As the 2011 Colorado legislative session progresses into its final stage, we wanted to update you on the status of the bills we previously identified as having a potential impact on hotels, fractionals, and timeshares.
Conflicts of Interest - HB 1124 (Awaiting Governor's Signature)
We flagged HB 1124 as originally introduced because, if read conservatively, it would have inadvertantly gutted CRS 38-33.3-310.5 by limiting the concept of a "conflict of interest" to situations in which a director or his/her family received a direct financial benefit. At the same time, HB 1124 would have mandated the director's recusal with the result that the director could not vote irrespective of whether the material facts of the conflict were disclosed or the conflicting interest transaction was fair to the home owners association. Finally, HB 1124 would have inadvertantly eliminated the necessary procedural guidance provided by the existing law's cross-reference to CRS 7-128-501. In all, the bill as originally proposed was a trainwreck.
Thankfully, the sponsor, when informed of these problems, significantly amended HB 1124 so that it simply provides basic guidelines as to what constitutes an adequate conflict of interest policy under CRS 38-33.3-209.5(1)(b)(II):
- A means of determing when a conflict of interest exists.
- A set of procedures to follow when a conflict of interest does exist, including triggers for both mandatory disclosure of a conflict and recusal from related decisions.
- A requirement for periodic review of the HOA’s conflicts of interest policy.
That's the good news. The bad news is that Colorado legislators continue to tinker with Colorado's Common Interest Ownership Act without understanding the consequences of their proposals, and continue to bulk up §209.5 with frivolous and practically unnecessary provisions. After HB 1124 becomes law, don't be surprised when your HOA legal counsel offers to provide you, for a price, with a conflicts of interest policy that meets the new law's laughably generic requirements.
Mandatory Foreclosure Bill - HB 1139 (Stalled in Committee)
We flagged HB 1139, which directs lenders to foreclose on the collateral for a loan before reaching other assets of a debtor, because it had the potential for putting an inadvertant chill on lending in Colorado. Taking the conservative approach, the Colorado House of Representatives has not voted HB 1139 out of committee. Weighing the bill's potential downside as hotel development begins its inevitable comeback against its very limited upside for those developers already struggling with personal guarantees, we think discretion may have been the best approach.
Residential Nonprofit Corporations - HB 1110 (Signed by Governor)
The original HB 1110 simply confused us, as we had no idea of what may be encompassed in the term “Residential Nonprofit Corporations” (RNCs). Fortunately, the sponsor amended HB 1110 to instruct us what RNCs aren't - and the exclusion provisions include HOAs (whether formed "before, on or after" the enactment of the Colorado Common Interest Ownership Act). We are hopeful that this exclusion will be sufficient enough to protect Colorado HOAs from being harassed with this law.