Evergreen Highlands Ass'n v. West

Supreme Court of Colorado, En Banc
73 P.3d 1 (2003)

ELI5:

Rule of Law:

A covenant's modification clause allowing a percentage of owners to 'change or modify' restrictions is broad enough to permit the addition of a new covenant imposing mandatory assessments. Furthermore, a homeowners association has an implied power to levy assessments for maintaining common areas if the community's declarations create a common interest community, even without an express assessment provision.

Facts:

In 1972, the Evergreen Highlands Subdivision was created with a 22.3-acre common park area and protective covenants.
The original covenants did not require lot owners to be members of the homeowners association (Association) or pay dues, relying instead on voluntary assessments.
Article 13 of the original covenants stated that owners of seventy-five percent of the lots could 'change or modify any one or more' of the restrictions.
In 1986, Robert A. West purchased a lot in the subdivision, which bordered the park area; he subsequently used the park's facilities.
In 1995, at least seventy-five percent of the lot owners voted to amend the covenants, adding a new article requiring all lot owners to be members of the Association and pay an annual assessment of fifty dollars.
The 1995 amendment also granted the Association the power to impose liens on the property of owners who failed to pay their assessments.
West, who was not among the homeowners who approved the amendment, refused to pay the mandatory assessment.

Procedural Posture:

Robert A. West filed suit in the district court against the Evergreen Highlands Association, seeking to invalidate the 1995 covenant amendment.
The Association counterclaimed, seeking a declaratory judgment that it had an implied power to collect assessments and damages for West's failure to pay.
The district court ruled in favor of the Association, holding that the amendment was valid and binding.
West, as appellant, appealed to the Colorado Court of Appeals.
The Court of Appeals reversed, holding that the modification clause did not permit the addition of a wholly new covenant.
The Association, as Petitioner, was granted a writ of certiorari by the Supreme Court of Colorado.

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Issue:

Does a covenant's modification clause, which allows a majority of lot owners to 'change or modify' existing restrictions, permit the addition of a new covenant that imposes mandatory homeowners association membership and assessments?

Opinions:

Majority - Justice Rice

Yes, the modification clause permits the addition of a new covenant. A clause allowing lot owners to 'change or modify' covenants is sufficiently broad to encompass the addition of a new, related covenant requiring mandatory assessments for the maintenance of common areas. The court rejected a restrictive interpretation that would limit such clauses to altering only pre-existing covenants, finding the term 'change' logically includes additions. The court sided with the 'Zito' line of cases, which permits such amendments, especially when the new burden, like the fifty-dollar annual fee here, is reasonable and foreseeable given the existence of common areas. Furthermore, the court held that even without the amendment, the Association had an implied power to levy assessments because the original declarations (plat, articles of incorporation, deed) created a 'common interest community by implication' by establishing an association to manage common property without providing an express funding mechanism.

Concurring - Justice Coats

Yes, the modification clause permitted the adoption of the 1995 amendment, which is an express and binding covenant on all lot owners. However, the court should not have addressed the second, hypothetical issue of whether the Association possessed an 'implied power' to collect assessments. Because the court found the express amendment valid, resolving the implied power question was unnecessary dictum. Announcing a new rule on 'common interest communities by implication' without it being essential to the case's outcome was inappropriate and risks creating legal confusion.

Analysis:

This decision aligns Colorado law with a more expansive, modern view of covenant modification, empowering homeowners associations to adapt to changing financial needs. It prioritizes the functional necessities of maintaining a common interest community over a rigid, textualist interpretation that could render an association unable to fund its obligations. By also recognizing an 'implied power' to assess dues based on the Restatement (Third) of Property, the court provides a powerful backstop for thousands of older HOAs formed with poorly drafted documents, significantly strengthening their financial stability and ability to manage common property.

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