March 26, 2019

Colorado Court of Appeals: Reformation of Covenants Agreement Placed Parties in Position with CCIOA-Compliant Agreement

The Colorado Court of Appeals issued its opinion in Arrabelle at Vail Square Residential Condominium Association, Inc. v. Arrabelle at Vail Square LLC on Thursday, August 25, 2016.

Development—Association—Colorado Common Interest Ownership Act—Small Planned Community—Reformation—Special Master.

The Arrabelle at Vail Square (Arrabelle) is a luxury development built and managed by Vail Resorts Development Company and Arrabelle at Vail Square LLC (Vail Resorts). Arrabelle includes multi-million dollar residential condominiums, a boutique hotel, restaurants, retail shops, an ice-skating rink, a spa, parking, and other amenities. 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 Arrabelle. Vail Resorts then 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 cost allocations between both lots, and it regulates the use and enjoyment of both lots. Immediately after recording the RECA, Vail Resorts recorded a condominium plat creating 67 condominiums in the Airspace Lot and a condominium declaration creating the Arabelle at Vail Square Condominium Association, Inc. (Association). Problems soon developed between Vail Resorts and the Association. The Association subsequently filed this action seeking a declaratory judgment allowing it to terminate the RECA or, alternatively, ruling that the RECA was in violation of the Colorado Common Interest Ownership Act (CCIOA), requiring reformation. Among other things, the trial court (1) ruled that Arrabelle is not a small planned community under C.R.S. § 38-33.3-116(2), because it was subject to development rights; (2) reformed the RECA to adjust the cost allocation ratio between the lots; and (3) had a special master draft an amendment to the RECA.

On appeal, Vail Resorts argued that the trial court erred in ruling that Arrabelle is not a “small planned community” under CCIOA § 38-33.3-116(2) because Vail Resorts reserved development rights under the RECA. By definition, the Arrabelle, which contains 67 units, is not a small planned community containing fewer than 20 units under CCIOA.

Vail Resorts also argued that the trial court erred in reforming the cost allocation and RECA and master association documents because those documents contain terms not required by CCIOA. 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 benefited that lot, the trial court did not err in reforming RECA section 6(b) pursuant to the Association’s expert’s recommendation based on as-built drawings of the Arrabelle.

Vail Resorts also contended that additional court-ordered reformations to the RECA exceeded the authority of the court. Principles of equity support the trial court’s conclusion that reformations were necessary for the RECA to comply with CCIOA, and the trial court did not abuse its discretion in adopting the special master’s reformations. The court placed Vail Resorts and the Association in the position they would have been had Vail Resorts initially created a CCIOA-compliant common interest community.

The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

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