Although document amendments lead to desirable results, boards frequently refuse to utilize this tool based on commonly held preconceived notions and popular myths about the process. This article addresses the top 10 myths and misunderstandings pertaining to document amendments.
Myth #1: If a declaration contains a mortgagee approval requirement, it is impossible to amend.
Fact: False. There are now two ways around this onerous requirement. First, the Colorado Common Interest Ownership Act ("CCIOA") allows associations to file a court petition with the District Court seeking approval of declaration amendments. Using the court petition process allows associations to bypass mortgagee approval requirements and only requires membership approval of one-half the number required by the declaration. Second, SB 100 created another avenue for associations to circumvent the mortgagee approval requirement, which allows associations to send notice of the proposed amendment to mortgagees by certified mail and publishing in a local news paper. If the mortgagees do not object within a specified time frame, they are deemed to have approved the amendment.
Myth #2: Bylaws may be amended by the board without owner approval.
Fact: False. Even if the bylaws expressly allow for unilateral amendment by boards, Colorado law prohibits boards from amending the bylaws without owner approval if such amendments have the effect of lowering quorum or changing director qualifications.
Myth #3: Document amendments are required by Colorado law if portions of the document do not comply with the law.
Fact: False. Colorado does not require associations to amend their governing documents to comply with laws. However, any provision contrary to the law is unenforceable.
Myth #4: An association can save on legal costs by having the board or committee create a first draft of amended documents.
Fact: Generally false. Attempts by boards and/or committees to save on legal fees by preparing first drafts of amended documents rarely result in savings. When an attorney is presented with a draft document amendment prepared by a board or committee, he or she is required to read every sentence very carefully and ensure each sentence complies with current state and federal laws. This process can be very time consuming. It takes far less time for an attorney to review the current set of documents and draft the appropriate amendments.
Myth #5: All document amendments cost the same amount.
Fact: False. The cost to amend governing documents can vary widely depending on the type of amendment, the size of the community, age of the documents, number of drafts, and board involvement. Variables that tend to increase legal costs of amending include, but are not limited to, repeated revisions, meeting with legal counsel multiple times, asking counsel to help the board obtain consensus from the membership, and having counsel prepare the ballot, proxy, and notice of vote. Typically, a complete rewrite of an association’s governing documents can run between $5,000 and $12,000.
Myth #6: A complete rewrite of an association’s governing documents can be accomplished in three months or less.
Fact: False. We can likely prepare a first draft of amended documents within four to five weeks. However, the entire amendment process may take 8 – 12 months depending on the resources allocated by a board to obtain "buy-in” of the amendment from the membership and whether mortgagee approval is required (which would add approximately 3 – 4 months to the process).
Myth #7: All document amendments have the same approval requirements.
Fact: False. The amendment requirement for each governing document of an association will be contained within the specific document. Typically, however, articles of incorporation and bylaws will have lower consent requirements than the declaration. Additionally, Colorado law provides “default” amendment requirements when documents are silent as to amendment.
Myth #8: Only older document require amendments.
Fact: False. Although older documents tend to require amendment more often, many newer documents require amendment as well to eliminate obsolete provisions, clarify ambiguous terms, take advantages of recent changes in the law, and to make the documents “user friendly."
Myth #9: It is always better to draft amendments to existing documents then rewriting the entire document.
Fact: False. If the legal documents are reasonably up-to-date and in fairly good shape, only one or two sections of the documents may require amending. In such cases, it's better to prepare limited amendments to the legal documents. However, if the documents require multiple amendments, the association would benefit by creating an entirely new up-to-date set of documents.
Myth #10: Once a set of documents is amended, it is impossible to grandfather in existing owners.
Fact: False. A grandfather clause may be used in document amendments to exempt current owners from a particular rule for a specified period of time. For example, an association may amend its declaration to prohibit pets in the community, but may grandfather in all existing owners in the community that have pets until such time as the pet dies or the owner sells the property.