Covenant Enforcement: The Role of the Business Judgment Rule
The Colorado Court of Appeals has ruled homeowners associations are entitled to broad discretion in the manner and method of pursuing covenant enforcement. A lawsuit challenging those decisions must prove the association acted unreasonably, in bad faith or in an arbitrary and capricious manner.
Case law in Colorado provides that clear and unambiguous covenants must be enforced as written. Nevertheless, the courts have not previously provided guidance about how covenants should be enforced. Previous court decisions state that associations are entitled to exercise discretion in the decision-making process. The courts have given considerable latitude and deference to such decisions, meaning such decisions cannot be undercut or challenged simply by filing a lawsuit. This doctrine is known as the business judgment rule.
