an outbuilding or fixture) or a property right (as a right-of-way) that is incidental to a principal property and that passes with the principal property upon sale or transfer.
Assessment: Money you pay to the association
- Regular: Monthly/yearly dues
- Special: One-time fees for specific projects
- Working Capital: Initial payment when buying in
B
Board of Directors: The elected group that runs the HOA
- Makes day-to-day decisions
- Enforces rules
- Manages finances
By-laws: Rules for how the association operates
- How meetings work
- How to elect board members
- How to make decisions
C
CCIOA: Colorado Common Interest Ownership Act
- Main state law for condos
- Sets basic rules all condos must follow
Common Elements:
- Limited: Used by some owners (like balconies or parking spots)
- General: Used by everyone (like halls and grounds)
Condemnation in the legal sense refers to when a government exercises its eminent domain powers to seize private property for public use. Both local/state governments and the Federal Government have the authority to condemn property.
Covenant: A rule that:
- Comes with the property
- All owners must follow
- Gets recorded with county
D
Declaration: The main document that:
- Creates the condo community
- Sets basic rules
- Defines what you own
- Lists your rights and duties
"Declarant" is the person or entity that creates the original governing documents for the association. The Declarant is generally the developer of the project and usually reserves certain rights and powers to himself related to the sale of units in the project, extra voting rights, etc. More info at the bottom of this document.
Deed Restriction: A limit on how you can use your property
E
Easement: Right to use someone else's property
- For utilities
- For access
- For maintenance
Executive Board: Same as Board of Directors
F
First mortgagee is the person or entity that holds a first mortgage on a property. A first mortgage is the original mortgage on a property, and it's also known as the primary loan or first lien. It takes priority over any other liens or claims on the property, such as a second mortgage
Fiscal Year: The HOA's financial year
- When budgets start/end
- When financial reports are due
G
Governing Documents: All the rules together:
- Declaration
- Bylaws
- Rules and regulations
- Articles of incorporation
I
Indemnity: security against or exemption from legal liability for one's actions. plural noun: indemnities
Indemnification is a legal agreement where one party, the indemnifying party, compensates another party, the indemnified party, for losses or damages. The indemnifying party promises to protect the indemnified party from financial harm and cover any costs that may result from a specific event or circumstance.
J
Judicial partition is a legal process that divides a property between co-owners when they can't agree on how to manage it. The term "partition" comes from the word "parts", and the goal is to divide the property into parts that represent each owner's share.
L
Lien: Legal claim against property
- For unpaid assessments
- For violation fines
- Gets recorded with county
M
Maintenance: Taking care of property
- Regular: Routine upkeep
- Reserve: Saving for big repairs
Meeting:
- Annual: Yearly owner gathering
- Special: Extra meeting for specific issues
- Board: Regular board business meetings
Mortgage involves the transfer of an interest in land as security for a loan or other obligation. It is the most common method of financing real estate transactions. The mortgagor is the party transferring the interest in land.
N
Notice: Official information about:
- Meetings
- Rule changes
- Violations
Must follow specific timing rules
O
Obsolescence: A building reaches the end of its service life when it is no longer economically viable in its present condition.
P
Pro rata: meaning “in proportion” – that is used to assign or allocate value in proportion to something that can accurately and definitively be measured or calculated
Proxy: Permission for someone else to:
- Vote for you
- Attend meetings for you, must be in writing
Q
Quorum: Minimum people needed for:
- Valid meetings
- Legal votes
Usually specified as a percentage
R
Record: Official documents filed with:
- The association
- The county
Must be kept specific time periods
Regime: A legal regime is a set of rules, policies, and norms that cover any legal issue and facilitate arrangements for deciding that issue. It can refer to a system of government or administration, or to international issues.
Reserve Fund: Savings for:
- Major repairs
- Replacements
- Emergency expenses
S
Special Assessment: Extra payment for:
- Unexpected expenses
- Major projects
Needs owner approval usually
Statutory law is a body of laws that are created and passed by the legislative branch of the government
Subordination is the process of ranking home loans (mortgage, HELOC or home equity loan) by order of importance. When you have a home equity line of credit, for example, you actually have two loans – your mortgage and HELOC. Both are secured by the collateral in your home at the same time.
T
Tenant: Someone renting a unit
- Must follow all rules
- Owner still responsible
U
Unit: Your private property
- Everything inside your walls
- Any attached limited common elements
- Your responsibility to maintain
V
Violation: Breaking the rules:
- Can result in fines
- Must be enforced fairly
- Has appeal process
W
Working Capital: First-time payment when buying
- Helps association cash flow
- Usually 2-3 months of dues
- May not be refundable
“Declarant” means the person or group of persons designated in the declaration as declarant, or if no declarant is designated, the person or group of persons who sign the original declaration or who succeed to special rights, preferences, or privileges designated in the declaration as belonging to the signator of the original declaration. (Civ. Code § 4130.)
Most associations eventually restate their CC&Rs to eliminate all references to the Declarant, eliminate all legalese, and add pertinent provisions from the Davis-Stirling Act.
For a period of time, the developer of an association will have greater voting power, defined as Class B membership. It gives the developer three votes for each unit/lot held by the developer.
On August 16, 2012 developers won a major victory in the Pinnacle Museum Tower case. The California Supreme Court reversed direction from prior decisions and held that homeowner associations are bound by arbitration provisions in their CC&Rs, even though those provisions were written and recorded by the developers. The Pinnacle decision eliminates the right by associations to go to court for a trial before a judge and a jury.
The expected benefit to developers is the elimination of large jury verdicts by removing juries from the process. Historically, monetary awards by judges and arbitrators are smaller than those given by juries. As a result of the Pinnacle decision, developers may offer smaller settlements for construction defects. If their offers are rejected, HOAs will be forced to prove their cases in binding arbitration. Even so, the arbitration process is streamlined and less expensive than litigation and could produce good results if the association can prove its case to the arbitrator.
Recommendation: If a development is less than ten years old, various statutes of limitations are running on any defect claims the association may have. To avoid losing rights, boards should contact legal counsel to determine their best course of action. To read the case in its entirety, see Pinnacle Museum Tower v. Pinnacle Market Development.
At the outset, the developer has most of the votes, controls the board, and appoints the architectural committee. However, the California Department of Real Estate ("DRE") requires that developers gradually give up control in each area.
Voting Structure. Developers retain control by creating a two class voting structure. Class A is usually the homeowners, each of whom get one vote for each lot or condominium owned. Class B is usually the developer. The developer has three votes for each lot or condominium he owns. In a single phase project, Class B converts to Class A when either the total number of Class A votes equals the total number of Class B votes or on the second anniversary of the conveyance of the first lot or condominium in the project, whichever occurs first. In a multi-phase project, Class B converts to Class A either on the second anniversary of the first conveyance in the most recent phases or four years after the first conveyance in the project, whichever occurs first.
Even when the developer has voting control, for certain votes, such as amendments to governing documents, the DRE requires approval by a majority of both Class A and Class B, effectively giving homeowners a veto on some issues.
Director Elections. Starting with the first election, a procedure must be established that ensures at least 20% of the directors are elected solely by homeowner votes. Once the homeowners elect a director, only the homeowners can remove the director. Eventually, as the homeowners get more votes and Class B converts to Class A, the homeowners will elect all of the directors. The timing will vary from project to project depending on the pace of sales and number of phases in the project.
Architectural Committee/Design Review Committee. The developer has the right to appoint all of the members of the committee until one year after the first (or only) final subdivision public report for the project. After that, the board must have the right to appoint at least one member of the committee until either close of escrow for 90% of the lots and condominiums in the project or five years after the first final subdivision public report was issued, whichever occurs first. After that, the board has the right to appoint all committee members.
Caveat: The DRE may approve alternate arrangements and the DRE's rules have changed over time. To find out when control is turned over for your association, you must read the articles of incorporation, bylaws, and CC&Rs. Also, the DRE's rules for master planned communities (usually 500 or more homes) are different from the rules for smaller subdivisions. In general, developers are allowed to control master planned communities for a much longer time.
Fiduciary Duties. Even when the developer controls the board of directors, he cannot use his power to his own benefit at the expense of the association. (Corp. Code § 7231, Raven's Cove v. Knuppe Development (1981) 114 Cal.App.3d 783.)
Before the developer leaves the development, there should be a complete transfer of records to the association.
A “successor in interest” to the developer is a person or company that has acquired property and rights previously held by the original developer. Unless CC&Rs state otherwise, an association is not the successor in interest to the developer. Instead, it is a separate entity with entirely different obligations, duties and goals that continues to exist even when the developer ceases to. Associations generally do not need the developer's powers--it has has its own powers via the CC&Rs, bylaws, Davis-Stirling Act and Corporations Code.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.