Arrabelle at Vail Square Residential Condominium Association, Inc. v. Arrabelle at Vail Square LLC

COLORADO COURT OF APPEALS 2016COA123
Court of Appeals No. 15CA0757
Eagle County District Court No. 09CV320
Honorable Frederick W. Gannett, Judge
Arrabelle at Vail Square Residential Condominium Association, Inc.,
Plaintiff-Appellee and Cross-Appellant,
v.
Arrabelle at Vail Square LLC,
Defendant-Appellant and Cross-Appellee.
JUDGMENT AFFIRMED
Division III
Opinion by JUDGE GRAHAM
Booras and Márquez*, JJ., concur
Announced August 25, 2016
Lewis Roca Rothgerber Christie LLP, Scott M. Browning, Alex C. Myers, Denver,
Colorado; Zonies Law LLC, Sean Connelly, Denver, Colorado, for Plaintiff-
Appellee and Cross-Appellant
Gibson, Dunn & Crutcher LLP, Gregory J. Kerwin, Robert C. Blume, M. Scott
Campbell, Denver, Colorado, for Defendant-Appellant and Cross-Appellee
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2015.
¶1 In this case interpreting provisions of the Colorado Common
Interest Ownership Act (CCIOA), sections 38-33.3-101 to -402,
C.R.S. 2015, we are asked to determine, among other related
issues, whether a mixed-use community consisting of a hotel, retail
shops, restaurants, and sixty-six condominiums is a “small planned
community” under section 38-33.3-116, C.R.S. 2015, of CCIOA.
We conclude it is not and, therefore, affirm the judgment of the trial
court.
I. Background
¶2 The Arrabelle at Vail Square is a luxury development at the
base of Vail Mountain in Vail, Colorado. Built and managed by Vail
Resorts Development Company and Arrabelle at Vail Square LLC
(Vail Resorts), the development (Arrabelle) includes multi-million
dollar residential condominiums, a boutique hotel, restaurants,
retail shops, an ice-skating rink, a spa, parking, and other
amenities.
¶3 At the time of development, Vail Resorts recorded a plat
establishing seven separate real estate parcels collectively titled “Lot
1” and “Airspace Lots A-F” at the Arrabelle. Vail Resorts then
1
entered into a Reciprocal Easements and Covenants Agreement
(RECA) governing those parcels and creating two lots — the
Airspace Lot (which would be developed into condominiums) and
the Project Lot (the remainder of the property). The RECA
establishes benefits, burdens, and allocation of costs between both
lots, and it regulates the use and enjoyment of both lots.
¶4 In pertinent part, the RECA originally contained the following
two provisions:
18. SMALL PLANNED COMMUNITY
EXCEPTION. The Parties hereby acknowledge
and agree that this Agreement constitutes a
“declaration” and creates a “common interest
community” under CCIOA. Specifically, this
Agreement creates a “planned community”
under CCIOA, and not a “condominium,” as
those terms are defined by CCIOA. The
planned community created by this Agreement
contains only two lots, the Project Lot and the
Airspace Lot, and is therefor exempt from
CCIOA’s provisions pursuant to the exemption
contained in Section 38-33.3-116(2) of CCIOA
for planned communities containing no more
than 20 lots. The Parties acknowledge and
agree that the Project Lot and the Airspace Lot
will not be bound by or subject to the
provisions of CCIOA, except as expressly
required under CCIOA, as in effect at the date
of this Agreement. In addition, the Parties
acknowledge and agree that neither the Project
Owner nor the Airspace Lot Owner shall be
2
deemed a “master association” within the
meaning of Section 38-33.3-220 of CCIOA.
Without limitation on the generality of the
foregoing, the Parties acknowledge and agree
that the Airspace Lot constitutes an estate
above the surface within the meaning of
Section 38-32-101, et. seq., C.R.S., and not a
condominium within the meaning of CCIOA;
the Airspace Lot Owner Easements constitute
the sole property interest in the Project
Improvements[1] that is held by the Airspace
Lot Owner as appurtenances to the Airspace
Lot; and there are not any “common elements”
or other portions of the Project Improvements
in which the Airspace Lot Owner holds any
undivided or other ownership interest.
19. CONDOMINIUMIZATION OF AIRSPACE
LOT. Notwithstanding but without limiting the
provisions of Section 18 above, the Parties
acknowledge and agree that the Airspace Lot
Owner may, at its election, subject the
Airspace Lot to a condominium regime under
CCIOA. Regardless of any such
condominiumization, the Airspace Lot will
continue to be a single lot for all purposes
under this Agreement. Any owners’
association formed pursuant to CCIOA (the
“Association”) will be deemed the “Airspace Lot
Owner,” all owners of such condominium units
will act and be treated collectively through the
Association under this Agreement and each
owner of a condominium unit, by taking title to
1The RECA defines Project Improvements as “a hotel and related
amenities, restaurants, a plaza area with an ice skating rink, retail
space, a parking garage and skier services . . . located on the
Project Lot.”
3
a condominium unit, irrevocably and
unconditionally appoints the Association as its
duly authorized representative and attorney-
in-fact for all purposes of this Agreement.
Notwithstanding that the Association shall be
deemed the “Airspace Lot Owner,” the Airspace
Lot Owner Easements will be deemed granted
to the Association for the benefit of its
members and the use restrictions on the
Airspace Lot will apply to and may be enforced
against all or any portions of the Airspace Lot
and the owners thereof, as the Project Owner
may elect from time to time. In any event,
each owner of a portion of the Airspace Lot,
whether condominiumized or not, is subject to
all provisions of this Agreement.
¶5 The RECA established that the Airspace Lot Owner would be
responsible for a flat amenity access fee set by the Project Owner
and 59.7% of the operating and capital improvement costs of the
Arrabelle. As the owner of both the Airspace Lot and the Project
Lot, Vail Resorts signed the RECA on behalf of both owners.
¶6 Immediately after recording the RECA, Vail Resorts recorded a
condominium plat creating sixty-six condominiums in the Airspace
Lot and a condominium declaration creating the Arrabelle at Vail
Square Residential Condominium Association, Inc. (Association).
The condominiums ultimately sold with base prices ranging from
$1,195,000 to $6,695,000.
4
¶7 Problems arose between Vail Resorts and the Association
within the first year of operation. While the RECA required the
Association to pay a $1,975,853 expense payment in 2008, the
Association objected. And because the 2008 Arrabelle operations
ran substantially over budget, the Association was facing yet a
larger expense payment in 2009. On February 17, 2009, the
Association notified Vail Resorts it was terminating the RECA.
¶8 On June 1, 2009, the Association filed this action seeking a
declaratory judgment allowing it to terminate the RECA or
alternatively ruling that the RECA was in violation of CCIOA,
requiring reformation. The Association made additional claims for
statutory breach of good faith, breach of fiduciary duties, and
breach of the common law duty of good faith and fair dealing. Vail
Resorts counterclaimed for breach of contract and unjust
enrichment.
¶9 The case proceeded in three phases. First, the trial court
granted the Association’s motion for partial summary judgment,
ruling that the Arrabelle is not a CCIOA small planned community
under section 38-33.3-116(2) because it was subject to development
5
rights. See § 38-33.3-116(2) (“If a . . . planned community created
in this state on or after July 1, 1998, contains . . . no more than
twenty units and is not subject to any development rights, it is
subject only to sections 38-33.3-105 to 38-33.3-107[, C.R.S. 2015,]
. . . .”).
¶ 10 Second, the court conducted a trial addressing the method of
reforming the RECA to comply with CCIOA (Phase I Trial). Under
sections 38-33.3-112 and -203, C.R.S. 2015, the court struck the
amenity access fee from the RECA and reformed the agreement to
include, among other things, mandatory alternative dispute
resolution. See § 38-33.3-124, C.R.S. 2015 (dispute resolution
under CCIOA). The court also concluded that the RECA included
an incorrect cost allocation ratio (allocating 59.7% to the residences
in the Airspace Lot and 40.3% to the Project Lot) and readjusted the
burden to 49.1% to the Airspace Lot residences.
¶ 11 The court also ordered the parties to draft and ratify a master
association declaration. § 38-33.3-220. Because the parties were
unable to agree on a declaration after approximately one year, the
court referred the matter to a special master who drafted a third
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amendment to the RECA incorporating the court’s changes along
with articles of incorporation and bylaws for a new master
association. The court adopted the special master’s recommended
instruments in July 2014.
¶ 12 Third, the trial court held a trial on the remaining claims of
breach of good faith, breach of contract, and unjust enrichment
(Phase II Trial). Ultimately, the court denied all outstanding claims
and awarded the Association, as the prevailing party, $2,500,000 in
stipulated attorney fees.2
2 The trial court adopted the Association’s proposed findings for the
Phase I Trial order and Vail Resorts’ proposed findings for the Phase
II Trial order. This has caused conflict among the findings of the
court and resulted in each party relying almost exclusively on its
own findings on appeal. However, because the court noted on the
first day of the Phase II Trial that “[t]o the extent I made a ruling,
that’s binding. And while you might argue in your proposed
findings that I made erroneous conclusions in my first order . . . [t]o
the extent I made rulings . . . they’re done,” we look to the Phase I
order as the definitive law of the case. Indeed, the Phase II order
states:
[T]his Court reaffirms its prior determination
that [Vail Resorts’] development scheme has
systemic flaws, which were further analyzed in
the Phase I order. . . . Here in the Phase II
Order, the Court denie[s] all the claims and
counter-claims of both parties which effectively
7
¶ 13 Vail Resorts appeals the following trial court rulings: (1) the
conclusion that the Arrabelle is not a “small planned community”
under CCIOA section 38-33.3-116(2) because Vail Resorts reserved
development rights under the RECA; (2) the reformed cost allocation
based on the court’s conclusion that the RECA violated CCIOA
section 38-33.3-207(2), C.R.S. 2015, because the original allocation
discriminated “in favor of units owned by the declarant”; and (3) the
adopted reformed RECA and master association documents
because those documents contain terms not required by CCIOA.
The Association conditionally cross-appeals the court’s conclusion
that the Association did not validly terminate the RECA by
e-mailing notice of termination to Vail Resorts under CCIOA section
38-33.3-305, C.R.S. 2015.
II. Standard of Review
¶ 14 Statutory interpretation is a question of law that we review de
novo. Triple Crown at Observatory Vill. Ass’n v. Vill. Homes of Colo.,
Inc., 2013 COA 150M, ¶ 10. Because a court’s primary duty is to
leave[s] only that relief granted in the Phase I
Order as the law of the entire case.
8
give full effect to the General Assembly’s intent, interpretation
begins by examining the statute’s plain language within the context
of the statute as a whole. Id. “Words and phrases should be given
effect according to their plain and ordinary meaning . . . .” Farmers
Grp., Inc. v. Williams, 805 P.2d 419, 422 (Colo. 1991). The court
“must not strain to give language other than its plain meaning,
unless the result is absurd.” Colo. Dep’t of Soc. Servs. v. Bd. of Cty.
Comm’rs, 697 P.2d 1, 18 (Colo. 1985), superseded by statute on
other grounds, Ch. 58, 1985 Colo. Sess. Laws 289-90.
¶ 15 CCIOA is patterned after the Uniform Common Interest
Ownership Act (UCIOA), and “we accept the intent of the drafters of
a uniform act as the General Assembly’s intent when it adopts a
uniform act.” Yacht Club II Homeowners Ass’n v. A.C. Excavating,
94 P.3d 1177, 1180 (Colo. App. 2003), aff’d, 114 P.3d 862 (Colo.
2005).
III. CCIOA’s Small Planned Community Exception
¶ 16 CCIOA provides in pertinent part that “[i]f a . . . planned
community created in this state on or after July 1, 1998, contains
. . . no more than twenty units and is not subject to any
9
development rights, it is subject only to sections 38-33.3-105 to
38-33.3-107 . . . .” § 38-33.3-116(2).
“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), C.R.S. 2015. “‘Common interest community’
means 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 real estate taxes, insurance premiums, maintenance, or
improvement of other real estate described in a declaration.” § 38-
33.3-103(8). A “‘[d]eclarant’ means any person or group of persons
acting in concert who: . . . [r]eserves or succeeds to any special
declarant right.” § 38-33.3-103(12)(b); see § 38-33.3-103(21)
(“‘Person’ means . . . a corporation . . . .”). And “‘[s]pecial declarant
10
rights’ means rights reserved for the benefit of a declarant to . . .
exercise any development right.” § 38-33.3-103(29).
¶ 17 The provisions of CCIOA “may not be varied by agreement, and
rights conferred by this article may not be waived. A declarant may
not act under a power of attorney or use any other device to evade
the limitations or prohibitions of this article or the declaration.”
§ 38-33.3-104, C.R.S. 2015.
A. Development Rights
¶ 18 In granting the Association’s motion for partial summary
judgment, the trial court concluded that section 19 of the RECA
reserved the right to condominiumize the Airspace Lot and,
therefore, reserved a development right in Vail Resorts as defined by
section 38-33.3-103(14). By using plain language indicating the
existence of a future right — “the Airspace Lot Owner may, at its
election, subject the Airspace Lot to a condominium regime” — Vail
Resorts reserved the right to create within the Airspace Lot a
common interest community in which physical portions thereof
would be designated for separate ownership. § 38-33.3-103(8)
(defining common interest community); § 38-33.3-103(9) (defining
11
condominium). These separately owned physical portions of the
Airspace Lot would be units. § 38-33.3-103(30) (“‘Unit’ means a
physical portion of the common interest community which is
designed for separate ownership . . . .”). Therefore, the plain
language of the RECA allowed Vail Resort to “[c]reate units . . .
within a common interest community.” § 38-33.3-103(14).
Consequently, the court concluded the RECA subjected the
Airspace Lot to “development rights” precluding the Arrabelle from
becoming a small planned community.
¶ 19 Vail Resorts argues that the Arrabelle is a small planned
community because (1) UCIOA section 4-103(b) (Unif. Law Comm’n
1982) establishes that CCIOA does not consider the ability to create
nested common interest communities as development rights; (2) the
UCIOA requires that a development right alter the legal structure of
an existing common interest community and the
condominiumization of the Airspace Lot did not alter the Arrabelle’s
legal structure; and (3) the RECA did not reserve any development
rights in the “declarant” but rather in the “Airspace Lot Owner,”
12
who coincidentally happened to be the declarant in these
circumstances.
¶ 20 Vail Resorts relies upon UCIOA section 4-103(b) (a section that
was not adopted in CCIOA) to support an argument that although a
declarant may reserve a power to place one common interest
community inside another, such a power is not a development
right. That section provides:
If a common interest community composed of
not more than 12 units is not subject to any
development rights and no power is reserved to
a declarant to make the common interest
community part of a larger common interest
community, group of common interest
communities, or other real estate, a public
offering statement may but need not include
the information otherwise required by
paragraphs (9), (10), (15), (16), (17), (18), and
(19) of subsection (a) and the narrative
descriptions of documents required by
subsection (a)(4).
UCIOA § 4-103(b) (Unif. Law Comm’n 1982).
¶ 21 We reject this argument for three reasons. First, UCIOA
section 4-103(b) deals not with development rights but with
disclosure requirements and exempts a declarant from making
certain disclosures where the common interest community is small
13
and the declarant has no power to attach it to another community
that would result in a common interest community of more than
twelve units. It does not alter CCIOA’s definition of development
rights.
¶ 22 Second, it is apparent here that Vail Resorts did in fact have
the power to expand the size of the Arrabelle. It created a common
interest community in the Airspace Lot and, in doing so, quite
obviously exercised a power reserved in the RECA. That it now
chooses to describe that power as something other than a
development right is a distinction without a difference.
¶ 23 Third, the creation of sixty-six condominiums would not allow
a declarant to qualify for an exemption under the small planned
community provision of UCIOA section 4-103(b) in any case. We
can find no provision in either CCIOA or UCIOA for the creation of
an “air lot” above an existing real estate footprint that can contain a
large number of condominiums amalgamated as a single “unit” that
would qualify as a small planned community. In our view this
violates the letter and the spirit of CCIOA’s definition of
14
development rights and, consequently, we discern no error in the
trial court’s conclusion to that effect.
¶ 24 The reservation of the right to establish a second common
interest community within the boundaries of an existing common
interest community is far more akin to the ability to create units
under section 38-33.3-103(14)(b) than the unadopted exclusion
contained in UCIOA section 4-103(b).
¶ 25 Vail Resorts also contends that under CCIOA a development
right must alter the legal structure of the existing common interest
community. Because RECA section 19 only allows for the creation
of a new common interest community within the existing legal
structure of the Arrabelle, Vail Resorts argues section 19 did not
reserve a development right. We disagree.
¶ 26 UCIOA section 2-105 comment 1 (Unif. Law Comm’n 1982)
states in pertinent part:
This Act makes a functional distinction
between the declaration and the public offering
statement. It only requires the declaration to
contain those matters which affect the legal
structure or title of the common interest
community. This includes the reserved powers
of the declarant to exercise development rights
within the common interest community. A
15
narrative description of those rights, however,
and the possible consequences flowing from
their exercise, are required to be disclosed only
in the public offering statement and not in the
declaration.
(Emphasis added.)
¶ 27 Relying on this comment, Vail Resorts argues RECA section 19
does not allow the new condominium community in the Airspace
Lot to affect the legal structure of the Arrabelle. But Vail Resorts
completely glosses over the next two words — “or title” — in the
comment. When Vail Resorts subjected the Airspace Lot to
condominiumization, it sold units to individuals who then gained
title to that property. Even ignoring the individual condominiums,
the common interest community within a common interest
community development still resulted in the Association becoming
the owner of the Airspace Lot, thereby affecting the title of the
Arrabelle.
¶ 28 Moreover, UCIOA section 2-105 addresses those matters that
must be contained in a declaration; it is not a clear definition of
development rights. Instead, UCIOA section 1-103 comment 13
(Unif. Law Comm’n 1982) expressly defines development rights:
16
“Development rights,” includes a panoply of
sophisticated development techniques that
have evolved over time throughout the United
States and which have been expressly
recognized and regulated in the case of
condominiums, in an increasing number of
jurisdictions, beginning with Virginia in 1974.
The concept of “development rights” lies at the
heart of one of the principal goals of the Act,
which is to maximize the flexibility available to
a developer seeking to adjust the size and mix
of a project to the demands of the marketplace,
both before and after creation. The principal
constraint on that flexibility is the obligation of
disclosure, and its impact on marketing. Thus
“development rights” include the rights to:
(a) increase the size or density of a project,
either by adding real property to it, or by
creating new units, common elements or
limited common elements on either the original
land or within the original buildings, or on any
other land or buildings subsequently added;
(b) change the mix of units, common elements
and limited common elements, either by
subdividing units, or by converting units into
common elements or limited common
elements; and
(c) reduce the size of a project by withdrawing
real property — whether land, entire buildings,
or particular units — from it.
As a matter of simple logic, there are few other
things that could be done to a real property
regime which are not include [sic] within the
concept of development rights. This great
17
flexibility, particularly when coupled with the
broad definitions of “unit” and “real estate”,
the power to create leasehold projects, and the
right to subordinate unit mortgages to blanket
mortgage on either the units or common
elements, is an important element in the Act.
....
The right “to create units, common elements,
or limited common elements” has frequently
been useful in the case of commercial or mixed
use common interest communities, where the
declarant needs to retain a high degree of
flexibility to meet the space requirements of
prospective purchasers who may not approach
him until the common interest community has
already been created. For example, an entire
floor of a high-rise building may be intended
for commercial buyers, but the declarant may
not know in advance whether one purchaser
will want to buy the whole floor as a single
unit or whether several purchasers will want
the floor divided into service [sic] units,
separated by common element walls and
served by a limited common element corridor.
This development right is sometimes useful
even in purely residential common interest
communities, especially those designed to
appeal to affluent buyers. Similarly, the
development rights “to subdivide units or
convert units into common elements” is most
often of value in commercial common interest
communities, but may be useful in certain
kinds of residential common interest
communities as well.
18
¶ 29 Section 19 of the RECA allows Vail Resorts to “increase the . . .
density of [the] project . . . by creating new units . . . on . . . the
original land.” UCIOA § 1-103 cmt. 13 (Unif. Law Comm’n 1982).
Thus, the condominiumization of the Airspace Lot was a
development right.
¶ 30 Vail Resorts next argues the RECA reserved the
condominiumization of the Airspace Lot to the “Airspace Lot
Owner,” not the “declarant,” and, therefore, it is not a development
right. The creativeness of this argument does not further Vail
Resorts’ position. Ultimately, when the RECA was drafted, Vail
Resorts was both the declarant and the Airspace Lot Owner.
Section 38-33.3-103(31) states in pertinent part that a “‘[u]nit
owner’ means the declarant or other person who owns a unit . . . .
In a . . . planned community, the declarant is the owner of any unit
created by the declaration until that unit is conveyed to another
person.”
¶ 31 The RECA was created by Vail Resorts, which owned both the
Airspace Lot and the Project Lot, and was signed on behalf of “both
owners” by the same individual. To split hairs so finely as Vail
19
Resorts would have us do would lead to an absurd result where a
declarant, simply by titling itself as “Unit Owner,” could circumvent
the clear intent of section 38-33.3-116(2) to exclude planned
communities with development rights from the small planned
community exception to CCIOA. See UCIOA § 1-103 cmt. 24 (Unif.
Law Comm’n 1982) (“The definition makes it clear that a declarant,
so long as he owns units in a common interest community, is the
unit owner of any unit created by the declarations, and is therefore
subject to all of the obligations imposed on other unit owners,
including the obligation to pay common expense assessments.”).
¶ 32 RECA section 19 provides “that the Airspace Lot Owner may,
at its election, subject the Airspace Lot to a condominium regime
under CCIOA.” When executed, the Airspace Lot Owner was the
declarant creating the declaration reserving the right to
condominiumize. Therefore, the declarant was reserving the right
to create units in the common interest community and that
community was subject to development rights. § 38-33.3-116(2);
see § 38-33.3-103(14)(b), (29). Accordingly, the Arrabelle is not a
small planned community.
20
B. Number of Units
¶ 33 The Association alternatively argues on appeal that we may
affirm the decision of the trial court because the Arrabelle contains
more than twenty units. § 38-33.3-116(2) (a small planned
community contains no more than twenty units); see Taylor v.
Taylor, 2016 COA 100, ¶ 31 (“An appellate court may . . . affirm on
any ground supported by the record.”). The Association and Vail
Resorts disagree about how to quantify the number of units in the
Arrabelle.
¶ 34 Vail Resorts argues that RECA section 18 establishes only two
lots for purposes of section 38-33.3-116(2): “The planned
community created by this Agreement contains only two lots, the
Project Lot and the Airspace Lot, and is therefore exempt from
CCIOA’s provisions pursuant to the exemption contained in section
38-33.3-116(2) of CCIOA for planned communities containing no
more than 20 lots.” Therefore, Vail Resorts argues that when it
created the condominium units under the separately filed
condominium declaration, it did not alter the two unit structure of
the Arrabelle.
21
¶ 35 On the other hand, the Association argues that CCIOA does
not provide for the separate consideration of units within a single
planned community based on separate declarations filed by the
declarant. See § 38-33.3-103(13) (“‘Declaration’ 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.”); Lynn S. Jordan et al., The Colorado Common Interest
Ownership Act, 21 Colo. Law. 645, 650 (Apr. 1992) (“Under CCIOA,
a declaration includes not only the recorded document entitled
‘declaration,’ setting forth covenants, conditions and restrictions,
but also all recorded maps, plats and plans or any combination
thereof.”). Instead, the Association suggests that all separately
owned physical portions within a planned community should be
counted together for purposes of the small planned community
exception. See § 38-33.3-103(30) (defining unit).
¶ 36 We agree with the Association. Reading CCIOA as a whole it is
apparent that the General Assembly intended a “clear,
comprehensive, and uniform framework for the creation and
22
operation of common interest communities.” § 38-33.3-102(1)(a),
C.R.S. 2015 (CCIOA legislative declaration). The small planned
community exception, section 38-33.3-116, is meant to remove
communities with fewer than twenty units and no development
rights from this “clear, comprehensive, and uniform framework.” It
is the exception, not the rule.
¶ 37 The General Assembly intended for most common interest
communities to be bound by CCIOA and for developers to have
“flexible development rights with specific obligations within a
uniform structure of development of a common interest
community.” § 38-33.3-102(1)(c) (emphasis added). Allowing Vail
Resorts to use multiple levels of declarations to avoid those specific
obligations through a hyper-technical interpretation of CCIOA
violates the purpose and the spirit of the statute. Furthermore, a
developer “may not . . . use any . . . device to evade the limitations
or prohibitions of this article” and the “rights conferred by this
article may not be waived.” § 38-33.3-104. Were we to accept Vail
Resorts’ interpretation of CCIOA, we would be supporting a legal
23
fiction intended to evade the limitations and prohibitions of CCIOA.3
The General Assembly has expressly disavowed this approach.
¶ 38 The Arrabelle contains a hotel, retail shops, restaurants,
parking, a spa, an ice-skating rink, and sixty-six condominiums.
This, by common definition, is not a “small planned community.”
And by statutory definition, we conclude the Arrabelle contains
sixty-seven units (the Project Lot owned by Vail Resorts and sixty-
six condominiums whose physical portion of the common interest
community is designed for separate ownership). We perceive no
language in CCIOA to support Vail Resorts’ argument that the fact
that these units were created by two declarations should preclude
their consideration for the total number of units within a single
planned community.
¶ 39 Nor are we concerned that this conclusion requires reversing
the trial court as suggested by Vail Resorts. After the Phase I Trial,
3 Counsel responsible for drafting the RECA gave a presentation at
the American Bar Association’s Joint Fall Session on September 28,
2007, where she acknowledged that the RECA was intended to
prevent residents from having “any say, period.” When testifying at
the Phase I Trial, counsel also acknowledged that the RECA used a
square footage allocation model “to keep the residential owners out
of the process.”
24
the court was forced to appoint a special master to complete the
reformation of the RECA and creation of a master association. The
instruments adopted by the court include statements that “[t]here is
hereby created a planned community . . . consisting of the Project
Lot and the Airspace Lot” and “[e]ach Lot is a ‘unit’ as defined by
the Act.” There is nothing in CCIOA to suggest that the current
structure of the Arrabelle as a Project Lot and Airspace Lot with
sixty-six separate condominium units within the Airspace Lot is
inappropriate. See § 38-33.3-103(22) (“A condominium or
cooperative may be part of a planned community.”). Rather, the
error would be in allowing that structure to skirt the requirements
of CCIOA by hiding behind a fictional two-unit scheme. Developers
are free to exercise their “flexible development rights” so long as
they respect the “specific obligations” of CCIOA.
§ 38-33.3-102(1)(c). Hence, a developer may create a common
interest community that has multiple declarations creating planned
communities and condominium communities,4 but a court may
4For example, Highlands Ranch, Colorado, a town of 96,000
people, is a common interest community covered by CCIOA.
Highlands Ranch Metro District, https://perma.cc/VU94-8N8Y;
25
consider all the units within that common interest community in
determining whether the small planned community exception to
CCIOA applies. See § 38-33.3-103(8) (common interest
community); § 38-33.3-103(9) (condominium); § 38-33.3-103(22)
(planned community); § 38-33.3-103(30) (unit); § 38-33.3-116
(small planned community exception).
¶ 40 In short, because the Arrabelle contains a total of sixty-seven
units, it is not a small planned community containing fewer than
twenty units under section 38-33.3-116(2).
IV. Reformation of the RECA
¶ 41 After determining that the Arrabelle was not a small planned
community, the court conducted the Phase I Trial to determine how
to reform the RECA to comply with CCIOA.
¶ 42 Part of the trial focused on whether the cost allocation
provision of the RECA violated CCIOA section 38-33.3-207(2), which
requires that cost “allocations may not discriminate in favor of units
owned by the declarant or an affiliate of the declarant.” Ultimately,
the court concluded that while the square footage mechanism to
Highlands Ranch Community Association, Governing Documents,
https://perma.cc/4HAG-RQUT.
26
determine cost allocation listed in the RECA was appropriate, the
original cost allocation of 59.7% to the Association was based upon
“square footage calculations pulled from various maps and tables
prepared long before the Arrabelle was constructed,” which
discriminated in favor of Vail Resorts. Therefore, the court accepted
the calculations of the Association’s expert who used as-built
drawings to calculate square footage, resulting in a 49.1%
allocation to the Association.
¶ 43 The remainder of the Phase I Trial focused on how to reform
the balance of the RECA. The court ordered the parties to create a
master association, § 38-33.3-220, strike the amenity access fee in
the cost allocation provision, § 38-33.3-207, adjust utility costs,
§ 38-33.3-315, C.R.S. 2015, and consent to binding arbitration,
§ 38-33.3-124.
A. Cost Allocation
¶ 44 Section 6(b) of the RECA states:
Each calendar year, the Airspace Lot Owner
will pay to the Project Owner a portion,
calculated as provided for below (the “Expense
Payment”), of the operating, maintenance,
utility, employee and other expenses related to
the ongoing ownership, operation and
27
maintenance of the Project Improvements,
including, without limitation, the Amenities,
and related off-site improvements and facilities
to the extent the responsibility of the Project
Owner (the “Operating Costs”). The Operating
Costs in no event will include any costs solely
attributable to an income-generating portion of
the Project Improvements for which the
Airspace Lot Owner has access to or use of by
virtue of being a member of the public, and not
due to the Airspace Lot Owner’s rights under
this Agreement, such as, by way of example
only, any restaurant or retail shop within the
Project Improvements, all as determined by the
Project Owner in its ordinary business
judgment. The Parties acknowledge and agree
that the Expense Payment is also intended to
compensate the Project Owner for, among
other things, the cost of all utility services
provided to the Airspace Lot as part of the
utility service provided to the Project
Improvements, but not separately metered,
and the cost of valet service. Each year’s
Expense Payment will be comprised of two
components: (a) a flat fee intended to cover the
Airspace Lot Owner’s share of all Operating
Costs related to the Amenities (the “Amenity
Access Fee”); and (b) 59.7% of the “Estimated
Annual Operating Costs” (as defined below),
which percentage the parties acknowledge and
agree is based on the approximate square
footage of the Airspace Improvements[5] divided
by the sum of the approximate square footage
of the Airspace Improvements and the Project
5“Airspace Improvements” are defined in the RECA as “a
combination of residential dwellings and individual sleeping rooms
attached to some of the residential dwellings.”
28
Improvements, excluding the square footage of
the parking garage and loading and delivery
facility within the Project Improvements and is
not subject to adjustment based on
remeasurement or otherwise. The Amenity
Access Fee is initially established at $167,500
per year, but may be increased from time to
time by the Project Owner in its ordinary
business judgment based upon circumstances
then prevailing. The Parties acknowledge and
agree that the Amenity Access Fee is a flat fee
in lieu of calculating the Airspace Lot Owner’s
share of those portions of the Operating Costs
related to operating the Amenities, and the
Estimated Annual Operating Costs do not
include any costs related to operating the
Amenities, as determined by the Project Owner
in its ordinary business judgment. The Parties
acknowledge and agree that there is no
operational history upon which to base the
first year’s Expense Payment and, based upon
estimated costs, the parties have determined
that from the date of this Agreement through
December 31, 2008, the Airspace Lot Owner’s
annual Expense Payment will be $1,975,853,
prorated based upon a 365-day year. Each
calendar year thereafter, prior to the start of
the calendar year, the Project Owner will
develop a budget estimating the total amount
of the year’s Operating Costs (excluding
Operating Costs for the Amenities) anticipated
to be incurred by the Project Owner in that
calendar year (the “Estimated Annual
Operating Costs”). At any time, the Project
Owner may cease charging the Amenity Access
Fee and, upon such event, may include all
Operating Costs related to the Amenities in the
Estimated Annual Operating Costs and the
29
Airspace Lot Owner will pay its percentage
share of such costs as part of the Expense
Payment. The Airspace Lot Owner will pay
each Expense Payment without demand or set-
off, in equal installments due on the first day
of each calendar quarter in such calendar
year. Any failure or delay of the Project Owner
in establishing or updating the amount of the
Expense Payment for any calendar year will
not be deemed a waiver, modification, or
release of the right to so establish or update
those installments, or of the obligation of the
Airspace Lot Owner to pay installments of an
Expense Payment prospectively.
¶ 45 The court made several interrelated conclusions affecting the
expense payment due by the Association. First, the court
concluded that “the [Vail Resorts]-owned facilities in which
residential owners are granted an easement function as
CCIOA-defined common elements.” Second, the “59.7%
square-footage ratio was calculated without any reference to the
RECA” or the formula set forth in section 6(b). Third,
the data relied upon by [a Vail Resorts
employee to establish the 59.7%] does not take
into account over 70,000 square feet of
building space . . . [and] contrary to the RECA
formula, [Vail Resorts] excluded from this ratio
several other areas of the Project
Improvements such as the plaza and skating
rink. By removing the square footage for these
substantial areas of the Project Improvements
30
from the total (all of which are owned by [Vail
Resorts]), [Vail Resorts] inflated the rate by
which costs are allocated to the Association.
¶ 46 And fourth, “the [Vail Resorts’-]derived 59.7% is not supported
by the evidence as being a fair representation of how the Project
Space and the Airspace is allocated between the parties and . . .
such analysis by [Vail Resorts] discriminates in favor of [Vail
Resorts] at the expense of the Association.”
¶ 47 Under CCIOA, “[t]he declaration must state the formulas used
to establish allocations of interest. Those allocations may not
discriminate in favor of units owned by the declarant or an affiliate
of the declarant.” § 38-33.3-207(2).
¶ 48 Vail Resorts contends the court erred in its interpretation
because the RECA favors the Project Owner, not the declarant, in
allocating 59.7% of costs to the Association. This is a similar
argument to the one Vail Resorts made regarding the Airspace Lot
Owner reserving the right to develop rather than the declarant. The
fact remains that Vail Resorts is both the declarant and the Project
Owner. Thus, when the Project Owner (Vail Resorts) discriminated
in favor of itself by shifting approximately 60% of its costs to the
31
Association while in actuality owning approximately 50.9% of the
Arrabelle, the declarant (Vail Resorts) was also doing so.
¶ 49 Vail Resorts relies on the amended UCIOA section 2-107
comment 10 (Unif. Law Comm’n 2008), which interprets the 1982
UCIOA, to support its position that the RECA does not discriminate
in its favor:
Questions have arisen concerning the drafters’
intent regarding the language in subsection
(b), which prohibits the declaration in
allocating votes and common expense
liabilities among the units, from
“discriminating in favor of units owned by the
declarant.” Specifically, the question is
whether this section imposes a special level of
scrutiny on the allocation of votes and
common expense liability to units that the
declarant may own, compared to similar units
that are owned by persons who are not
declarants.
The answer is that the language means what it
says: that is, if the allocated interests would
change at the time the declarant sold the unit,
then the allocated interests are improper
because they discriminate in favor of the
declarant’s ownership of that unit. However, if
the allocation of common expenses and votes
is permanent rather than dependent on the
owner’s identity and one whose formula is
identified in the declaration, then the
allocation is proper. Subject to the obligations
of good faith in Section 1-113 and the
32
prohibition on unconscionable terms in
Section 1-112, this would be true even if the
effect of the allocation were to create a relative
benefit in favor of units that the declarant or
its affiliates intend to own for an indefinite
period.
¶ 50 To be sure, this comment suggests that as long as the Project
Owner always benefits from the unfair allocation of costs between
itself and the Airspace Lot Owner, the allocation is “proper.”
However, the court not only determined that the cost allocation
discriminated in favor of Vail Resorts because Vail Resorts excluded
significant portions of the Project Lot from the cost allocation
formula but also because the “59.7% square-footage ratio was
calculated without any reference to the RECA” or the formula set
forth in section 6(b). Consequently, the allocation of 59.7% in
RECA section 6(b) violates the first sentence of section
38-33.3-207(2) because the allocation did not match “the formulas
used to establish allocations of interests.”
¶ 51 Moreover, the example in comment 10 goes on to describe a
scenario which highlights how the RECA discriminates in favor of
Vail Resorts.
33
A common interest community consists of a
high-rise building containing 10 floors of equal
size. There are 4 units on each floor except
the top floor, where there is one 1 ‘penthouse’
unit. Even though the penthouse unit is four
times the size of the units on the 9 other
floors, and is clearly more valuable than the
other 36 units, the declaration allocates an
equal share of the common expenses to all the
units, including the penthouse unit. The effect
of this allocation is that the penthouse unit
bears a 1/37th share of the common expenses
— this is only 25% of the cost on a per square
foot basis — of the share borne by each unit
owner on a lower floor.
Assume that the declaration properly contains
the formula used for the allocation of common
expenses among the units and properly
discloses the material and unusual
circumstances that the penthouse benefits
substantially from the formula used to allocate
expenses.
The fact that the declarant intends to retain
ownership of the penthouse unit and live in
that unit for an indefinite period does not
mean that the standard contained in section
2-107(b) has been violated. However, the Act
would be violated if the declaration provided
that, upon the declarant’s sale of the
penthouse, the formula for allocating common
expenses would be changed to an allocation
among all the units based on their relative
sizes.
In the example, this appears to yield an unjust
result and a court might be invited to consider
the extent to which the declarant had acted in
34
bad faith or unconscionably in making such an
allocation. Nevertheless, any other rule would
simply encourage challenges to any allocation
of common expenses, since an argument can
always be made that any allocation — whether
done on relative size, number of rooms,
“value”, location within a building, equality or
any other basis — inevitably works to the
relative disadvantage of some owners
compared to others in the same community.
UCIOA § 2-107 cmt. 10 (Unif. Law Comm’n 2008) (emphasis added).
¶ 52 Here, the RECA’s 59.7% allocation did not match “the formula
used for the allocation of common expenses among the units” and
did not “properly disclose[] the material and unusual
circumstances” that Vail Resorts “benefit[ed] substantially from the
formula used to allocate expenses.” This lack of transparency
supports the court’s conclusion that section 6(b) was
“unconscionable under CCIOA § 112”6 and discriminated in favor of
units owned by Vail Resorts.
6 Vail Resorts argues the trial court repudiated this finding in its
Phase II Trial order. However, as we noted in footnote 2, the court
did not revisit its earlier conclusions in the Phase II Trial. Instead,
the Phase II Trial focused on the remaining claims and involved
different evidence than the Phase I Trial. Accordingly, the trial
court’s conclusion in the Phase I Trial order that RECA section 6(b)
was unconscionable under section 38-33.3-112, C.R.S. 2015, is
appropriate and valid.
35
¶ 53 Because the 59.7% cost allocation to the Association did not
correspond to the formula established in RECA section 6(b), and
because that allocation discriminated in favor of Vail Resorts’
Project Lot without properly disclosing that the allocation
substantially benefitted that lot, we discern no error in the trial
court’s conclusion to reform RECA section 6(b) pursuant to the
Association’s expert’s recommendation based on as-built drawings
of the Arrabelle.
B. Additional Reformations
¶ 54 The court ordered additional reformations to the RECA and
the creation of a master association under section 38-33.3-220.
Vail Resorts argues these actions exceeded the authority of the
court. We disagree.
¶ 55 “The principles of law and equity . . . supplement the
provisions of this article . . . .” § 38-33.3-108, C.R.S. 2015.
The court, upon finding as a matter of law that
a contract or contract clause relating to a
common interest community was
unconscionable at the time the contract was
made, may refuse to enforce the contract,
enforce the remainder of the contract without
the unconscionable clause, or limit the
36
application of any unconscionable clause in
order to avoid an unconscionable result.
§ 38-33.3-112(1). “The remedies provided by this article shall be
liberally administered to the end that the aggrieved party is put in
as good a position as if the other party had fully performed.”
§ 38-33.3-114(1), C.R.S. 2015.
¶ 56 “Reformation is an equitable remedy within the trial court’s
discretion.” Davis v. GuideOne Mut. Ins. Co., 2012 COA 70M, ¶ 57;
see CIGNA Corp. v. Amara, 563 U.S. 421, 440 (2011) (“The power to
reform contracts (as contrasted with the power to enforce contracts
as written) is a traditional power of an equity court, not a court of
law, and was used to prevent fraud.”); Restatement (Third) of
Property: Servitudes § 6.3 cmt. a (Am. Law Inst. 2000) (“The judicial
power to authorize creation of an association is that of a court of
equity with its attendant flexibility and discretion to fashion
remedies to correct mistakes and oversights and to protect the
public interest.”). A trial court abuses its discretion when its
decision is manifestly arbitrary, unreasonable, or unfair, or when it
misapplies the law. Landmark Towers Ass’n v. UMB Bank, N.A.,
2016 COA 61, ¶ 31.
37
¶ 57 At the conclusion of the Phase I Trial, the court ordered that
“[i]f the parties are unable to draft or ratify a declaration without
the Court’s assistance, this matter will be referred to a special
master of the Court’s choosing, who will draft a declaration that
shall, subject to the Court’s approval, be adopted as an Order of the
Court.” The court similarly noted that “[i]f the parties cannot agree
on how to allocate . . . utility costs without the Court’s assistance,
the matter will be referred to a special master of the Court’s
selection,” and “[i]f the parties cannot agree on how to allocate . . .
recalculated costs without the Court’s direction . . . the matter will
be referred to a special master of the Court’s selection.” Because
the parties could not agree after a year, the court appointed a
special master (recommended by Vail Resorts) who drafted the
master association declaration and reforms to the RECA.
¶ 58 Vail Resorts specifically challenges the court’s reformations on
parking, lobby expenses, utility costs, and mandatory arbitration.
Parking, lobby, and utility costs all stem from RECA section 6(b),
which the court concluded violated CCIOA section 38-33.3-207(2)
and was unconscionable under section 38-33.3-112. These
38
conclusions supported reformation of the RECA. The court then
attempted the fairest approach to reformation by looking at the
requirements of CCIOA for guidance. See § 38-33.3-124 (alternative
dispute resolution); § 38-33.3-315 (utilities). Indeed, the court
simply placed Vail Resorts and the Association in the position they
would have been had Vail Resorts initially created a
CCIOA-compliant common interest community. While the ultimate
reforms may have been based on permissive, rather than
mandatory, terms recommended by CCIOA, we perceive no error in
the court adopting those terms.
¶ 59 We also reject Vail Resorts’ argument of overreaching insofar
as it relies on Hauer v. McMullin, 2015 COA 90 (cert. granted Mar.
21, 2016). In Hauer, the question was whether several recorded
documents could satisfy CCIOA’s requirement that common interest
communities be formed by an assessment obligation described in a
declaration. ¶ 27. The division, without citation to authority,
stated that “[w]e reiterate the trial court’s conclusion that courts do
not have the power to create an agreement for the members of a
39
homeowners association, or to create an association’s operational
infrastructure.” ¶ 30.
¶ 60 First, CCIOA section 38-33.3-108 allows a court to use
principles of law and equity to supplement CCIOA; this includes the
court’s ability to create an association under certain circumstances.
Indeed, the division in Hauer quoted the Restatement (Third) of
Property: Servitudes section 6.2 comment c (Am. Law Inst. 2000),
that “an association may be created . . . by a court under certain
circumstances.” ¶ 20.
¶ 61 Second, the trial court in Hauer added a provision to the
documents creating an implied common interest community; the
court created the fractional interest of the common expenses for
which each lot owner was responsible. ¶ 24.
¶ 62 Third, the quoted statement is not integral to Hauer’s
conclusion and is, therefore, dicta. See Hardesty v. Pino, 222 P.3d
336, 340 (Colo. App. 2009) (“[D]ictum does not become law of the
case.”) (citation omitted).
¶ 63 And while Vail Resorts argues the trial court substituted its
judgment for the judgment of the parties, we note the only party to
40
the original RECA was Vail Resorts itself. While the Association
became the Airspace Lot Owner, there was never any initial
agreement between Vail Resorts and the Association that the court
disregarded. Moreover, the Association and Vail Resorts, having
been afforded one year to resolves this matter, were unable to agree
on reformations to the RECA. The litigation in this case had been
ongoing for four years and the court had yet another phase of trial
to conduct. See People v. Sandoval-Candelaria, 2014 CO 21, ¶ 26
(“[O]ur cases make clear that trial courts have broad discretion to
manage their dockets.”). We conclude that principles of equity
support the trial court’s conclusion that these reformations were
necessary for the RECA to comply with CCIOA, and we discern no
abuse of discretion on the part of the trial court in appointing a
special master and adopting his reformations.
V. Conditional Cross-Appeal and Attorney Fees
¶ 64 Because we do not set aside any of the court’s reformations,
we do not address the Association’s conditional cross-appeal
seeking a determination that the Association validly terminated the
RECA by e-mail notice to Vail Resorts in February 2009.
41
¶ 65 Pursuant to C.A.R. 39.1 and RECA section 21, we award the
Association the stipulated $300,000 in attorney fees for this appeal.
VI. Conclusion
¶ 66 The judgment is affirmed.
JUDGE BOORAS and JUDGE MÁRQUEZ concur.
42