Countryside Decision Clarifies Declarant Obligations to Pay Assessments

In an unpublished opinion, the Colorado Court of Appeals recently made clear that Declarants (developers) generally need to pay full homeowners association dues on lots and units they own, from the time they are platted into the subdivision: Countryside Community Ass’n., Inc. v. Pulte Home Corporation, Inc., 12CA1568 appealed from El Paso County District Court No. 11CV3501, December 12, 2013.

The facts of the case are as follows: In April, 2004 developer-homebuilder-declarant Pulte Homes created a subdivision of 186 townhomes by filing the subdivision plat with the El Paso County Clerk & Recorder. Pulte created a homeowners association for the community, and appointed several of its own employees to the HOA Board of Directors. The Association paid for common HOA expenses such as irrigation, grounds maintenance, electricity, and snow removal. The Association also paid for maintenance and upkeep of buildings constructed on lots owned exclusively by Pulte. The townhomes were built and sold by Pulte from 2005 through 2011. In June, 2008, the period of “declarant control” ended when the homeowners took control of their HOA by electing a majority of the HOA Board members for the first time. After some period to time, and after escalation of multiple disputes between the HOA and Pulte (including separate claims of the HOA for construction defects) the Countryside HOA filed suit, seeking damages including past unpaid HOA assessments on lots and townhome units owned by Pulte. The unpaid assessments claimed by the HOA totaled more than $400,000.  The Association alleged a breach of contract claim against Pulte (breach of Declaration) for failure to pay Association dues on the lots & units it owned. It also alleged breach of fiduciary duty against the declarant-appointed HOA Board members for misappropriation of funds.

The Court of Appeals concluded (relying on language in the Countryside Declaration, the plat, and the Colorado Common Interest Ownership Act “CCIOA”) that Pulte’s obligation to pay HOA assessments on all lots and units that it owned accrued in April, 2004 when the plat was recorded. The Court rejected Pulte’s attempt to rely on certain language in the Declaration that purported to permit it to “annex” certain lots or sections of property into the Association at a time later than the plat recording. The Court of Appeals also confirmed that Pulte could be held responsible for its employees’ breaches of fiduciary duty, if proven, under a theory of respondeat superior.

The Court of Appeals did rely on specific language contained in the community’s Declaration, so the result would not necessarily be the same for all common interest homeowners associations seeking to recover unpaid, back assessments from a declarant-developer. However, the decision is a huge victory for HOAs; A common way that declarants have historically abused HOAs’ finances has been called out by the courts.