Colorado law requires all board meetings to be open to the members of the association, unless the board goes into an executive session. Colorado law (C.R.S. 38-33.3-308(4)) allows the executive board or any committee thereof, to go into executive or closed session and can prohibit owner attendance for the following limited matters:
- Matters pertaining to employees of the association or the managing agent’s contract or involving the employment, promotion, discipline, or dismissal of an officer, agent, or employee of the association.
- Consultation with legal counsel concerning disputes that are the subject of pending or imminent court proceedings or matters that are privileged or confidential between attorney and client.
- Investigative proceedings concerning possible or actual criminal misconduct.
- Matters subject to specific constitutional, statutory, or judicially imposed requirements protecting particular proceedings or matters from public disclosure.
- Any matter the disclosure of which would constitute an unwarranted invasion of individual privacy.
- Review of or discussion relating to any written or oral communication from legal counsel.
Prior to the time the members of the executive board or any committee thereof convene in executive session, the chair of the body shall announce the general matter of discussion as enumerated in the statute.
The executive board can allow attendance of such other persons as requested by the board (such as their attorney, committee members, employee(s), homeowner(s), etc.).
The right of a member to speak prior to any action being taken by the board of directors only applies to meetings of the board that are open to the members.
No rule or regulation of the board or any committee thereof shall be adopted during an executive session. A rule or regulation may be validly adopted only during a regular or special meeting or after the body goes back into regular session following an executive session.
The minutes of all meetings at which an executive session was held shall indicate that an executive session was held, and the general subject matter of the executive session.
Usually the minutes of an executive session do not state the details of what was discussed during that executive session. A Colorado law, HB12-1237 (effective January 1, 2013), as codified in C.R.S. 38-33.3-317(3)(e) allows associations to withhold executive session records from inspection by owners.
For additional information, please see section 38-33.3-308(3) of CCIOA.
Investment of Reserve Funds
To promote responsible governance, associations shall adopt policies, procedures, and rules and regulations concerning the investment of reserve funds. A board has an obligation to invest and manage reserve funds in a prudent and responsible fiduciary manner.
To promote responsible governance, associations shall adopt policies, procedures, and rules and regulations concerning certain matters, such as a reserve study. Under the Colorado Common Interest Ownership Act (CCIOA), an association is not required to undertake a reserve study; however, it must have a policy in place to address:
- When the association has a reserve study prepared for the portions of the community maintained, repaired, replaced, and improved by the association; whether there is a funding plan for any work recommended by the reserve study and, if so, the projected sources of funding for the work; and whether the reserve study is based on a physical analysis and financial analysis. An internally conducted reserve study shall be sufficient.
A reserve study is a planning tool designed to assist the association to anticipate, and prepare for the property's major repair and replacement projects and expenditures. Some examples can include: roof replacement of the buildings, replacement of building siding, resurfacing of the roadways, or the replacement of the building elevator. It is a budgetary planning tool that consists of two parts, the physical analysis and the financial analysis, and it identifies the current status of the reserve fund and a funding plan to offset the anticipated future major common area expenditures. The study can determine the remaining useful life of the physical components of the association that are required to be maintained, as well as the time frame and expenses associated with the repairs and replacement of those components. The study can be completed by a hired professional, or it can be done internally.
For additional information, please see section 38-33.3-209.5 of CCIOA.
Look first to your association bylaws, as they usually include a provision to remove board members, as well as the procedure for removal and under what circumstances. Commonly, there is a requirement that a certain number or percentage of owners must sign a petition requesting a special meeting to remove a board member or members. The association must then schedule and notice that special meeting to allow the owners a vote to remove those board members. Typically, this is done at a special owner meeting instead of an annual owner meeting due to the timing of the removal and meeting notice provisions.
The Colorado Revised Nonprofit Corporation Act does allow members of a nonprofit corporation to remove board members at an owner meeting noticed specifically for that purpose, or by a judicial proceeding below:
Colorado Revised Nonprofit Corporation Act Section 7-128-108, C.R.S.
Removal of Directors
(1) Directors elected by voting members or directors may be removed as follows:
(a) The voting members may remove one or more directors elected by them with or without cause unless the bylaws provide that directors may be removed only for cause.
(b) If a director is elected by a voting group, only that voting group may participate in the vote to remove that director.
(c) Subject to section 7-127-208 (3), C.R.S., a director may be removed only if the number of votes cast to remove the director would be sufficient to elect the director at a meeting to elect directors.
(d) A director elected by voting members may be removed by the voting members only at a meeting called for the purpose of removing that director, and the meeting notice shall state that the purpose, or one of the purposes, of the meeting is removal of the director.
(e) An entire board of directors may be removed under paragraphs (a) to (d) of this subsection (1).
(f) A director elected by the board of directors may be removed with or without cause by the vote of a majority of the directors then in office or such greater number as is set forth in the bylaws; except that a director elected by the board of directors to fill the vacancy of a director elected by the voting members may be removed without cause by the voting members, but not the board of directors.
(2) Unless otherwise provided in the bylaws:
(a) An appointed director may be removed without cause by the person appointing the director;
(b) The person removing the director shall do so by giving written notice of the removal to the director and to the nonprofit corporation; and
(c) A removal is effective when the notice is received by both the director to be removed and the nonprofit corporation unless the notice specifies a future effective date.
(3) A designated director may be removed by an amendment to the bylaws deleting or changing the designation.
Colorado Revised Nonprofit Corporation Act Section 7-128-109, C.R.S.
Removal of directors by judicial proceeding
- A director may be removed by the district court of the county in this state where a nonprofit corporation's principal office is located or, if the nonprofit corporation has no principal office in this state, by the district court of the county in which its registered office is located, or, if the nonprofit corporation has no registered office, by the district court for the city and county of Denver, in a proceeding commenced either by the nonprofit corporation or by voting members holding at least ten percent of the votes entitled to be cast in the election of such director's successor, if the court finds that the director engaged in fraudulent or dishonest conduct or gross abuse of authority or discretion with respect to the nonprofit corporation, or a final judgment has been entered finding that the director has violated a duty set forth in part 4 of this article, and that removal is in the best interests of the nonprofit corporation.
- The court that removes a director may bar the director from reelection for a period prescribed by the court.
- If voting members commence a proceeding under subsection (1) of this section, they shall make the nonprofit corporation a party defendant.
For additional information, please see the Colorado Revised Nonprofit Corporation Act.
At an appropriate time determined by the board, but before the board votes on an issue under discussion, unit owners or their designated representatives shall be permitted to speak regarding that issue. The board may place reasonable time restrictions on persons speaking during the meeting. If more than one person desires to address an issue and there are opposing views, the board shall provide for a reasonable number of persons to speak on each side of the issue.
Frequently however, problems and disputes arise at meetings between board members and the membership. Having meeting procedures in place can assist with running an effective meeting, such as parliamentary procedure.
Parliamentary procedure (Robert's Rules of Order) is specifically designed to help debates and discussions go smoothly, especially when you have a large number of people or contentious issues. It helps to ensure that everyone in such a meeting gets a fair and equal opportunity to participate and speak, utilizing formal motion procedures.
Many times an association may only have to consider adopting these rules on a temporary basis when that particular need arises and when they would be useful for effectively running the meeting.
For instance, these rules can:
- Require that everyone who wishes to speak must sign up to do so. Provide that if a vote is to be held on an issue, speakers must sign up on either the “in favor” or “against” list.
- Have speakers present their position in the order that they sign up, and then alternating between “in favor” or “against” points of view.
- Can allow people who wish to speak a second time to be called on after everyone has had an opportunity to speak once.
- Allow for a timekeeper, or parliamentarian, who can be in charge of time limits for speakers and to make sure that speakers stay on the issue at hand.
- Limit the length of time that an individual is allowed to speak on an issue, for instance 3 minutes.
- Require formal motions and seconding of motions, as well as properly amending motions.
At the heart of parliamentary procedure is the rule of the majority with respect for the minority. The objective is to allow deliberation upon questions of interest to the association and to arrive at the sense or the will of the membership upon these questions. Everyone should have an opportunity to speak at owner’s meetings at the appropriate time and in a well-mannered way.
- Meetings of the unit owners of the association are to be held at least one (1) time per year. These meetings are usually held for election purposes, budget approval, amendments to governing documents, and other important matters of interest to the association and its members.
- Notice of the owners’ meeting must be given not less than ten (10) days, and no more than fifty (50) days in advance of any such meeting. The secretary of the association or another officer specified in the bylaws shall cause the notice to be hand delivered or sent prepaid by US mail to the mailing address of each unit owner or the owner’s designated address.
- The notice shall also be physically posted in a conspicuous place for the owners, which is both practical and feasible, and is in addition to any electronic posting or electronic mail notices that may be sent out. The notice shall state the time and place of the meeting and the items on the agenda, including the general nature of any proposed amendment to the declaration or bylaws, any budget changes, and any proposal to remove a member or officer of the executive board.
- All regular and special meetings of the association's executive board, or any related committees, are open to attendance by all members of the association or their designated representatives. Agendas for meetings of the executive board are to be made reasonably available for examination by all members of the association.
- Notice requirements for board meetings are usually described in the association's bylaws. CCIOA is silent on the notice requirements for executive board meetings.
- Special meetings of the unit owners can be called by the president, a majority of the executive board, or by unit owners having twenty percent (20%), or any lower percentage as stated in the association’s bylaws, of the votes in the association. Proper notice of the special meeting must be given to the unit owners.
For additional information, please see section 38-33.3-308 of CCIOA.
- The effort made by an ordinarily prudent or reasonable party to avoid harm to another party or himself. Failure to make this effort is considered negligence.
- Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party. Due diligence is essentially a way of preventing unnecessary harm to either party involved in a transaction.
- For example, due diligence would be the necessary research and analysis of a Board undertaken in preparation for a business decision.
BLACK’S LAW DICTIONARY
- Used as an authority for legal research states that Due Diligence is: “Such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.”
- In many instances, there has been more liability placed upon Board members, which in turn means that Board members need to be more responsible, and need to seek out more information in their decision-making process.
BOARD FIDUCIARY DUTIES
- Board members also must maintain certain fiduciary responsibilities, which include:
The Duty of Care
- A legal obligation imposed on an individual requiring that they exercise a reasonable standard of care while performing any acts that could foreseeably harm others.
The Duty of Loyalty
- A term used in corporate law to describe a fiduciary's loyalty to a corporation in this case, the Board Members' loyalty to the Association and its Owners.
The Duty of Confidentiality
- The restriction on the accessibility and dissemination of information by the Board Members in the scope of their duties.
Oftentimes an association board must handle very complex or time-consuming matters where they may be tasked with issues that require specialized knowledge, expertise and experience. At other times in the board decision-making process, it may be valuable to the board and community to understand the history and reasoning behind past board practices and decisions.
An advisory board or advisory board member(s) may be able to assist with providing that information, experience and knowledge to the present board of directors. Advisors could be utilized to handle a specialized project and act as a supporting role to the board. Some specialized areas of expertise and backgrounds could be in the areas of business, accounting, legal, insurance, management, construction and real estate. Past board presidents could be very helpful in explaining and filling in the history of the community.
Not only can advisory members fill any gaps that may be missing on the present board with regard to specialized knowledge or expertise, but they could also be considered potential future board members, learning the board process and gaining experience for the benefit of the community.
If you consider these types of advisors, it is important to have written policies in place in the association’s governing documents. Consider this type of advisor’s purpose, membership, appointment, termination, orientation, attendance, duration, authority, restrictions, guidelines, conflict of interest issues, and ethical concerns. Discuss this advisor concept with legal counsel to make sure that it is workable with the association’s declarations and bylaws.
In order for a homeowners association to operate effectively, its members (owners of property within the association) must pay assessments and other properly assessed charges of the association. Each unit owner is liable for assessments made against such owner's unit during the period of ownership of such unit. No unit owner may be exempt from liability for payment of the assessments by waiver of the use or enjoyment of any of the common elements or by abandonment of the unit against which the assessments are made.
For additional information, please see section 38-33.3-315 of CCIOA.
Section 38-33.3-302 of the Colorado Common Interest Ownership Act (“CCIOA”) provides homeowner associations with the authority to impose and receive any payments, fees, or charges for the use, rental, or operation of the common elements of the association. This section also authorizes the association to impose charges for late payment of assessments, recover reasonable attorney fees and other legal costs for collection of assessments and other actions to enforce the power of the association, regardless of whether or not suit was initiated, and, after notice and an opportunity to be heard, levy reasonable fines for violations of the declaration, bylaws, and rules and regulations of the association.
Section 38-33.3-316 of CCIOA states that an association (if such association is incorporated or organized as a limited liability company) has a statutory lien on a unit for any assessment levied against that unit or fines imposed against its unit owner.
Section 38-33.3-123 of CCIOA states that in any civil action to enforce or defend the provisions of CCIOA or of the declaration, bylaws, articles, or rules and regulations, the court shall award reasonable attorney fees, costs, and costs of collection to the prevailing party
To promote responsible governance, associations must adopt policies, procedures, and rules & regulations concerning the enforcement of covenants and rules, including notice and hearing procedures and the schedule of fines.
For additional information, please see section 38-33.3-123; 38-33.3-209.5; 38-33.3-302 & 38-33.3-316 of CCIOA.
While there are generally only three types of formal meetings (meetings of the unit owners; Board meetings, and; special meetings), another form of conference commonly found in HOAs are working sessions. Although not specifically defined in CCIOA, work or study sessions of Executive Boards are not prohibited by it. However, they still must be in accordance with the community’s governing documents and policies. Since they are not considered meetings, due to the lack of actions or votes on community issues, unless otherwise stated in the governing documents, unit owners do not have a right to notice of the session or a right to participate and minutes are not required to be taken.
Section 38-33.3-317 of the Colorado Common Interest Ownership Act requires that certain records of the association must be maintained for the purposes of document retention and production to owners. Of the records listed in this section, several have specific time periods attached.
- Financial statements as described in section 7-136-106, C.R.S., for the past three years and tax returns of the association for the past seven years, to the extent available;
- Current written contracts to which the association is a party and contracts for work performed for the association within the immediately preceding two years;
- Ballots, proxies, and other records related to voting by unit owners for one year after the election, action, or vote to which they relate;
- All written communications within the past three years to all unit owners generally as unit owners.
For additional information, please see section 38-33.3-317 of CCIOA.
Section 38-33.303(1)(b) of the Colorado Common Interest Ownership Act addresses the requirement regarding the dissemination of information to all Board members. It provides in relative part:
“Notwithstanding any provision of the declaration or bylaws to the contrary, all members of the executive board shall have available to them all information related to the responsibilities and operation of the association obtained by any other member of the executive board. This information shall include, but is not necessarily limited to, reports of detailed monthly expenditures, contracts to which the association is a party, and copies of communications, reports and opinions to and from any member of the executive board or managing agent, attorney, or accountant employed or engaged by the executives board to whom the executive board delegates responsibilities under this article.” [emphasis added]
For additional information, please see section 38-33.3-303(1)(b) of CCIOA.