DD 6/19/03 Power to Modify CC&R's Includes Power to Add New Assessment and Lien Authority

Daily Development for Thursday, June 19, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

There's a second part to this opinion that we'll discuss as
tomorrow's DD, but this holding is significant enough to stand on its
own.

SERVITUDES; MODIFICATION; ASSESSMENTS: Association
has power to add new provisions to declaration pursuant to a general
power to amend, including provisions authorizing, for the first time,
mandatory assessments.

Evergreen Highlands Assoc. v. West, 2003 WL 21373175 (6/16/03)

The community, developed in the early 1970's,  consisted of homes
surrounding a substantial  park to which all residents had access.  An
association had been formed at the time the subdivision was developed,
and ultimately the developer, pursuant to the recorded plat, conveyed the
park to the association.  The association was created for the purpose of
enforcing the restrictive provisions in the Declaration and maintaining
the common areas, including the park.  Unfortunately, befuddled by the
high mountain air, the developers did not put into the Declaration any
power in the association to level mandatory assessments to carry out its
functions.

The association for years relied upon voluntary assessments from lot
owners to pay for such expenses as property taxes, insurance for the park
area and its structures, weed spraying, tennis court resurfacing, and barn
and stable maintenance (yes, this was a really substantial park.)

The covenants did provide that upon vote of 75% of the lot owners, the
covenants could "change or modify any one or more of said restrictions."
In 1995, The requisite number of owners adopted an amendment
providing for mandatory assessments, backed by the power to impose
liens.

Upon challenge by a lot owner, a trial court upheld the assessments and
liens, but the court of appeals reversed, holding that the declaration's
language authorizing changes or modifications  did not permit the
addition of whole new provisions to the set of covenants.   In its view the
term "change or modify" indicated an intent only to permit alteration of
existing covenants.

The Colorado Supreme Court here reversed, holding that the power to
modify the "restrictions" included the power to add a whole new
provision for mandatory assessments backed by liens.  Just to make sure
that no one misunderstood, the court went on to hold that the association
also had the implicit power to impose mandatory assessments to carry
out its functions even if there had been no power to amend in the
Declaration.  (This second aspect of the case is discussed under the
heading: "Associations; Assessments; Implied Power to Assess.")

The court noted that there appears to be a split in the jurisdictions on the
point, with some of the cases making their decisions based upon the
specific language of the amendment provisions.  The court rejected this
approach, commenting that "we find the court of appeals' reliance on a
liguistic analysis to distinguish covenant modification language
unsatisfactory."  It pointed to an anomalous result that such an approach
might require - if the declaration contained a provision prohibiting
assessments, the lot owners vote could have changed it to permit
assessments, while if the declaration was silent, no assessment provision
would be permitted.

Having found that the homeowners association did have the power to add
new provisions, the court then turned to the question of whether it had
the authority to adopt a new provision that authorized assessments and
liens.  It answered this question in very summary fashion, analyzing only
whether this specific assessment provision was reasonable.  It doesn't
actually say that amendments must meet some standard of
reasonableness or what that standard might be, but simply finds the
impact of the new provision in this case to be unobjectionable:

     "[I]t is undisputed that Respondent [the objecting homeowner]
     was on actual notice of [the amendment clause] when he
     purchased his lot in 1986.  In addition, we note that, at fifty
     dollars per year, the mandatory assessment imposed on
     Respondent is neither unreasonable nor burdensome.  To the
     contrary, the existence of a well-maintained park area
     immediately adjacent to Respondent's lot undoubtedly enhances
     Respondent's property value."

Comment 1: Although the editor does not quarrel with the court's
conclusion that the power to "modify" would include the power to add
new provisions to the Declaration, the editor thinks that there was
another "linguistic" argument that the court ignored.  This was the fact
that the Declaration stated that there was a power to "change or modify
*said restrictions.*"   (emphasis added) Arguably, at least, there is a
difference between covenants imposing building setbacks, architectural
rules, or other use restrictions and a provision authorizing the imposition
of a lien to support association activities.  Is such a provision a
"restriction?"  It is in Colorado.

Comment 2: Note that the court does acknowledge that there is still an
implied limit on the power to add new restrictions.  It analyzed here
whether the new provision operated unfairly to the homeowner.  Clearly
it did not.  In fact, the propriety of the assessment provision in this case is
difficult to dispute.  The developers should have drafted the assessment
power into the Declaration to begin with.

Comment 3: Thus there is still an open question as to what kinds of
amendments the Colorado court is prepared to allow.  Would it, for
instance, allow the creation of a new association with the power to pave a
road and impose significant assessments to pay for that road when there
never was any association with maintenance authority or responsibility in
the original assessment?    Another recent case Windemere Homeowner's
Assoc. v. McCue, 990 P.2d 769 (Mont. 1999) (the DD for 10/25/00),
does just that.  The editor, in the DD on the Court of Appeals case here
(the DD for 1/11/02), concurred with the result in the Court of Appeals in
this case because it rejected the possibility of a Windemere result.  If the
Colorado courts later find some other way to limit the potential reach of
the power to amend, the editor has no quarrel with its recognition that
when the declaration permits amendment, it permits new provisions
consistent with the probably overall intent of the development scheme as
well as revisions of existing provisions.

Readers are encouraged to respond to or criticize this posting.

Items reported on DIRT and in the ABA publications related to it  are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters.  The same is true of all commentary provided by contributors to the DIRT list.  Accuracy of data provided and opinions expressed  by the DIRT editor the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.


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