By Kerry H. Wallace, Goodman & Wallace, P.C.
Often in planned communities and rural areas owners purchase adjacent lots which remain undeveloped. The purpose typically is to protect privacy and views for the developed adjacent lot. Merging the lots into one or adding landscaping and improvements can require the community to address development standards and plat amendment legal requirements. Recent legislative changes relative to taxation of adjacent undeveloped lots likely will lead to many communities needing to insure that correct legal processes are adhered too and that the communities’ governing documents are up to speed.
Tax Implications
The Gallagher Amendment, adopted in 1982, requires the legislature to annually adjust the tax rate for residential real property but set a fixed assessment rate for "all other taxable property" at twenty-nine percent. Because of this requirement, the General Assembly has continually lowered the assessment rate for residential real property, the result being a significantly lower assessment rate for “residential real property.” For example, during the years 2013 to 2015, the assessment rate for residential real property was 7.96 percent. In contrast, the tax rate for vacant land remained at twenty-nine percent. With such a large discrepancy, landowners often seek classification of adjacent undeveloped land as residential land under Section 39-1-102(14.4)(a), C.R.S. (2019) which expressly contemplated the classification of multiple parcels as residential land. In those situations in order to qualify, per the law applicable until now, any undeveloped parcels were required to be: (1) contiguous with residential land; (2) used as a unit with residential land; and (3) under common ownership with residential land.
In 2020 the Colorado Supreme Court decided Mook v. Summit County Board of County Commissioners, 457 P.3d 568 (Colo. 2020), which addressed the standards used to determine if an undeveloped parcel can be considered residential for tax purposes. The holding lead to an amendment of the portion of the statute that defines Residential Land, with the following being a new key aspect of that defined term: “A parcel of land without a residential improvement located thereon, if the parcel is contiguous to a parcel of residential land that has identical ownership based on the record title and contains a related improvement that is essential to the use of the residential improvement located on the identically owned contiguous residential land. “Related improvement” means a driveway, parking space, or improvement other than a building, or that portion of a building designed for use predominantly as a place of residency by a person, a family, or families.”
Community Considerations and Approaches
Depending on how the enforcing governmental agencies apply the new statutory definitions relative to Residential Land, communities may see an increase in requests to merge lots and/or add “Related Improvements”to a contiguous undeveloped lot in order to acquire or maintain the residential classification for tax purposes. Communities can allow for smooth governance on such matters by adopting policies and procedures relative to merging lots, amending building envelopes and constructing improvements on adjacent lots. In the event of a required amendment to a final plat or plat map, it is important to insure that the requirements of the Colorado Common Interest Act at C.R.S. 38-33.3-217 (1) are met, which requires the approval of 67% of the owners to amend a plat (this is lowered to 50% if the Declaration for the community provides for that lower percentage). This means that any plat amendment should receive association approval through the Board, 67% approval by the owners as well as meeting all governmental requirements. A plat amendment that does not meet these requirements is arguably void.
KERRY H. WALLACE is a Partner in the law firm Goodman and Wallace, P.C. located in Edwards – 15 miles west of Vail. Kerry’s practice focuses upon resort based common interest communities including governance guidance and compliance with the ever-changing common interest community legal landscape. Kerry served on the Eagle County Planning and Zoning Committee from 2003-2007, is a current Business Partner of CAI-RMC and has been a speaker and panel member at numerous CAI Colorado - Rocky Mountain conferences.
