Second Regular Session Sixty-fifth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 06-0337.01 Duane Gall SENATE BILL 06-089 SENATE SPONSORSHIP Hagedorn, HOUSE SPONSORSHIP Carroll M., Senate Committees House Committees Judiciary A BILL FOR AN ACT Concerning common interest communities. Bill Summary (Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments that may be subsequently adopted.) Clarifies provisions of S.B. 05-100 regarding regulation of political signs in common interest community associations (associations). Allows an association to prohibit the parking of commercial vehicles other than police, fire, and paramedic vehicles on community property and to limit the parking of police, fire, and paramedic vehicles so as to preserve adequate guest parking. Simplifies provisions allowing a court to award attorney fees and costs to the prevailing party in litigation, eliminating the requirement of a claim-by-claim analysis of which party prevailed. Requires an association to adopt a written policy for dealing with disputes between the association and unit owners, and to make the policy available to unit owners upon request. Modifies the requirement imposed by S.B. 05-100 that a financial audit or review be completed within 90 days after the close of the association's fiscal year. In place of the requirement that the association's accounting records employ generally accepted accounting principles, requires that the records be kept on a cash or modified accrual basis and be accurate and complete. Replaces the current requirement for a biennial audit or review with an optional procedure whereby a review is only required if requested by 1/3 of the unit owners, and an audit is required only if requested by 1/3 of the unit owners and the association's budget exceeds $250,000. To the list of annual disclosures the association must make available to unit owners, adds a statement of the association's insurance and maintenance responsibilities. Requires recording of the declaration and any covenants in the county land records, if not already so recorded. In provisions specifying notice by mail and publication to first mortgagees regarding proposed changes to a common interest community's governing declaration, clarifies that a preexisting process, under which amendments may be authorized by court order, is still available. Allows supermajority provisions exceeding 67% for the amendment of covenants to continue to apply in communities where 67% or more of the votes are allocated to a single owner. Clarifies provisions relating to notice of meetings and the opportunity for unit owners to offer their views on agenda items prior to action by the executive board. Modifies requirements for the taking of votes by secret ballot and the counting of ballots. Exempts associations whose board members are selected by delegates from secret-ballot requirements. Replaces S.B. 05-100 provisions on board member conflicts of interest with provisions imported from the "Colorado Revised Nonprofit Corporation Act". In provisions allowing a unit owner to file a claim against the association's property insurance policy to the same extent as a named insured, places conditions on the exercise of that right by requiring the unit owner first to contact the association and to give the association a reasonable opportunity to respond and inspect the damage. Prohibits an insurer from considering a clarification-of-coverage inquiry by a unit owner when setting premiums to be charged to the association. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. 38-33.3-106.5 (1) (c) (I), (1) (d) (II), and (1) (d) (IV), Colorado Revised Statutes, are amended to read: 38-33.3-106.5. Prohibitions contrary to public policy - patriotic and political expression - emergency vehicles - fire prevention - definitions. (1) Notwithstanding any provision in the declaration, bylaws, or rules and regulations of the association to the contrary, an association shall not prohibit any of the following: (c) (I) The display of a political sign by a unit owner on that unit owner's property or in a window of the unit owner's residence; except that an association may prohibit the display of political signs earlier than forty-five days before the day of an election and later than seven days after an election day. An association may regulate the size and number of political signs that may be placed on a unit owner's property if the association's regulation is no more restrictive than any applicable city, town, or county ordinance that regulates the size and number of political signs on residential property. If the city, town, or county in which the property is located does not regulate the size and number of political signs on residential property, the association shall permit at least one political sign no larger than thirty-six inches by forty-eight inches per political office or ballot issue that is contested in a pending election, with the maximum dimensions of thirty-six inches by forty-eight inches, on a unit owner's property. (d) The parking of a motor vehicle by a unit owner on a street, driveway, or guest parking area in the common interest community if the vehicle is required to be available at designated periods at the unit owner's residence as a condition of the unit owner's employment and all of the following criteria are met: (II) The unit owner is a bona fide member of a volunteer fire department or is employed by an emergency service provider, as defined in section 29-11-101 (1.6), C.R.S. a primary provider of emergency fire fighting, law enforcement, ambulance, or emergency medical services; (IV) Parking of the vehicle can be accomplished without obstructing emergency access or interfering with the reasonable needs of other unit owners to use streets, and driveways, and guest parking spaces within the common interest community. SECTION 2. 38-33.3-123 (1) (c), Colorado Revised Statutes, is amended to read: 38-33.3-123. Enforcement - limitation. (1) (c) For each claim or defense, including but not limited to counterclaims, cross-claims, and third-party claims, and except as otherwise provided in paragraph (d) of this subsection (1), In any legal proceeding civil action to enforce or defend the provisions of this article or of the declaration, bylaws, articles, or rules and regulations, the court shall award to the party prevailing on such claim the prevailing party's reasonable collection costs and attorney fees, and costs, incurred in asserting or defending the claim and costs of collection to the prevailing party. SECTION 3. 38-33.3-124 (1), Colorado Revised Statutes, is amended to read: 38-33.3-124. Legislative declaration - alternative dispute resolution encouraged - policy statement required. (1) (a) The general assembly finds and declares that the cost, complexity, and delay inherent in court proceedings make litigation a particularly inefficient means of resolving neighborhood disputes. Therefore, common interest communities are encouraged to adopt protocols that make use of mediation or arbitration as alternatives to, or preconditions upon, the filing of a complaint between a unit owner and association in situations that do not involve an imminent threat to the peace, health, or safety of the community. (b) Each association shall adopt a written policy setting forth its procedure for addressing disputes arising between the association and unit owners. The association shall make a copy of this policy available to unit owners upon request. SECTION 4. 38-33.3-209.4 (2) (e), Colorado Revised Statutes, is amended, and the said 38-33.3-209.4 (2) is further amended BY THE ADDITION OF A NEW PARAGRAPH, to read: 38-33.3-209.4. Public disclosures required - identity of association - agent - manager - contact information. (2) Within ninety days after assuming control from the declarant pursuant to section 38-33.3-303 (5), and within ninety days after the end of each fiscal year thereafter, the association shall make the following information available to unit owners upon reasonable notice in accordance with subsection (3) of this section: (e) The results of any its most recent available financial audit or review; for the fiscal year immediately preceding the current annual disclosure; (j) A list of the association's insurance and maintenance responsibilities related to the common elements, limited common elements, units, owners' property, and owners' personal liability within units. Such list shall state that unit owners are responsible for determining what additional individual insurance coverage must be carried to cover insurance responsibilities not covered by the association's insurance policies. SECTION 5. 38-33.3-209.5 (1) (a), (1) (b) (VI), and (1) (b) (VII), Colorado Revised Statutes, are amended, and the said 38-33.3-209.5 (1) (b) is further amended BY THE ADDITION OF A NEW SUBPARAGRAPH, to read: 38-33.3-209.5. Responsible governance policies. (1) To promote responsible governance, associations shall: (a) Maintain accurate and complete accounting records using generally accepted accounting principles on a cash or modified accrual basis in accordance with section 38-33.3-303 (4) (b); and (b) Adopt policies, procedures, and rules and regulations concerning: (VI) Investment of reserve funds; and (VII) Procedures for the adoption and amendment of policies, procedures, and rules; and (VIII) Procedures for addressing disputes arising between the association and unit owners. SECTION 6. 38-33.3-217 (1) and (4), Colorado Revised Statutes, are amended to read: 38-33.3-217. Amendment of declaration. (1) (a) Except in cases of amendments that may be executed by a declarant under section 38-33.3-205 (4) and (5), 38-33.3-208 (3), 38-33.3-209 (6), 38-33.3-210, or 38-33.3-222, by an association under section 38-33.3-107, 38-33.3-206 (4), 38-33.3-208 (2), 38-33.3-212, 38-33.3-213, or 38-33.3-218 (11) and (12), or by the district court for any county that includes all or any portion of a common interest community under subsection (7) of this section, and except as limited by subsection (4) of this section, the declaration, including the plats and maps, may be amended only by the affirmative vote or agreement of unit owners of units to which more than fifty percent of the votes in the association are allocated or any larger percentage, not to exceed sixty-seven percent, that the declaration specifies. Any provision in the declaration that purports to specify a percentage larger than sixty-seven percent is hereby declared void as contrary to public policy, and until amended, such provision shall be deemed to specify a percentage of sixty-seven percent. The declaration may specify a smaller percentage than a simple majority only if all of the units are restricted exclusively to nonresidential use. Nothing in this paragraph (a) shall be construed to prohibit the association from seeking a court order, in accordance with subsection (7) of this section, to reduce the required percentage to less than sixty-seven percent. (b) (I) If the declaration requires first mortgagees to approve or consent to amendments, but does not set forth a procedure for registration or notification of first mortgagees, the association shall may: (A) Send a dated, written notice and a copy of any proposed amendment by certified mail to each first mortgagee at its most recent address as shown on the recorded deed of trust or recorded assignment thereof; and (B) In addition, the association shall Cause the dated notice, together with information on how to obtain a copy of the proposed amendment, to be printed in full at least twice, on separate occasions at least one week apart, in a newspaper of general circulation in the county in which the common interest community is located. (II) A first mortgagee that does not deliver to the association a negative response within sixty days after the date of the notice specified in subparagraph (I) of this paragraph (b) shall be deemed to have approved the proposed amendment. (III) The notification procedure set forth in this paragraph (b) is not mandatory. If the consent of first mortgagees is obtained without resort to this paragraph (b), and otherwise in accordance with the declaration, the notice to first mortgagees shall be considered sufficient. (4) (a) Except to the extent expressly permitted or required by other provisions of this article, no amendment may create or increase special declarant rights, increase the number of units, or change the boundaries of any unit or the allocated interests of a unit in the absence of a vote or agreement of unit owners of units to which at least sixty-seven percent of the votes in the association, including sixty-seven percent of the votes allocated to units not owned by a declarant, are allocated or any larger percentage the declaration specifies. The declaration may specify a smaller percentage only if all of the units are restricted exclusively to nonresidential use. (b) The sixty-seven-percent maximum percentage stated in paragraph (a) of subsection (1) of this section shall not apply to any common interest community in which one unit owner, by virtue of the declaration, bylaws, or other governing documents of the association, is allocated more than sixty-seven percent of the votes in the association. SECTION 7. 38-33.3-223 (2), Colorado Revised Statutes, is amended to read: 38-33.3-223. Sale of unit - disclosure to buyer. (2) (a) The association shall use its best efforts to accommodate a request by the seller for documents that are within the association's control, in accordance with section 38-33.3-317. (b) The association shall ensure that the declaration and covenants, and any amendments thereto, are recorded in the land records of the county in which the common interest community is located and shall provide the recording date, reception number, book and page, and other identifying information to any person upon request. SECTION 8. 38-33.3-303 (4) (b), Colorado Revised Statutes, is amended to read: 38-33.3-303. Executive board members and officers - powers and duties - audit. (4) (b) (I) At the discretion of the executive board or upon request pursuant to subparagraph (II) or (III) of this paragraph (b) as applicable, the books and records of the association shall be subject to an audit, using generally accepted auditing standards, or a review, using statements on standards for accounting and review services, at least once every two years by a person selected by the executive board. Such person need not be a certified public accountant except in the case of an audit. The audit or review is to be prepared using generally accepted accounting principles, incorporating the accrual basis of accounting, or using other accounting principles, which shall be limited to the cash basis of accounting or the modified accrual basis of accounting. (II) An audit shall be required under this paragraph (b) only when both of the following conditions are met: (A) The association has annual revenues or expenditures of at least two hundred fifty thousand dollars; and (B) An audit is requested by the owners of at least one-third of the units represented by the association. (III) A review shall be required under this paragraph (b) only when requested by the owners of at least one-third of the units represented by the association. (III) (IV) Copies of an audit or review under this paragraph (b) shall be made available upon request to any unit owner beginning no later than thirty days after its completion. (IV) (V) Notwithstanding section 38-33.3-117 (1.5) (h), this paragraph (b) shall not apply to an association that includes time-share units, as defined in section 38-33-110 (7). SECTION 9. 38-33.3-308 (1), (2.5) (a), and (2.5) (b), Colorado Revised Statutes, are amended to read: 38-33.3-308. Meetings. (1) Meetings of the unit owners, as the members of the association, shall be held at least once each year. Special meetings of the unit owners may be called by the president, by a majority of the executive board, or by unit owners having twenty percent, or any lower percentage specified in the bylaws, of the votes in the association. Not less than ten nor more than fifty days in advance of any meeting of the unit owners, the secretary or other officer specified in the bylaws shall cause notice to be hand delivered or sent prepaid by United States mail to the mailing address of each unit or to any other mailing address designated in writing by the unit owner. The notice of any meeting of the unit owners shall be physically posted in a conspicuous place, to the extent that such posting is feasible and practicable, in addition to any electronic posting or electronic mail notices that may be given pursuant to paragraph (b) of subsection (2) of this section. The notice shall state the time and place of the meeting and the items on the agenda, including the general nature of any proposed amendment to the declaration or bylaws, any budget changes, and any proposal to remove an officer or member of the executive board. (2.5) (a) Notwithstanding any provision in the declaration, bylaws, or other documents to the contrary, all meetings of the association and board of directors are open to every unit owner of the association, or to any person designated by a unit owner in writing as the unit owner's representative. and all unit owners or designated representatives so desiring shall be permitted to attend, listen, and speak at an appropriate time during the deliberations and proceedings; except that, for regular and special meetings of the board, unit owners who are not board members may not participate in any deliberation or discussion unless expressly so authorized by a vote of the majority of a quorum of the board. (b) At an appropriate time determined by the board, but before the board votes on an issue under discussion, unit owners or their designated representatives shall be permitted to speak regarding that issue. The board may place reasonable time restrictions on those persons speaking during the meeting. but shall permit a unit owner or a unit owner's designated representative to speak before the board takes formal action on an item under discussion, in addition to any other opportunities to speak. If more than one person desires to address an issue and there are opposing views, the board shall provide for a reasonable number of persons to speak on each side of an the issue. SECTION 10. 38-33.3-310 (1) (b) (I), Colorado Revised Statutes, is amended, and the said 38-33.3-310 (1) (b) is further amended BY THE ADDITION OF A NEW SUBPARAGRAPH, to read: 38-33.3-310. Voting - proxies. (1) (b) (I) Votes for contested positions on the executive board shall be taken by secret ballot. and At the discretion of the board or upon the request of one or more twenty percent of the unit owners who are present at the meeting or represented by proxy, if a quorum has been achieved, a vote on any other matter affecting the common interest community on which all unit owners are entitled to vote shall be by secret ballot. Ballots shall be counted by a neutral third party or by a unit owner who is not a candidate, who attends the meeting at which the vote is held, and who is selected at random from a pool of two or more such unit owners committee of unit owners who are not candidates and not board members. The committee shall consist of volunteers selected or appointed at the meeting, in a fair manner, by the chair of the board or another person presiding during that portion of the meeting. The results of the a vote taken by secret ballot shall be reported without reference to names, addresses, or other identifying information. (III) This paragraph (b) shall not apply to an association whose governing documents provide for election of positions on the executive board by delegates on behalf of the unit owners. SECTION 11. 38-33.3-310.5, Colorado Revised Statutes, is REPEALED AND REENACTED, WITH AMENDMENTS, to read: 38-33.3-310.5. Executive board - definitions - conflicting interest transactions. (1) As used in this section: (a) "Conflicting interest transaction" means a contract, transaction, or other financial relationship between the association and a director, or between the association and a party related to a director, or between the association and an entity in which a director of the association is a director or officer or has a financial interest. (b) "Director" means a member of the association's executive board. (c) "Party related to a director" shall mean a spouse, a descendant, an ancestor, a sibling, the spouse or descendant of a sibling, an estate or trust in which the director or a party related to a director has a beneficial interest, or an entity in which a party related to a director is a director or officer or has a financial interest. (2) No loans shall be made by the association to its directors or officers. Any director or officer who assents to or participates in the making of any such loan shall be liable to the association for the amount of the loan until the loan is repaid. (3) No conflicting interest transaction shall be void or voidable or be enjoined, set aside, or give rise to an award of damages or other sanctions in a proceeding by a unit owner or by or in the right of the association solely because the conflicting interest transaction involves a director, a party related to a director, or an entity in which a director of the association is a director or officer or has a financial interest; solely because the director is present at or participates in the meeting of the executive board or of the committee of the board that authorizes, approves, or ratifies the conflicting interest transaction; or solely because the director's vote is counted for such purpose, if: (a) The material facts as to the director's relationship or interest and as to the conflicting interest transaction are disclosed or are known to the executive board or the committee, and the executive board or committee in good faith authorizes, approves, or ratifies the conflicting interest transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors are less than a quorum; (b) The material facts as to the director's relationship or interest and as to the conflicting interest transaction are disclosed or are known to the unit owners entitled to vote on the issue, and the conflicting interest transaction is specifically authorized, approved, or ratified in good faith by a vote of the unit owners entitled to vote on the issue; or (c) The conflicting interest transaction is fair as to the association. (4) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the executive board or of a committee that authorizes, approves, or ratifies the conflicting interest transaction. SECTION 12. 10-4-110.8 (5), Colorado Revised Statutes, is amended to read: 10-4-110.8. Homeowner's insurance - prohibited practices - definitions. (5) (a) In a common interest community, as defined in section 38-33.3-103 (8), C.R.S., a unit owner may file a claim against the policy of the unit owner's association to the same extent, and with the same effect, as if the unit owner were an additional a named insured if the following conditions are met: (I) The unit owner has contacted the executive board or the association's managing agent in writing, and in accordance with any applicable association policies or procedures for owner-initiated insurance claims, regarding the subject matter of the claim; (II) The unit owner has given the association at least fifteen days to respond in writing, and, if so requested, has given the association's agent a reasonable opportunity to inspect the damage; and (III) The subject matter of the claim falls within the association's insurance responsibilities as defined by the declaration or listed pursuant to section 38-33.3-209.4 (2) (j), C.R.S. (b) The association's insurer, when determining premiums to be charged to the association, shall not take into account any request by a unit owner for a clarification of coverage. SECTION 13. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.