Reserve Studies - The Complete Guide is 436 pages explaining the concepts and process for making a reserve study. For more information and to order, click here.

 

 

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State of Colorado

The state of Colorado has not adopted statutes requiring performance of reserve studies, but has statutes requiring the adoption of a policy regarding reserves, and to identify how it proposes to pay for repairs and replacements.  Without stating so specifically, this effectively is a requirement for preparation of reserve studies.

Title 38 Section 33-106 does specify the requirements that the bylaws of the association must specify whether or not any maintenance, repair, replacement or improvement of the common elements and payments needs prior approval of the association or corporation, when a large expense is involved or one that exceeds a specific amount.  The bylaws must also specify the method used to estimate the assessments.

Common industry practice is that homeowners associations should perform periodic reserve studies as a prudent business practice.  Directors of associations are generally held to a “prudent businessman” rule in determining whether or not they have met the fiduciary duty of their position for the association.  A prudent businessman would establish a capital replacement budget (reserve study) to make sure he is generating enough revenues (reserve assessments) to provide for major repairs and replacements.

There is little discussion about whether an association should perform a reserve study.  The only significant areas of discussion revolve around how frequently a reserve study should be performed, and if there should be any minimum funding requirements.  Most states that have reserve study statutes require physical site inspections on 3 or 5 year cycles.  We believe that 5 years is too long.  3 years may be too long if significant reserve expenditures are being made during the subject time period.  However, the association should perform an update without site inspection every year as part of the annual budget process.

 

HOUSE BILL 09-1359

Session Laws of Colorado 2009
First Regular Session, 67th General Assembly

CHAPTER 257

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PROPERTY

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HOUSE BILL 09-1359

DIGEST - H.B. 09-1359 Common interest communities - governance - executive board - communications - finances - reserve studies. Requires all members of the executive board of a common interest community's unit owners' association (HOA) to have available to them all relevant information related to the HOA's operation. Establishes the same standards for election or appointment as a chair of an HOA committee to which authority may be delegated as apply to the election or appointment of members on the executive board.

Requires an HOA to adopt a policy concerning when and how reserve studies shall be done and to identify how it proposes to pay for scheduled repair or replacement of portions of the community that the HOA controls.

APPROVED by Governor May 15, 2009
EFFECTIVE August 5, 2009

 BY REPRESENTATIVE(S) Kerr A., Peniston, Waller; also SENATOR(S) Boyd.

AN ACT

Concerning the governance of common interest communities under the "Colorado Common Interest Ownership Act".

Be it enacted by the General Assembly of the State of Colorado:

SECTION 1.  38-33.3-209.5 (1) (b), Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW SUBPARAGRAPH to read:

38-33.3-209.5.  Responsible governance policies - due process for imposition of fines. (1)  To promote responsible governance, associations shall:

  (b)  Adopt policies, procedures, and rules and regulations concerning:

  (IX)  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. For the purposes of this subparagraph (IX), an internally conducted reserve study shall be sufficient.

SECTION 2.  38-33.3-303 (1) and (3), Colorado Revised Statutes, are amended to read:

38-33.3-303.  Executive board members and officers - powers and duties - reserve funds - reserve study - audit. (1) (a)  Except as provided in the declaration, the bylaws, or subsection (3) of this section or any other provisions of this article, the executive board may act in all instances on behalf of the association.

  (b)  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 any managing agent, attorney, or accountant employed or engaged by the executive board to whom the executive board delegates responsibilities under this article.

   (3) (a)  The executive board may not act on behalf of the association to amend the declaration, to terminate the common interest community, or to elect members of the executive board or determine the qualifications, powers and duties, or terms of office of executive board members, but the executive board may fill vacancies in its membership for the unexpired portion of any term.

  (b)  Committees of the association shall be appointed pursuant to the governing documents of the association or, if the governing documents contain no applicable provisions, pursuant to section 7-128-206, C.R.S. The person appointed after August 15, 2009, to preside over any such committee shall meet the same qualifications as are required by the governing documents of the association for election or appointment to the executive board of the association.

  SECTION 3.  38-33.3-117 (1), Colorado Revised Statutes, is amended BY THE ADDITION OF A NEW PARAGRAPH to read:

  38-33.3-117.  Applicability to preexisting common interest communities. (1)  Except as provided in section 38-33.3-119, the following sections shall apply to all common interest communities created within this state before July 1, 1992, with respect to events and circumstances occurring on or after July 1, 1992:

  (i.7)  38-33.3-303 (1) (b) and (3) (b);

  SECTION 4.  38-33.3-117 (1.5) (h), Colorado Revised Statutes, is amended, and the said 38-33.3-117 is further amended BY THE ADDITION OF A NEW SUBSECTION, to read:

  38-33.3-117.  Applicability to preexisting common interest communities. (1.5)  Except as provided in section 38-33.3-119, the following sections shall apply to all common interest communities created within this state before July 1, 1992, with respect to events and circumstances occurring on or after January 1, 2006:

  (h)  38-33.3-303 (4) (b) 38-33.3-303 (1) (b), (3) (b), and (4) (b);

  (1.7)  Except as provided in section 38-33.3-119, section 38-33.3-209.5 (1) (b) (IX) shall apply to all common interest communities created within this state before July 1, 1992, with respect to events and circumstances occurring on or after July 1, 2010.

  SECTION 5.  Act subject to petition - effective date - applicability. (1)  This act shall take effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly that is allowed for submitting a referendum petition pursuant to article V, section 1 (3) of the state constitution, (August 5, 2009, if adjournment sine die is on May 6, 2009); except that, if a referendum petition is filed against this act or an item, section, or part of this act within such period, then the act, item, section, or part, if approved by the people, shall take effect on the date of the official declaration of the vote thereon by proclamation of the governor.

  (2)  The provisions of this act shall apply to acts occurring on or after the applicable effective date of this act.

Approved: May 15, 2009

TITLE 38. PROPERTY - REAL AND PERSONAL  
REAL PROPERTY  
ARTICLE 33.3. COLORADO COMMON INTEREST OWNERSHIP ACT  
PART 2. CREATION, ALTERATION, AND TERMINATION OF COMMON INTEREST COMMUNITIES


C.R.S. 38-33.3-209.5 (2011)


38-33.3-209.5. Responsible governance policies - due process for imposition of fines


(1) To promote responsible governance, associations shall:

(a) Maintain accurate and complete accounting records; and

(b) Adopt policies, procedures, and rules and regulations concerning:

(I) Collection of unpaid assessments;

(II) Handling of conflicts of interest involving board members, which policies, procedures, and rules and regulations must include, at a minimum, the criteria described in subsection (4) of this section;

(III) Conduct of meetings, which may refer to applicable provisions of the nonprofit code or other recognized rules and principles;

(IV) Enforcement of covenants and rules, including notice and hearing procedures and the schedule of fines;

(V) Inspection and copying of association records by unit owners;

(VI) Investment of reserve funds;

(VII) Procedures for the adoption and amendment of policies, procedures, and rules;

(VIII) Procedures for addressing disputes arising between the association and unit owners; and

(IX) 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. For the purposes of this subparagraph (IX), an internally conducted reserve study shall be sufficient.

(2) Notwithstanding any provision of the declaration, bylaws, articles, or rules and regulations to the contrary, the association may not fine any unit owner for an alleged violation unless:

(a) The association has adopted, and follows, a written policy governing the imposition of fines; and

(b) (I) The policy includes a fair and impartial fact finding process concerning whether the alleged violation actually occurred and whether the unit owner is the one who should be held responsible for the violation. This process may be informal but shall, at a minimum, guarantee the unit owner notice and an opportunity to be heard before an impartial decision maker.

(II) As used in this paragraph (b), "impartial decision maker" means a person or group of persons who have the authority to make a decision regarding the enforcement of the association's covenants, conditions, and restrictions, including its architectural requirements, and the other rules and regulations of the association and do not have any direct personal or financial interest in the outcome. A decision maker shall not be deemed to have a direct personal or financial interest in the outcome if the decision maker will not, as a result of the outcome, receive any greater benefit or detriment than will the general membership of the association.

(3) If, as a result of the fact finding process described in subsection (2) of this section, it is determined that the unit owner should not be held responsible for the alleged violation, the association shall not allocate to the unit owner's account with the association any of the association's costs or attorney fees incurred in asserting or hearing the claim. Notwithstanding any provision in the declaration, bylaws, or rules and regulations of the association to the contrary, a unit owner shall not be deemed to have consented to pay such costs or fees.

(4) (a) The policies, procedures, and rules and regulations adopted by an association under subparagraph (II) of paragraph (b) of subsection (1) of this section must, at a minimum:

(I) Define or describe the circumstances under which a conflict of interest exists;

(II) Set forth procedures to follow when a conflict of interest exists, including how, and to whom, the conflict of interest must be disclosed and whether a board member must recuse himself or herself from discussing or voting on the issue; and

(III) Provide for the periodic review of the association's conflict of interest policies, procedures, and rules and regulations.

(b) The policies, procedures, or rules and regulations adopted under this subsection (4) must be in accordance with section 38-33.3-310.5.

HISTORY: Source:. L. 2005: Entire section added, p. 1377, § 7, effective January 1, 2006.L. 2006: (1)(a), (1)(b)(VI), and (1)(b)(VII) amended and (1)(b)(VIII) added, p. 1219, § 7, effective May 26.L. 2008: (2) and (3) added, p. 556, § 2, effective July 1.L. 2009: (1)(b)(IX) added, (HB 09-1359), ch. 257, p. 1164, § 1, effective August 5.L. 2011: (1)(b)(II) amended and (4) added, (HB 11-1124), ch. 105, p. 328, § 2, effective April 13.

 

Additional State Reserve Study Laws