Ryan Ranch Community Ass'n, Inc. v. Kelley

1 Opinions of the Colorado Supreme Court are available to the
2 public and can be accessed through the Judicial Branch’s homepage at
3 http://www.courts.state.co.us. Opinions are also posted on the
4 Colorado Bar Association’s homepage at http://www.cobar.org.
5
6 ADVANCE SHEET HEADNOTE
7 September 26, 2016
8
9 2016 CO 650
1 No. 14SC431, Ryan Ranch Cmty. Ass’n, Inc. v. Kelley—Colorado Common Interest
2 Ownership Act—Creation, Alteration, and Termination of Common Interest
3 Communities.
4
5 The supreme court considers whether a developer annexed several lots into a
6 common interest community such that the lot owners would owe assessments to the
7 community’s homeowners association. The court concludes that the lots were not
8 annexed because the purported annexation failed to comply with the Colorado
9 Common Interest Ownership Act (“CCIOA”), §§ 38-33.3-101 to -402, C.R.S. (2016). The
0 lot owners therefore are not liable for the association’s assessments.
1
1 The Supreme Court of the State of Colorado
2 2 East 14th Avenue • Denver, Colorado 80203
3 2016 CO 654 Supreme Court Case No. 14SC431
5 Certiorari to the Colorado Court of Appeals
6 Court of Appeals Case Nos. 12CA2312 & 12CA2316
7 Petitioner:
8 Ryan Ranch Community Association, Inc.,
9 v.
0 Respondents:
1 John E. Kelley, Kelly D. Kelley, Rick Zimmerman, and Lora Zimmerman.
2 Judgment Affirmed
3 en banc
4 September 26, 2016
5 Attorneys for Petitioner:
6 The Witt Law Firm
7 Jesse Howard Witt
8 Boulder, Colorado
9
0 Austin, Peirce & Smith, P.C.
1 Daniel J. Sullivan
2 Aspen, Colorado
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4 Attorneys for Respondents John E. Kelley and Kelly D. Kelley:
5 Gordon & Rees LLP
6 John R. Mann
7 Denver, Colorado
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9 James G. Gaspich P.L.L.C.
0 James G. Gaspich
1 Englewood, Colorado
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3 Attorneys for Respondents Rick Zimmerman and Lora Zimmerman:
4 Frie, Arndt & Danborn P.C.
5 Paul R. Danborn
6 Arvada, Colorado
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1 Attorneys for Amicus Curiae The Community Associations Institute:
2 Orten Cavanagh & Holmes, LLC
3 Aaron Goodlock
4 Denver, Colorado
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0 JUSTICE HOOD delivered the Opinion of the Court.
1 JUSTICE COATS joins in the majority and specially concurs, and JUSTICE EID and
2 JUSTICE MÁRQUEZ join in the majority and the special concurrence.
3 JUSTICE BOATRIGHT does not participate.
2
¶1 In this case, we must decide whether a developer inadvertently, but inescapably,
annexed several individual lots into a statutory common interest community, such that
the owners of those lots must pay assessments levied by the community’s homeowners
association. Ultimately, the answer to this question depends on how the Colorado
Common Interest Ownership Act (“CCIOA” or “the Act”), §§ 38-33.3-101 to -402, C.R.S.
(2016), applies to the real estate development practice of annexation.
¶2 Ryan Ranch is a residential common interest community located in Jefferson
County, Colorado. In 2011, the homeowners association for Ryan Ranch filed a
complaint against the owners of several lots abutting Ryan Ranch, seeking more than
$75,000 in past-due assessments, penalties, and fees for maintenance services provided
by the association. The owners are liable if their lots were validly annexed to Ryan
Ranch under CCIOA and the community’s governing instruments.
¶3 In a split decision, the court of appeals determined that the lots were not validly
annexed because the purported annexation failed to comply with CCIOA. We agree
and therefore affirm the judgment of the court of appeals.
I. Facts and Procedural History
¶4 Before 2000, the land that now constitutes Ryan Ranch was owned by the Estate
of Robert L. Ryan (“the Estate”) and John Kelley. In 2001, plans to develop the land
commenced, and an Official Development Plan (“ODP”) was recorded with the
Jefferson County Clerk and Recorder. The ODP listed Kelley and the Estate as owners
3
and Ryan Ranch, LLC—an entity owned by Charles Ochsner1—as the developer. The
ODP was signed by Ochsner and Kelley and contemplated that a homeowners
association would be formed to maintain the development’s common areas and
facilities. Ochsner later purchased from Kelley and the Estate all of the land that would
become Ryan Ranch.
¶5 In early 2003, Ochsner verbally agreed to sell John and Kelly Kelley (“the
Kelleys”)2 nine lots out of the Ryan Ranch land at a later date, after the development
was platted. Seven of these lots (“the Kelley Lots”) are the subject of this case. In the
summer of 2003, the Kelleys learned that Ochsner planned to sell most of the Ryan
Ranch land to The Ryland Group, Inc. (“Ryland”). Ochsner and Ryland assured the
Kelleys that the Kelley Lots would be excluded from the land sold to Ryland and from
the homeowners association Ryland intended to form.
¶6 In September 2003, Ochsner and Ryland signed a contract providing for the sale
of the Ryan Ranch land to occur in two phases. This agreement specifically excluded
the Kelley Lots. The land to be conveyed in each of the two phases would later be
platted as Ryan Ranch Filing 1 (“the Filing 1 Plat”) and Ryan Ranch Filing 2 (“the Filing
2 Plat”), respectively.
1 We refer to Charles Ochsner; Ryan Ranch, LLC; and Ochsner Properties—another
entity controlled by Charles Ochsner—collectively as “Ochsner.”
2Although this and several subsequent interactions involved only John Kelley, from
here on out we refer to John alone, and to John and Kelly together, as “the Kelleys.” We
do this for simplicity and because it does not affect the outcome of this case.
4
¶7 In October 2003, Ochsner and the Kelleys again agreed, this time in a signed
writing, that the Kelleys would buy the Kelley Lots from Ochsner. Still, the lots would
not be conveyed until the Filing 2 Plat was recorded. The sale was scheduled to close
on October 15, 2004, which also was the closing deadline for phase two of the Ochsner–
Ryland sale, a condition precedent of which was Ochsner’s recording of the Filing 2
Plat. In mid-October 2003, the Kelleys and Ryland signed their own agreement
providing that the Kelley Lots would not be subject to the maintenance duties of the
Association and obligating Ryland to record exclusionary covenants to that effect.
However, Ryland never recorded any such covenants.
¶8 Phase one of the Ochsner–Ryland sale culminated on October 29, 2003, when the
deed conveying the property in the Filing 1 Plat—fifty-four platted lots and associated
common areas—was recorded. The Filing 1 Plat was recorded on November 13, 2003.
¶9 But phase two of the sale faltered when Ochsner failed to obtain approval of the
Filing 2 Plat by the October 15, 2004, closing deadline. As a result, the Ochsner–Kelleys
sale did not close either. The closing dates for both of these transactions were then
extended to June 2005.
¶10 Meanwhile, also in October 2004, Ryland incorporated Ryan Ranch Community
Association, Inc. (“the Association”) as the homeowners association for Ryan Ranch. In
March 2005, Ryland recorded the Declaration of Covenants, Conditions and Restrictions
of Ryan Ranch Community Association (“CCR”). Ryland is the “Declarant” of the CCR.
The CCR encumbered “the real property described on the attached Exhibit A” with
various “covenants, conditions, restrictions, [and] obligations,” including a duty to pay
5
assessments levied by the Association. The CCR defined the “Community” as “real
property described in Exhibit A . . . or which becomes subject to this [CCR].” Exhibit A
listed the land included in the community as Tracts A, B, C, E, F, and G of the Filing 1
Plat—none of which contained the Kelley Lots—and stated that additional property
would be annexed into the community pursuant to article XII, section 5 of the CCR.
¶11 Article XII, section 5 detailed the process by which property described in Exhibit
D of the CCR could be annexed into Ryan Ranch.3 Specifically, Ryland had to (1) record
a plat or map of the property to be annexed, unless one had been recorded already, and
(2) record either a deed conveying that property to a third party or an “Annexation of
Additional Land” form. Among the annexable property listed on Exhibit D was a metes
and bounds description of a further subdivision of Tract H of the Filing 1 Plat, which
would be divided into lots by, and become the land in, the Filing 2 Plat. The Kelley Lots
were included in this description.
¶12 As June 2005 approached, Ochsner still had not recorded the Filing 2 Plat. The
Kelleys agreed to postpone their June 10 closing date. On June 15, 2005, Ryland agreed
to waive its right to condition closing phase two of the Ochsner–Ryland sale on final
approval of the Filing 2 Plat and recorded a written instrument stating its intent to
purchase all of the land to be included in the Filing 2 Plat except for the Kelley Lots.
However, Ochsner and Ryland then changed their agreement such that Ryland would
purchase the Kelley Lots as well. The plan was for Ryland to record the Filing 2 Plat
3Article XII, section 5 also provided, without reference to Exhibit D, that additional
property could be annexed to Ryan Ranch with the consent of two-thirds of the
Association’s members. Annexation by consent is not at issue in this case.
6
and then reconvey the Kelley Lots back to Ochsner, who would sell them to the Kelleys
as arranged initially. The Kelleys were not told of this change of plans.
¶13 On June 16, 2005, Ochsner recorded a deed conveying the remaining Ryan Ranch
land, including the Kelley Lots, to Ryland (“the phase-two Ochsner–Ryland deed”),
thus completing phase two of the Ochsner–Ryland sale. That same day, Ryland signed
a deed reconveying the Kelley Lots to Ochsner (“the Ryland–Ochsner deed”) but did
not record it. About one week later, Ochsner signed a deed conveying the Kelley Lots
to the Kelleys but did not record it.
¶14 On November 17, 2005, Ryland recorded the Filing 2 Plat, which included the
Kelley Lots as Lots 1 through 7, Block 13. On December 20, 2005, pursuant to their plan,
Ryland recorded the Ryland–Ochsner deed, and Ochsner recorded the deed conveying
the Kelley Lots to the Kelleys.
¶15 In June 2006, the Kelleys sold one of the Kelley Lots to a builder who constructed
a home on the lot and then sold the lot to Rick and Lora Zimmerman (“the
Zimmermans”).
¶16 In September 2010, the Association asserted for the first time that the Kelley Lots
had been automatically annexed to Ryan Ranch in December 2005, when Ryland
recorded the Ryland–Ochsner deed. The Association demanded that the Kelleys and
the Zimmermans (collectively, “Respondents”) pay more than $75,000 in past-due
assessments, penalties, and fees for certain maintenance services provided by the
Association since December 2005. When Respondents refused to pay, the Association
sued them.
7
¶17 The Association pleaded claims for unpaid assessments, breach of contract,
unjust enrichment, and foreclosure of liens it had recorded on the Kelley Lots.
Respondents counterclaimed for a declaratory judgment that the Kelley Lots were never
annexed to Ryan Ranch. They asserted three reasons for why this was so: (1) Ryland
failed to annex the Kelley Lots in compliance with CCIOA, (2) Ryland failed to annex
the Kelley Lots in compliance with the CCR, and (3) principles of equitable conversion
precluded the transfer of the Kelley Lots in phase two of the Ochsner–Ryland sale,
rendering any subsequent annexation invalid.
¶18 After discovery, both sides moved for summary judgment, disputing whether, as
a matter of law, the Kelley Lots were annexed to Ryan Ranch. If they were annexed,
then they were subject to the CCR and the attendant obligation to pay assessments to
the Association; if they were not annexed, Respondents owed the Association nothing.
The trial court ruled in the Association’s favor, finding that the Kelley Lots were
properly annexed and rejecting each of Respondents’ three arguments to the contrary.
Respondents appealed.
¶19 A division of the court of appeals reversed, with a majority of the judges
embracing Respondents’ argument that the Kelley Lots were not annexed in compliance
with CCIOA. Ryan Ranch Cmty. Ass’n v. Kelley, 2014 COA 37, ¶¶ 1, 28, 37, __ P.3d __.4
Like the trial court, the majority concluded that the right to annex property to a
common interest community is a “development right” and that, as such, annexation
must be accomplished in compliance with the Act’s provisions governing the exercise of
4 The majority did not reach Respondents’ other arguments. Ryan Ranch, ¶ 28.
8
development rights. See id. at ¶¶ 34–37. To exercise such rights under those
provisions, a declarant must comply with certain plat or map requirements and record
an “amendment to the declaration” that includes several statutorily enumerated
components and that is properly recorded and indexed. See id. at ¶¶ 35–36.
¶20 The majority found no CCIOA-compliant amendment for the Kelley Lots,
rejecting the trial court’s conclusion that the ODP, CCR, Filing 2 Plat, and phase-two
Ochsner–Ryland deed, taken together, qualified as such. In the majority’s view, the
ODP and CCR could not be considered amendments as a categorical matter, id. at ¶ 42,
and the Filing 2 Plat and phase-two Ochsner–Ryland deed neither amended the
declaration nor satisfied the applicable statutory requirements, id. at ¶¶ 45–49. The
majority therefore concluded that the purported annexation of the Kelley Lots was
invalid for failure to comply with CCIOA and resolved the Association’s breach of
contract, unpaid assessments, and lien foreclosure claims in Respondents’ favor.5
¶21 Judge Terry dissented. Although she too disagreed with the trial court’s
analysis, she nonetheless believed the Kelley Lots were properly annexed. Id. at ¶ 80
(Terry, J., dissenting). She concluded that the Filing 2 Plat satisfied CCIOA’s
amendment requirement and that the Filing 2 Plat and Ryland–Ochsner deed together
5 The majority did not address the merits of the Association’s unjust enrichment claim.
Ryan Ranch, ¶ 65. It noted that, although the parties had stipulated to dismissing that
claim, the claim was never formally dismissed and the stipulation conditioned
dismissal on the court’s entering a money judgment on the breach of contract and
assessment claims. Id. The majority concluded that, in light of its decision, “the status
of the unjust enrichment claim is unclear” and thus instructed the trial court to revisit
the claim’s viability on remand. Id. This aspect of the court of appeals’ decision is not
before us, and we therefore do not address it further.
9
satisfied article XII, section 5 of the CCR. Id. at ¶¶ 83–84. To Judge Terry, the fact that
the Filing 2 Plat lacked some of the statutory amendment requirements was immaterial
because the CCR provided for those requirements to be satisfied automatically
whenever annexation occurred. Id. at ¶¶ 88–89. Nor did it matter that the Filing 2 Plat
was improperly indexed because Respondents had notice of the Filing 2 Plat and the
CCR and therefore were not prejudiced by any indexing error. Id. at ¶¶ 90–93. Judge
Terry therefore determined that the trial court did not err in rejecting Respondents’
CCIOA-based challenge to the annexation of the Kelley Lots and would have affirmed.6
¶22 The Association petitioned for certiorari, and we granted the petition.7
II. Standard of Review
¶23 We review a ruling on a motion for summary judgment de novo. P.W. v.
Children’s Hosp. Colo., 2016 CO 6, ¶ 11, 364 P.3d 891, 895. Where the material facts are
undisputed, summary judgment is appropriate if the moving party is entitled to
judgment as a matter of law. Id.6 Judge Terry also considered and rejected Respondents’ final, equitable-ownership
argument. Ryan Ranch, ¶ 95 (Terry, J., dissenting).
7 Specifically, we agreed to review the following three issues:
1. Whether the process of “annexation by deed” to form units within
common interest communities is void under the Colorado Common
Interest Ownership Act (CCIOA).
2. Whether a plat map that subdivides property identified in an earlier
declaration constitutes an amendment to said declaration.
3. Whether a homeowner who has actual knowledge of a declaration
amendment can avoid paying community assessments based on a
clerical error in the recorder’s index.
10
¶24 We also review de novo a lower court’s interpretation of covenants, Buick v.
Highland Meadow Estates at Castle Peak Ranch, Inc., 21 P.3d 860, 862 (Colo. 2001), and
other recorded instruments, Bolinger v. Neal, 259 P.3d 1259, 1263 (Colo. App. 2010); see
also Meier v. Denver U.S. Nat’l Bank, 431 P.2d 1019, 1021 (Colo. 1967) (“The
construction of a written instrument [is] a question of law . . . .”). When their meaning
is clear, we enforce such documents as written. See Buick, 21 P.3d at 862.
¶25 However, documents concerning CCIOA common interest communities must
comply with that statute’s provisions; to the extent they conflict, the statute prevails.
See § 38-33.3-104 (“Except as expressly provided in this article, provisions of this article
may not be varied by agreement, and rights conferred by this article may not be waived.
A declarant may not . . . use any . . . device to evade the limitations or prohibitions of
this article . . . .”). The meaning and effect of statutory provisions and whether those
provisions conflict with covenants and other recorded instruments are questions of law
that we review de novo. See Robinson v. Legro, 2014 CO 40, ¶ 10, 325 P.3d 1053, 1056.
III. Analysis
¶26 The issue in this case is whether the Kelley Lots were annexed to Ryan Ranch in
compliance with CCIOA. To resolve this question, we must for the first time determine
what conditions the Act imposes on the annexation of land into a common interest
community and how those conditions may be satisfied. We therefore begin by
analyzing annexation under the Act. We then apply that analysis to the facts of this
case in order to determine whether the Kelley Lots were annexed to Ryan Ranch in
compliance with that statute.
11
A. Annexation Under CCIOA
1. Annexation Is a “Development Right”
¶27 The General Assembly enacted CCIOA to, among other things, “establish a clear,
comprehensive, and uniform framework for the creation and operation of common
interest communities.” § 38-33.3-102(1)(a). The statute defines “common interest
community” as “real estate described in a declaration with respect to which a person,
by virtue of such person’s ownership of a unit, is obligated to pay for [various expenses
associated with] other real estate described in a declaration.”8 § 38-33.3-103(8). The
statute further provides that “[a] common interest community may be created . . . only
by recording a declaration executed in the same manner as a deed,” and that “[n]o
common interest community is created until the plat or map for the common interest
community is recorded.” § 38-33.3-201(1). “A plat or map is a part of the
declaration . . . .” § 38-33.3-209(1).
¶28 A “declaration,” in turn, “means any recorded instruments, however
denominated, that create a common interest community, including any amendments to
those instruments and also including, but not limited to, plats and maps.”
§ 38-33.3-103(13). Every declaration must, at a minimum, contain the mandatory
components listed in section 38-33.3-205(1) of the Act. See § 38-33.3-205(1)(a)–(q). One
8 Put differently, the label “common interest community” refers to “a real-estate
development or neighborhood in which individually owned lots or units are burdened
by a servitude that” binds the owners of those lots to contribute to the maintenance of
common property or pay assessments to a homeowners association that maintains the
common property or provides other services to the development. See Restatement
(Third) of Prop.: Servitudes § 6.2(1) (2000).
12
of these components is “[a] description of any development rights . . . reserved by the
declarant.” § 38-33.3-205(1)(h). CCIOA defines “development rights” as follows:
“Development rights” means any right or combination of rights reserved
by a declarant in the declaration to:
(a) Add real estate to a common interest community;
(b) Create units, common elements, or limited common elements
within a common interest community;
(c) Subdivide units or convert units into common elements; or
(d) Withdraw real estate from a common interest community.
§ 38-33.3-103(14).
¶29 Here, the court of appeals unanimously determined that the right to annex the
Kelley Lots into Ryan Ranch is a “development right.” See Ryan Ranch, ¶¶ 55–56; id. at
¶ 82 (Terry, J., dissenting). Both parties agree with this determination, and so do we.
¶30 At its inception, Ryan Ranch consisted only of the real estate described in
Exhibit A of the CCR, which included Tracts A, B, C, E, F, and G of the Filing 1 Plat.
Tract H of the Filing 1 Plat—which contained the Kelley Lots—was not described in
Exhibit A and therefore was not initially a part of Ryan Ranch. Rather, Tract H was
described in Exhibit D as “Annexable Property.”
¶31 However, the CCR contemplated that Ryan Ranch could grow to include the
annexable property described in Exhibit D if certain procedures were followed. Article
XII, section 5 of the CCR spells out these procedures. When any of the property
described in Exhibit D is annexed in accordance with article XII, section 5, that property
is immediately made subject to the CCR. See CCR, art. XII, § 5(a) (“All provisions of
13
this [CCR] . . . shall apply to annexed property immediately . . . .”). Property that
becomes subject to the CCR, in turn, becomes a part of Ryan Ranch. See CCR, art. I, § 11
(defining the community as “real property described in Exhibit A . . . or which becomes
subject to this [CCR]” (emphasis added)). Thus, because Tract H—including the Kelley
Lots—was not initially a part of Ryan Ranch, to annex that property under article XII,
section 5 is to add that property to Ryan Ranch—i.e., to “[a]dd real estate to a common
interest community.” See § 38-33.3-103(14)(a).
¶32 The right to annex the Kelley Lots to Ryan Ranch therefore qualifies as a
development right under CCIOA. It also qualifies as a development right under the
CCR itself,9 and the parties agree Ryland properly reserved it.
2. Exercising Development Rights Under CCIOA
¶33 Because annexation is a development right, any annexation of the Kelley Lots
must have complied with the CCIOA provisions that govern the exercise of such rights.
See § 38-33.3-104. Foremost among these provisions is section 38-33.3-210, entitled
“Exercise of development rights.” As relevant here, subsection (1) of that section
provides:
To exercise any development right reserved under section
38-33.3-205(1)(h), the declarant shall prepare, execute, and record an
amendment to the declaration and, in a . . . planned community, comply
with the provisions of section 38-33.3-209. The declarant is the unit owner
of any units thereby created. The amendment to the declaration must
assign an identifying number to each new unit created and . . . reallocate
9 The CCR’s definition of “Development Rights” mirrors section 38-33.3-103(14) and
includes the right to “add real property to this Community, create Lots or Common
Elements within this Community and subdivide Lots or convert Lots into Common
Elements.” See CCR, art. I, § 14(a).
14
the allocated interests among all units. The amendment must describe
any common elements and any limited common elements thereby
created . . . .[10]
Thus, to have properly annexed the Kelley Lots, Ryland must have recorded an
“amendment to the declaration” that (1) assigned identifying numbers to each of the
Kelley Lots, (2) reallocated the allocated interests among all units in Ryan Ranch, and
(3) described any common elements and limited common elements created.
¶34 In addition, because the CCR states that Ryan Ranch is a planned community
under CCIOA, Ryland also needed to comply with section 38-33.3-209. That section
deals with plats and maps and provides in relevant part:
Upon exercising any development right, the declarant shall record an
amendment to the declaration with respect to that real estate reflecting
change as a result of such exercise necessary to conform to the
requirements of subsections (1) [and] (2) . . . of this section . . . .
§ 38-33.3-209(6). Subsection (1) of section 38-33.3-209, in turn, contains the following
pertinent statements:
A plat or map is a part of the declaration and is required for all common
interest communities except cooperatives. . . . The requirements of [section
38-33.3-209] shall be deemed satisfied so long as all of the information
required by [section 38-33.3-309] is contained in the declaration, a map or
a plat, or some combination of any two or all of the three. Each plat or
map must be clear and legible.
And subsection (2) lists several items that each map must include, “except to the extent
such information is contained in the declaration or on a plat.” § 38-33.3-209(2).
10Section 38-33.3-210(1) includes an additional requirement applicable when limited
common elements are created, but the Association submits that Ryan Ranch does not
contain any limited common elements and nothing in the record contradicts this
submission.
15
¶35 Finally, the amendment necessary to annex the Kelley Lots also must have
complied with section 38-33.3-217, which governs amendments of declarations
generally. As relevant here, section 38-33.3-217(3) states:
Every amendment to the declaration must be recorded in every county in
which any portion of the common interest community is located and is
effective only upon recordation. An amendment must be indexed in the
grantee’s index in the name of the common interest community and the
association and in the grantor’s index in the name of each person
executing the amendment.
So, to have complied with this provision, the requisite amendment must have been
(1) recorded in Jefferson County, (2) indexed in the grantee’s index in the name of Ryan
Ranch and the Association, and (3) indexed in the grantor’s index in Ryland’s name.
¶36 We now consider whether all these requirements were satisfied for the
annexation at issue here.
B. Annexation of the Kelley Lots Under CCIOA
¶37 The court of appeals majority determined that the Kelley Lots were not annexed
to Ryan Ranch—and never became subject to the CCR—because Ryland did not record
an amendment to the declaration that complied with sections 38-33.3-210(1) and
38-33.3-217(3) of the Act. The Association disputes this determination, arguing that
either the Filing 2 Plat or the Ryland–Ochsner deed, or both of them together, qualified
as an “amendment to the declaration” and satisfied the various requirements of sections
38-33.3-210(1) and 38-33.3-217(3). We find the Association’s arguments unavailing.
¶38 We note as a threshold matter that, although the Association devotes significant
attention to arguing (1) that either or both of these documents “amended” the
16
“declaration” and therefore properly may be deemed an “amendment to the
declaration,” and (2) that a declarant may use more than one document to satisfy the
amendment requirement, we need not resolve either of these points. For purposes of
this case, we will assume, without deciding, that the Ryland–Ochsner deed and Filing 2
Plat, taken together, qualified as an “amendment to the declaration” under the Act.
Even so, we find that amendment invalid for failure to satisfy the specific requirements
of sections 38-33.3-210(1) and 38-33.3-217(3).11
1. Compliance with Section 38-33.3-210(1)
¶39 To comply with section 38-33.3-210(1), Ryland, as the declarant, needed to record
an “amendment to the declaration” that (1) assigned an identifying number to each new
unit created, (2) reallocated the allocated interests among all units, and (3) described
any common elements and limited common elements created. See § 38-33.3-210(1).12
¶40 The Ryland–Ochsner deed and Filing 2 Plat arguably satisfied the first and last of
these requirements. The deed states that it conveyed “Lots 1 through 7, Block 13, as
11 Our conclusion that the deed and plat, taken together, fail to form a CCIOA-
compliant amendment eliminates any need to analyze either document individually. In
these circumstances, what the documents cannot accomplish together, neither could
accomplish alone.
12 Section 38-33.3-210(1) also states that “[t]he declarant is the unit owner of any
units . . . created [by the declarant’s exercise of a development right].” The
Zimmermans assert, and the Association acknowledges, that this language arguably
precludes annexation by deed as a general matter. However, because the court of
appeals did not address this aspect of the statute, and because resolution of this issue is
not necessary to this appeal, we decline to determine what this language may mean for
annexation by deed as a general practice. Cf. Kaiser Found. Health Plan of Colo. v.
Sharp, 741 P.2d 714, 718 (Colo. 1987) (declining to address several issues because “the
resolution of those issues is not necessary to this appeal”).
17
shown on the final plat of Ryan Ranch Filing 2” from Ryland to Ochsner, and the Filing
2 Plat depicts and labels each of the lots accordingly. If units had been created, it thus
seems that each of them would have been assigned an identifying number. See
§ 38-33.3-103(17) (defining “identifying number” as “a symbol or address that identifies
only one unit in a common interest community”). Likewise, it appears that annexing
the Kelley Lots through the annexation-by-deed process would not have created any
common elements or limited common elements to be described. The Ryland–Ochsner
deed conveyed only the Kelley Lots themselves, and the Filing 2 Plat, although it
described land that would become common elements, did not convey or lease that land
to the Association and so did not “create” common elements. See § 38-33.3-103(5)(b)
(defining “common elements” as “any real estate within a planned community owned
or leased by the association”).
¶41 However, neither of the documents satisfied the second requirement:
reallocating the allocated interests among all units. The Association argues that the
declaration amendment did not need to reallocate the allocated interests because the
CCR specifically provides for such reallocation to occur automatically whenever land is
annexed by deed.13 Thus, according to the Association, it would have served no
13Article XII, section 5(a) states that, whenever property described in Exhibit D is
annexed by deed:
[E]ach such lot in the Property . . . shall constitute a Lot, and the Allocated
Interests shall thereupon automatically be reallocated to be a fraction, the
numerator of which shall be one (1) and the denominator of which shall
be the total number of Lots within the Community upon recording of such
deed . . . .
18
purpose for the amendment itself to reallocate the allocated interests and any failure of
the amendment to do so amounts to an insubstantial defect that does not render the
amendment invalid. We find this argument unavailing under the plain terms of the
statute.
¶42 Section 38-33.3-210 states that “[t]he amendment to the declaration must . . .
reallocate the allocated interests among all units.” § 38-33.3-210(1) (emphasis added).
Like the word “shall,” the word “must” connotes a mandatory requirement. See
Willhite v. Rodriguez-Cera, 2012 CO 29, ¶ 17, 274 P.3d 1233, 1238. Moreover, related
CCIOA provisions make clear that this requirement cannot be satisfied by a reallocation
formula included in a declaration. Section 38-33.3-207 specifically provides that, where
“units may be added to or withdrawn from the common interest community, the
declaration must state the formulas to be used to reallocate the allocated interests
among all units included in the common interest community after the addition or
withdrawal.” § 38-33.3-207(3). If the formulas required by section 38-33.3-207(3) were
sufficient to satisfy the reallocation obligation imposed by section 38-33.3-210(1), then
that obligation would be superfluous as applied to the exercise of half of all
development rights recognized by the Act. See § 38-33.3-103(14) (listing, as two of four
development rights, the rights to add real estate to, and withdraw real estate from, a
community).
¶43 Because “[w]e must avoid constructions that would render any words or phrases
superfluous,” Doubleday v. People, 2016 CO 3, ¶ 20, 364 P.3d 193, 196, we reject the
Association’s argument that the CCR’s formula obviated the need for the amendment to
19
reallocate the allocated interests itself. It is for the legislature, not this court, to
determine what “purpose” may or may not be served by this aspect of section
38-33.3-210(1). The unambiguous language of that provision states that any amendment
effectuating a development right must reallocate the allocated interests among all units;
since neither the Ryland–Ochsner deed nor the Filing 2 Plat did so, they failed to
comply with the statute. See Lunsford v. W. States Life Ins., 908 P.2d 79, 84 (Colo. 1995)
(“Where the language of a statute is clear on its face, we must apply it as written.”).14
2. Compliance with Section 38-33.3-217(3)
¶44 To satisfy section 38-33.3-217(3), the amendment to the declaration needed to be
(1) recorded in Jefferson County, (2) indexed in the grantor’s index in Ryland’s name,
and (3) indexed in the grantee’s index in the names of Ryan Ranch and the Association.
See § 38-33.3-217(3). While the first two requirements were satisfied, it is undisputed
that neither the Ryland–Ochsner deed nor the Filing 2 Plat complied with the third—the
deed was indexed in Ochsner’s name, and the plat was indexed in the name of “Ryan
Ranch Filing 2.”
¶45 Nonetheless, the Association argues this noncompliance is immaterial.
According to the Association, any improper indexing was a clerical error that did not
prejudice Respondents because Respondents had notice of the various documents that,
14We also reject the Association’s contention that any failure to reallocate the allocated
interests is an “insubstantial” defect under section 38-33.3-203(4). That section states in
relevant part: “Title to a unit and common elements is not rendered unmarketable or
otherwise affected by reason of an insubstantial failure of the declaration to comply
with this article.” § 38-33.3-203(4). Because we are not dealing here with marketability
of title or noncompliance of a declaration, we find this provision inapplicable.
20
in the Association’s view, effectuated the annexation of the Kelley Lots. Specifically, the
Association contends that, because grantee indices are alphabetical, a search for “Ryan
Ranch Community Association” would find the Filing 2 Plat under the name of “Ryan
Ranch Filing 2,” and, in any event, Respondents’ deeds to the Kelley Lots referenced the
Filing 2 Plat directly. Moreover, John Kelley signed the ODP, which stated that the
community would be subject to a mandatory homeowners association; and the
Zimmermans’ pre-purchase title search exposed the Filing 2 Plat and the CCR. As a
result, the Association argues Respondents had “overwhelming” notice of the relevant
documents and a harmless clerical error in recording these documents should not
excuse Respondents from paying assessments. We reject this theory.
¶46 Initially, we need not resolve the Association’s “clerical error” argument.
Although the Association asserts that clerical error explains why all “amendment
documents” were improperly indexed, it offers a supporting rationale for this assertion
with respect to the Filing 2 Plat alone. Noticeably absent from the Association’s
argument is any explanation for why, or even a direct assertion that, the defective
indexing of the Ryland–Ochsner deed was a clerical error. Because the Filing 2 Plat
could not have subjected the Kelley Lots to the CCR without the Ryland–Ochsner deed,
see CCR, art. XII, § 5(a); CCR, Exs. A, D, any excuse for the defective indexing of the
former document is irrelevant without a parallel excuse for the latter document. We
find no such parallel excuse here.
¶47 Even assuming Respondents had actual notice of the Filing 2 Plat and the CCR,
such notice would have been meaningless without additional notice of the Ryland–
21
Ochsner deed. While Exhibit D of the CCR would have informed Respondents that the
Kelley Lots were annexable, article XII, section 5 of the CCR would have assured them
that those lots could not be annexed without recordation of a plat and either a deed
from Ryland to a third party or an annexation form. And notice of the Filing 2 Plat
would have told Respondents only that the first of these requirements had been
satisfied. Because no annexation form was recorded for the Kelley Lots, only the
Ryland–Ochsner deed could have annexed those lots under the CCR. Thus, without
notice of that deed, even actual notice of the CCR and Filing 2 Plat could not have
informed Respondents that the Kelley Lots had been annexed.
¶48 The Association does not assert that Respondents had actual notice of the
Ryland–Ochsner deed. Nor, due to noncompliance with section 38-33.3-217(3), did they
have constructive notice of it: since the deed was listed in the grantee’s index under
“Ochsner,” a search of that index for “Ryan Ranch” or “Ryan Ranch Community
Association”—the names under which the deed should have been listed—would not
have unearthed the deed. See Franklin Bank, N.A. v. Bowling, 74 P.3d 308, 313–14
(Colo. 2003) (constructive notice does not arise where document improperly indexed
such that proper search of index will not reveal the document).
¶49 Nor, finally, did Respondents have inquiry notice of the Ryland–Ochsner deed.
The long history of agreements among the Kelleys, Ochsner, and Ryland established
(1) that the Kelleys would purchase the Kelley Lots from Ochsner after the Filing 2 Plat
was recorded, (2) that the lots would be shown on the Filing 2 Plat, and (3) that the rest
of the Filing 2 Plat, but not the Kelley Lots, would be a part of Ryan Ranch.
22
Consequently, nothing about the Filing 2 Plat or the CCR would have appeared
abnormal to Respondents or reasonably caused them to suspect Ochsner and Ryland
had privately conveyed the Kelley Lots between themselves before Ochsner sold the
lots to the Kelleys. See Monaghan Farms, Inc. v. City & Cty. of Denver, 807 P.2d 9, 15
(Colo. 1991) (“Inquiry notice requires sufficient facts to attract the attention of interested
persons and prompt a reasonable person to inquire further.”).
¶50 Thus, contrary to the Association’s contentions, no notice or clerical error
ameliorates the fact that the amendment—again, assuming without deciding that the
Filing 2 Plat and Ryland–Ochsner deed constituted an amendment—failed to comply
with section 38-33.3-217(3) of the Act. Its presumptive detriment to Respondents aside,
this defect takes on even greater significance when coupled with the additional failure
to comply with section 38-33.3-210(1)’s reallocation requirement. Even where a
community’s allocated interests are apportioned equally, if an amendment annexing
property to the community fails to affirmatively reallocate the allocated interests among
all units, the only way for existing or prospective community members to determine a
unit’s proportionate rights and liabilities is to discern the total number of units in the
community. This is not possible if the annexation amendment cannot be found due to
improper recordation.
* * *
¶51 In the end, even assuming the Filing 2 Plat and Ryland–Ochsner deed, taken
together, constituted an “amendment to the declaration” for purposes of CCIOA, that
amendment failed to comply with the specific requirements of sections 38-33.3-210 and
23
38-33.3-217 of that statute. As a result, the amendment did not validly effectuate the
development right of annexation as applied to the Kelley Lots. The Kelley Lots
therefore were not brought into Ryan Ranch and are not subject to the CCR or its
attendant obligation to pay assessments levied by the Association.
IV. Conclusion
¶52 We hold that the right to annex property into a common interest community is a
development right, the exercise of which must comply with CCIOA. In this case, the
purported annexation of the Kelley Lots to Ryan Ranch failed to comply with the Act
and therefore was invalid. Accordingly, we affirm the judgment of the court of appeals
and remand for further proceedings consistent with this opinion. On remand, the court
of appeals should consider the parties’ respective entitlements to attorneys’ fees and
costs. See C.A.R. 39.5.
JUSTICE COATS joins in the majority and specially concurs, and JUSTICE EID and
JUSTICE MÁRQUEZ join in the majority and the special concurrence.
JUSTICE BOATRIGHT does not participate.
24
JUSTICE COATS, specially concurring.
¶53 In this and one other case released today, see Pulte Home Corp. v. Countryside
Cmty. Ass’n, 2016 CO 64, __ P.3d __, the court addresses slightly different aspects of the
question whether a particular property is included in a common interest community: in
this case, whether the property in question was added to an existing common interest
community and, in the other case, whether the properties in question were included in
the community at its creation. Phrased differently, these cases involve the fundamental
questions how and when, under the Colorado Common Interest Ownership Act, §§ 38-
33.3-101 to -402, C.R.S. (2016), a common interest community is created and how and
when property that was not initially included in that community can later be added to
it. Like the court as a whole, I would affirm the judgment of the court of appeals in this
case (and reverse the court of appeals’ finding in favor of the homeowners association
in Pulte). While I join the opinion of the court in this case, I write separately both to
explain my understanding of the implications of that opinion and to offer what I
consider to be even more persuasive reasons for affirming the judgment below.
¶54 The specific matter at issue in this lawsuit is whether the so-called Kelley Lots
were automatically added to a common interest community called Ryan Ranch at the
time they were first conveyed by the declarant to a purchaser, notwithstanding the
expressed intent of both the declarant and purchaser that they not be so added, and
therefore whether the current owners of those lots owe the Community Association
past-due assessments, penalties, and fees. The first and primary question upon which
we granted review was therefore whether the “annexation by deed” method of adding
1
units to the community, as described in the Declarations of Covenants, Conditions, and
Restrictions filed by declarant Ryland (referred to throughout the court’s opinion as the
“CCR”), in fact comported with statutory requirements. While the opinion of the court
never directly states, in so many words, that the annexation-by-deed method of the
CCR is incompatible with the statute and therefore fails, in and of itself, to successfully
add units to the community, I consider that to be the clear and necessary import of its
holding, a holding with which I fully agree.
¶55 I understand the heart of the court’s rationale to be its conclusion that units can
be added to an existing community by the declarant only by amending the declaration
as statutorily required for the exercise of that declarant’s development rights; and that
the conveyance to a purchaser of even already platted property, the addition of which is
specifically reserved to the declarant as part of its development rights, fails to comply
with all the statutory requirements for such an amendment. While the court’s opinion
purports, for reasons I cannot fully appreciate, to distinguish an “amendment” to the
declaration from a “valid” amendment to the declaration, it nevertheless makes clear
that a failure of the declarant to comply with all the statutory requirements for an
amendment necessary for the exercise of its development rights cannot successfully add
property to the community. Similarly, while I do not particularly disagree with the
court’s subsequent discussion of deficiencies in recording the instruments at issue here,
I understand any deficiency in recording to be an alternate basis for the court’s holding,
rather than integral to its determination that the failure to reallocate interests alone
renders the annexation-by-deed method of adding units invalid.
2
¶56 Without expressly disputing the broader reasoning of the court of appeals, the
majority more narrowly finds that a formula for reallocating already allocated interests,
specified in an existing declaration, cannot be sufficient to meet the statutory
requirement under section 38-33.3-210 for recording an amendment to the declaration
that reallocates those interests, for the somewhat more technical reason that including
such a formula in the declaration is already required by section 38-33.3-205. The
majority reasons, as a matter of statutory construction, that to find compliance with
section 205 alone sufficient to satisfy the requirement of section 210 to amend the
declaration by reallocating interests would render the latter statutory requirement
superfluous or meaningless. While I agree with this rationale, with regard to the central
question on review—whether the recording of a deed conveying “annexable” property
and a survey plat of that property automatically amends the declaration within the
meaning of the Act—I would rely on more than one among various aids to statutory
construction, especially where the statutory scheme as a whole so clearly mandates this
same conclusion for what I consider to be more direct and powerful reasons.
¶57 The statutory requirement upon which the court’s opinion relies, that in order to
exercise development rights reserved to it, a declarant must record an amendment to
the declaration actually reallocating the already allocated interests among all units, is
merely one aspect of the “clear, comprehensive, and uniform framework” provided by
the Act for balancing developer flexibility with maintaining certainty and predictability
concerning the various interests implicated in both the creation and operation of the
community. § 38-33.3-102. With regard to amending a declaration in particular, the Act
3
imposes a number of limitations, including the condition that an amendment requires
an affirmative vote of at least a majority of unit owners (two-thirds in the case of
increasing the number of units), unless it falls within a limited number of expressly
delineated exceptions. See § 38-33.3-217. Among those expressly delineated exceptions
is included any amendment affecting “phased communities,” that is, common interest
communities in which the declarant retains development rights. See
§§ 38-33.3-103(21.5), -217(1)(a)(III)(E). From the context in which it appears, I
understand the court’s pronouncement that “the right to annex property” is a
development right to refer only to the right of a declarant to add units to the
community; and in addition to mandating that such an amendment reallocate interests,
I believe the statute clearly imposes other limitations on a declarant’s exercise of
development rights that necessarily conflict with the annexation-by-deed method of the
CCR.
¶58 While I accept the rule of construction relied on by the court, I would in any
event find that the language of section 210 is clear enough, even without reference to
the contents required of a declaration or to this rule of construction. Like the court of
appeals, I believe the meaning of “amendment,” in and of itself, denotes a change or
alteration to the thing being amended. A statutory requirement for the recording of an
amendment to the declaration containing certain elements cannot even conceptually be
satisfied by the presence of those elements in the declaration as it existed prior to any
amendment. While I therefore agree with the court, as far as it goes, I would go even
farther and make clear that for the declarant to add units to the community, it must
4
record an amendment containing all of the elements required by section 210, including
not only reallocation of interests but also the assignment of identifying numbers to
those units and a description of any common or limited common elements, whether or
not the declaration has already prospectively done so. A complete amendment, as
required by section 210, is necessary, as was clearly intended, to make clear the current
status of the community, which is no longer as represented in the recorded declaration
but has been changed.
¶59 Beyond the requirement of recording an amendment, however, section 210
permits a declarant to add units according to its development rights, and therefore
without the approval of the existing unit owners, only to the extent it is the owner of the
units to be added. § 38-33.3-210 (“The declarant is the unit owner of any units thereby
created.”). Whether units added by the exercise of a declarant’s development rights are
conveyed to a purchaser later, or perhaps even simultaneously with the recording of the
required amendment, cf. ALH Holding Co. v. Bank of Telluride, 18 P.3d 742, 745 (Colo.
2000) (execution of deed and mortgage are considered simultaneous acts, such that, as a
matter of law, title never rests in the buyer unencumbered by the mortgage, regardless
of the signing or recording of other purchase money mortgages), I consider it beyond
challenge that the statutory scheme requires the declarant to be the owner of any unit so
added, or that unit may not be added by the declarant at all. While the opinion of the
court limits itself to holding annexation by deed insufficient in the absence of some
recorded reallocation of interests, I would make express that the statutory scheme does
5
not permit a declarant to add units that have been conveyed to someone else without a
prior or at least contemporaneous amendment meeting the requirements of the statute.
¶60 The subtext to this action for past-due fees and penalties is and has always been
the question whether by including the addition of the Kelley Lots among the
development rights reserved to the declarant, that declarant necessarily gave up any
right to sell those lots without their being included as part of the Ryan Ranch. That
consequence was clearly not intended by the declarant in this case when it drew up the
CCR and created the community, and such a consequence would undoubtedly come as
a shock to other developers doing likewise. As this case amply demonstrates, the
construction sought by the Community Association would amount to nothing less than
a trap for the unwary, in direct contravention of the fundamental purpose the Act was
intended to serve.
¶61 Because I believe the primary merit of undertaking a further review by this court
has always been our articulation of the limitations imposed on the exercise of
development rights by section 38-33.3-210, I would not shy away from a full explication
of that section.
¶62 I therefore specially concur in the opinion of the court.
I am authorized to state that JUSTICE EID and JUSTICE MÁRQUEZ join in this
special concurrence in the opinion of the court.
6