Is there a difference between the dissolution of an association and the termination of a common interest community and if so, how is each accomplished?
The dissolution and the termination of a common interest community are two separate legal actions that have two different outcomes for the community. The dissolution of an association extinguishes that association’s legal existence as a nonprofit corporation. Dissolution does not terminate the community or negate any existing community covenants. As a practical matter, when an association is dissolved, the resulting community lacks a governing body to manage it. Without an association, a community no longer has an entity to collect assessments, enforce covenants, maintain common elements, or pay service providers such as landscapers and snow removers. An association’s articles of incorporation will often state the required percentage of owner approval needed to dissolve the association. If the articles are silent, however, Colorado law controls. Most common interest communities in Colorado are formed as nonprofit corporations, making them subject to the Colorado Nonprofit Code’s dissolution provision. This provision requires the approval of a majority of the owners voting with at least a quorum present before dissolution may occur. After gathering the necessary number of votes for dissolution, an association must file “Articles of Dissolution” with the Colorado Secretary of State. These articles must state the name and principal office address of the association and that the corporation is dissolved. In addition, the articles must indicate how the assets owned or held by the association will be distributed after all its creditors are paid. A dissolved corporation may be reactivated by filing new articles of incorporation with the Colorado Secretary of State. Once this is done, the association corporation will exists again to govern the community.
Unlike dissolution, a community’s termination will end the community’s actual existence and negate its covenants. For post-CCIOA communities, the Colorado Common Interest Ownership Act (“CCIOA”) sets forth the procedure for termination of a community, which requires:
a termination agreement to be prepared containing a date by which it must be recorded or become void;
67% of all owners sign the termination agreement (or ratify it); and
the termination agreement to be recorded by the deadline specified in the agreement.
In addition, the termination agreement may provide for the sale of the association’s common elements and units following termination. In this case, the association retains all powers necessary to effect the sale and to distribute the proceeds to the owners. If the termination agreement does not provide for the sale of the association’s common elements, the title vests in the owners as tenants in common in fractional interests determined by each owners respective interest in the community before termination. If the units are not sold following termination, the units will vest in the owners as tenants in common, which each owner enjoying the exclusive right to occupancy of that which constituted the unit prior to termination.
Unfortunately, pre-CCIOA communities have no statutory authority regarding termination. If a pre-CCIOA community wishes to terminate, the association must first look towards its governing documents to determine whether it contains a procedure for termination. If the documents are silent on this question, unanimous consent may be required to terminate. To be prudent, a pre-CCIOA community should consult its association’s attorney to conclusively determine what steps it needs to take to terminate.
Community Essentials - April 2005
