Understanding Your Association's Governing Documents

I.    GOVERNING DOCUMENTS

A.    Each association has its own set of documents which govern the relationship between owners and the association.  These “governing documents” generally include articles of incorporation, bylaws, the declaration or covenants, maps, resolutions, rules and regulations, and guidelines.  The purpose of a community association's governing documents is to provide for the legal structure and operation of the community.

Governing Documents:

• Create the community
• Define the rights and obligations of both the association and its owners
• Establish a relationship between each owner and the association
• Establish the mechanisms for governing and funding the association's operations
• Set forth the purpose, rules and standards for the association such as:

• Preservation and enhancement of property values
• Protection of both owners and the community
• Promotion of harmonious living

B.    General Hierarchy of Authority for Governing Documents

The general hierarchy of authority for governing documents for a community are as follows:

• Recorded map, plat, or plan
• Declaration
• Articles of Incorporation
• Bylaws
• Rules & Regulations/Architectural Guidelines/Resolutions

C.    Recorded Map, Plat, or Plan   

Some form of recorded map, plat or plan is an essential document. A map or plat or plan is typically recorded in the Clerk and Recorder's office before any lots or units shown on it are sold.  The purpose is to show the precise location of each lot or unit, as well as the common areas.  The format and content will differ according to local requirements.
   
A map or plat or plan defines an owner's or a community's title to property.  On an operational level, it helps determine:   

• Who is responsible for maintaining a particular piece of property
• Whether a property improvement is properly located

D.    Declaration

An understanding of the declaration, also referred to as “covenants” or “CCRs”, requires an understanding of the rights of ownership.  Under common law, the ownership of land has
been characterized as a "bundle" of rights.  In the absence of any restrictions, the landowner traditionally has the full bundle. For example, the full bundle includes the
rights to lease the property, build on it, mortgage it, and occupy it.

When people buy real property, the bundle of rights is defined in the deed to the property.  All the deeds are recorded in the county land records.  These documents are sometimes called the chain of title."  The provisions in deeds which define or limit the rights of ownership are often called covenants or deed restrictions.  The legal community speaks of these covenants or restrictions as "running with the land."  That is, they apply to the property, no matter who owns it in the future.

Instead of inserting all of the same covenants and restrictions into each individual deed in a community development, the developer draws up a Declaration of Covenants, Conditions and Restrictions--or something with a similar name.  The developer records this declaration in the land records before any of the real estate is transferred to any other owner.  This means that the declaration is in the chain of title for each piece of property which is included in the development.  Its terms are binding on the property itself, as well as on its original and succeeding purchasers.  As a result, the declaration defines the bundle of rights of each owner in the association.

More than any other single document, the declaration brings the condominium or the planned community into existence because it spells out the essential elements of ownership.  The condominium or planned community comes into existence when the declaration is recorded in the office of the Clerk and Recorder.

The Declaration:

• Defines the portions of the development owned by the individual owners and those owned by the association, if any;
• Creates interlocking relationships binding all the owners to one another and to the association for the purposes of maintaining, governing, and funding the development;
• Establishes protective standards, restrictions, and obligations in areas ranging from architectural control to prohibitions on various activities in order to promote harmonious living;
• Creates the administrative framework for the operation and management of the association, although many of the specific administrative details are spelled out in the Bylaws; and
• Provides for a transition of control of the association from the developer to the owners.

E.    Articles of Incorporation

An association's corporate structure is established when a developer sets up the association by filing articles of incorporation with the Secretary of State's office.

The articles of incorporation:

• Bring the corporation into existence
• Define its basic purposes and powers
• Indicate whether there will be a board of directors, and if so, identify the initial board.

F.    Bylaws

Bylaws are formally adopted governing regulations for the administration and management
of a community association.  Planned communities and condominiums have bylaws. 
Bylaws are adopted as soon as a corporation is established.

Bylaws set forth the procedures by which the association operates.  For instance, bylaws     should give such operational details as the quorum requirements for member and board meetings, the type of notice that is required for meetings, how board members and officers are elected, how vacancies are filled, and other similar information.

G.    Rules & Regulations/Architectural Guidelines

The Board of Directors adopts rules and regulations to govern the use of units, lots and common area.  The rules and regulations are designed to contain more detailed information regarding these general restrictions found in the declaration. All Associations are required to adopt polices, procedures, rules and regulations regarding:

• Collection of unpaid assessments;
• Handling of board member conflicts of interest;
• Conduct of meetings with reference to applicable provisions in the Nonprofit Act or other recognized rules and principles if desired;
• Enforcement of covenants and rules - including notice and hearing procedures and the schedule of fines;
• Inspection and copying of association records by unit owners;
• Investment of reserve funds;
• Adoption and amendment of policies, procedures, and rules; and
• Alternative dispute resolution

Architectural guidelines are rules and regulations which clarify the common declaration
provision that exterior modifications to property must be approved.  These guidelines can require certain types of landscaping, certain exterior paint colors, dimensions for exterior structures, and should detail the submission and approval process.  In condominiums, architectural guidelines may govern such things as structural changes, flooring material, and modifications to limited common elements.
       
H.    Relation of Rules to Hierarchy of Authority

The hierarchy of authority dictates that rules and architectural standards/guidelines may not contradict or be in conflict with the legal sources that take precedence over them.  For example, a covenant may be more restrictive than a city ordinance (i.e., the city ordinance allows fences up to six feet in height, but a covenant may prohibit fences in excess of three feet).  Likewise, if a covenant is less restrictive than a county ordinance, the owners must comply with not only the covenant but also the county ordinance.  For example, the county may require that all dogs be registered with the county every year, but the covenants may not require any registration or only a one-time registration.  However, the association is not responsible for ensuring that the owner complies with the county’s requirements.

Although rules and architectural standards/guidelines are lower in the hierarchy of authority for community associations, they may clarify and expand an association's governing documents.  However, they cannot conflict with any source that has a higher precedence.

II.    SOURCES OF AUTHORITY TO MAKE AND ENFORCE RULES

Check all the legal documents in your association's hierarchy to verify its authority to make and enforce rules.  The most important sources of an association's authority to make and enforce rules are:

A.    State Statutes and Court Decisions

The Colorado Common Interest Ownership Act (CCIOA) provides associations with the
authority to adopt rules and regulations.  In addition, case law supports the right of associations to make and enforce rules.

B.    Governing Documents

Governing documents provide general powers.  General powers consist of the broad authority to adopt and enforce rules in order to carry out the purpose of the community association.  That purpose is to preserve, maintain, and enhance the community's property.
   
Governing documents also provide specific powers–the authority to adopt and enforce rules in specific areas.  Final authority to adopt and enforce rules rests with a board of directors, unless the governing documents specify otherwise.

A board may delegate the task of drafting or enforcing rules to standing or ad hoc committees or to other sources when the governing documents allow.

III.    CRITERIA FOR A VALID AND ENFORCEABLE RULE

A.    In general, the courts recognize the following lists as characteristics of a valid rule.  Furthermore, people are more likely to accept and cooperate with rules with these characteristics.  The following criteria should be used when developing or reviewing rules:

• The rule must not violate a fundamental constitutional right (e.g., freedom of speech)
• The rule must be consistent with applicable federal, state and local statutes (e.g., FHAA, ADA, Civil Rights Act)
• The rule must be consistent with the association's governing documents (i.e., a rule cannot prohibit what the covenants permit and vice versa)
• The rule must reasonably relate to the operation and purpose of the association (i.e., a rule must protect, preserve or enhance the properties within the community)
• The rule must be reasonable. A reasonable rule is one that is just, sensible, and not excessive (i.e., a rule should be necessary and not more punitive than necessary)
• The rule must be fair.  It must not create a separate class or group of people (e.g., certain rules that treat resident owners and nonresident owners differently)
• The rule must be clear and unambiguous
• The rule must be uniformly enforced - this means there must be no selective enforcement or exceptions (i.e., a rule must be enforced against all owners not just owners who are delinquent in payment of assessments)

B.    What is an Unreasonable Rule?  If reasonable rules promote a legitimate goal, unreasonable rules promote an illegitimate goal.  They are illogical or unfair; too broad to too severe.  To determine if a rule is unreasonable, take the following test: 

1.    Is the restriction based on outdated notions?  If circumstances change, restrictions should change, too.  Associations should constantly review their restrictions to ensure they are current.

2.    Does the restriction create safety hazards?  Most courts will choose safety over aesthetics.  Reasonable community associations recognize this.

3.    Is the restriction too intrusive?  It is unreasonable to restrict activities within a unit that have no affect on neighbors or property values.   

4.    Does the restriction provide alternatives?  Inflexible restrictions are often unreasonable restrictions.  Provide residents with options.

5.    Does it unfairly target a particular group?  Restrictions that unfairly benefit a majority of residents at the expense of a minority are typically not reasonable.

IV.    STEPS IN DEVELOPING RULES

A.    Use the following steps to develop rules for your association:

1.     Determine the need for a rule in the specific area.
           
Answer the question, "Why?"  Also, ask whether the rule is designed to maintain, preserve, enhance and protect the property value of the community, promote harmonious community living and preserve the common scheme and harmonious design of the community.  Determine whether the problem identified is of sufficient consequence to justify creating a rule - what are the trade offs?  Then check to be sure that your association's existing rules and governing documents are inadequate to address the issue.

2.     Consider both the immediate impact of such a rule and its long term implications.

How is the rule likely to be received?  Will a solution to a current problem create future ones for the community?

3.     Identify the source(s) of your association's authority to make a rule in the specific area involved.

Review your governing documents and CCIOA.  They may also provide who has authority to act and thus allow you to make a determination as to whether the proposed rule must be an amendment to the governing documents or can simply be a new board adopted rule.

4.     Define the scope of the rule.

Specify "who" and "what" will be covered by the rule.  The "what" of a rule includes:

• Required steps, procedures, acts, or prohibitions a person is expected to follow
• Enforcement procedures
• Penalties for violations
• Due process procedures                           

5.    Apply an "enforceability test."

Check to be sure the proposed rule has the eight criteria of a valid and enforceable rule listed earlier.

6.    Use clear, concise and unambiguous language.

The proposed rule should be drafted in such a manner as to be concise and simple, yet clear and understandable.  Avoid words or phrases that are vague or ambiguous (e.g., trucks, commercial vehicles, recreational vehicles).  Check the rule out with several people who had nothing to do with drafting the rule.
   
7.    Give notice of any proposed rule.

Build consensus and support for the rule before it is adopted in order to gain acceptance and compliance.  In addition to giving notice of the proposed rule, provide an explanation of the purpose, value and benefit of this rule as well as rules in general.  For example, make owners and tenants aware that the board is considering a particular rule.  Invite written comments.  Schedule a hearing on a proposed rule if it is a major matter.  Consensus and hence compliance is possible when rules are seen as fair and reasonable by owners and tenants.

8.    Have the rule reviewed by attorney.

Have your association's attorney review the wording of rules - as proposed and as adopted - to ensure that they are legally sound.

9.    Act promptly on a proposed rule.

Once a proposed rule has been published and input received, the board should act on it at its next regularly scheduled meeting.  The board's options are to either approve or reject the proposed rule as it is or as amended.  Failure to act will cause the board and the rule to lose credibility.

10.    Give notice of an adopted rule.

Actual notice of an adopted rule is necessary if people are to voluntarily obey it, and may be required by the Declaration.  Send a notice to the owner's last known address in the community's records.  Send a notice to the unit or lot address, too, in case the occupant is a non-owner.  Use a first-class mailing, either with a billing notice or separately, to maximize the likelihood of people receiving the notice and reading it.  Publish the rule in the community newsletter.  Whatever notice you give, use a positive "tone of voice."  Avoid sounding demanding or condescending.

V.    DEVELOPMENT OF ARCHITECTURAL STANDARDS/GUIDELINES AND THE REVIEW PROCESS

A.    Usually an association's Declaration or CC&R's provides for architectural changes.

It is in the community's best interests for a board to establish written architectural standards/guidelines for two reasons:

1.    Written standards/guidelines indicate to owners what types of changes will be allowed under normal circumstances.

2.    Written standards/guidelines are a way to avoid claims of arbitrary or selective treatment of owners.

B.    The purpose of architectural review (or architectural control) is to keep the community attractive for the enjoyment of residents and for the protection of property values.  The single most important step in organizing the process of architectural review is the development of a set of standards/guidelines.  The declaration of covenants typically contains architectural authority and broad, general objectives.  These need to be supplemented and expanded upon by specific procedures and standards.  The standards/guidelines serve two basic purposes:  first, they assist the homeowner, both in designing any proposed improvement and in determining how to apply for approval; and second, it provides criteria for consistent decisions by the architectural committee. 

An essential element to successful architectural review is the recognition by all members of the association that it is a benefit and not a burden.  Homeowners will not tolerate, let alone support, architectural review unless it is clearly understood and works effectively.  Well-drafted “Architectural Standards/Guidelines” will result in substantial benefits to all.
   
C.    The following is a checklist of recommended documents and forms that every association should have for use in connection with the architectural review process:

☐    Design guidelines, if any
☐    Written architectural application and review procedures
☐    Written enforcement procedures including fine schedule
☐    Written procedures for conducting violation hearing
☐    Warning letter (no fine imposed)
☐    Cease and desist letter
☐    Notice/letter of alleged violation
☐    Notice/letter of violation hearing
☐    Notice of violation hearing findings and decision
☐    ACC/ARC application for improvement/modification
☐    Receipt of application checklist
☐    Review of applications/plans checklist
☐    Application approval/denial form
☐    Request for variance
☐    Review of request for variance checklist
☐    Approval/Denial of variance form