Melissa Doolan, Esq. shares her insights in this featured article, republished from HOAleader.com.
An online report claims that condos and HOAs can boost budgets by doing things like renting out amenities, adding vending machines in common areas, and assessing leasing fees for unassigned parking spaces.
Here, our experts walk you through these and other options and explain whether state laws, governing documents, or logistics would permit or prohibit such efforts. Plus they reveal a few ideas they’ve seen clients effectively implement to ease budget woes.
Everybody’s Looking Under Seat Cushions for Money
Many clients of Shannon M. McCormick, a Cleveland-based partner and Ohio office chair at Kaman & Cusimano, who has represented condos and HOAs throughout Ohio for about 13 years and who specializes in collections, are looking to find more funds to maintain their communities. “Things are pretty tight right now with inflation and insurance costs,” she says.
True, but a push to generate income gives Melissa S. Doolan, an attorney at The Travis Law Firm in Phoenix, who has represented community associations for the last 15 years, pause.
“Your income comes from your assessments,” she says. “You should be periodically raising your assessments to cover costs because you need to make enough money to pay your bills.”
That’s also a point made to clients by Gregory R. Eisinger, a partner at Eisinger Law who represents condos and HOAs throughout the state and who also teaches a course on condo law at Nova Southeastern University, Shepard Broad College of Law, in addition to Florida state-approved condominium and HOA board certification courses.
“The question really revolves around how the association can get income,” he says. “I tell clients that associations shouldn’t be in the business of trying to generate income. Of course, try to save when you can, and if you’re in a position to earn money, sure. But I have clients doing things like trying to buy stock and purchasing units.
“While some have the ability to buy units in their community, I counsel them not to take risks with other people’s money,” says Eisinger. “You’re a not-for-profit and shouldn’t be in the business of making profits.”
Also remember that your documents will be critical in any attempt you make to rake in more money. “As a nonprofit, associations are very limited in what they can do,” says Thomas W. Chaffee, a partner at O’Toole Rogers LLP in Lafayette, Calif., who, after he became the president of his own HOA, began to focus more on community association work in his legal practice. “For instance, often you can’t charge a fee to your members for them to use your common area because they own it.”
Doolan agrees. “I’d have to see what the documents say,” she states. “My concern would be that it’s an amenity that owners are entitled to use. You can often charge a damage or security deposit. But owners are entitled to use that amenity unless the documents specifically allow you to charge them for it.”
Fair points. But if you’re trying to minimize the pain of assessment increases, are any of these ideas workable and advisable? Here’s what our experts say:
- Renting out amenities—This idea has two variations. The first is adding a charge for your own residents and owners to use your community’s amenities. The second is doing the same for outsiders to use your amenities.
“The key here, and it’s the key to about 90 percent of the questions for associations, is whether your documents allow you to rent out amenities,” notes Eisinger.
“If your documents, for example, say your unassigned parking spaces are for the use of owners and guests, I don’t think you can charge people to use them,” he explains. “That right to charge needs to be in the governing documents, though you could amend the documents to include that right. If your documents are completely silent, I believe the board’s right to do that is questionable.
“When it comes to renting other amenities, one thing I see rented out most is a common area room,” states Eisinger. “Generally, there typically aren’t restrictions in the governing documents on renting that out, and documents typically don’t specifically say the common area room is for everyone whenever they want. So I’ve seen boards say, ‘We’re going to rent this out to owners.’”
Chaffee has, too. “If you have a clubhouse and you’re temporarily renting it to an owner or resident for an afternoon for a party, I see no issue,” he says. “Opening it to owners and residents for rental is a great way to make extra money without any potential downside.
“However, if a board tells me they want to rent their clubhouse to nonresidents, we’d have a lengthy discussion,” adds Chaffee. “We’d talk about the Americans with Disabilities Act, which generally an HOA doesn’t need to comply with, and we don’t want to be in that kind of commercial relationship.”
Doolan raises similar concerns. “Boards need to understand the implications of renting to people who aren’t homeowners,” she says. “I worry homeowners will bring a claim that their right to use the amenity is being interfered with. Also, are you making your amenity a public accommodation under the ADA? Even if that’s not the case, to me that doesn’t offset the point about raising the assessments, which is what you should be doing.”
McCormick says boards in Ohio could consider renting amenities to owners. “Absolutely, under Ohio law, boards can charge owners for the rental of an amenity as long as there’s nothing in their declaration that prohibits it,” she says. “I’d advise them to make sure they have rules in place for its use and to make sure you’re treating people the same. You can’t allow your friends in the community to rent it but not others.
“In Ohio, most associations are also allowed to charge an outsider for use of your amenities,” adds McCormick. “But consider your liability from inviting people onto association property. That’s potentially an issue.”
- Charging for parking spaces—This one is also a possibility with caveats based on the documents, though Doolan remains conservative on this front. “I don’t know if the documents I’ve seen would allow that,” she says. “If owners have the right to use those spaces, can you assess a fee without putting that in your documents? And how do you police that? Who gets what spot?”
It’s also a document-specific question in Ohio. “It depends on what’s in the governing documents,” says McCormick. “They’re only able to do it if it’s a common element and the documents give the board the right to charge for the spots or assign them. Documents usually aren’t that specific.
“If it’s common area and the board has the right to assign the spots, they should create rules to define how they’re going to be doing that and the charge associated with it,” she suggests. “You should also be providing proper notice to owners of that. If you do assign spots, also specify when you can suspend that right, such as when an owner is delinquent in dues. Also specify how many people per unit are allowed to use those spots. What if there are two people in the unit? Can both do it?”
Eisinger also looks at the documents. “If they say everyone gets one space, the rest of the spaces can be used at the discretion of the board,” he says. “If the board has that right, it’s OK as long as they make a fair, nonarbitrary, and reasonable rule. You can’t rent to your friends for $10 per month when others are willing to pay $100 a month. Otherwise, you can cause a lot of selective enforcement and discrimination issues, especially if there aren’t enough spaces to give to everybody who’s interested.”
Also, be careful how you word any agreement you create with owners, advises Chaffee. “We have a few clients with extra spaces, though they’re not necessarily guests spaces,” he says. “Over time, one association almost deeded these spots to people. They didn’t charge for the spaces; it sort of became tradition, saying ‘This unit has two spaces.’
“We were having a discussion with the board, and I said, ‘What do you mean they have two spaces?’” says Chaffee. “To this board’s credit, they didn’t create the situation, and now we’re trying to walk it back. We told them, ‘You can’t do that without a vote. You can’t create exclusive-use common area by allowing owners to use it.’ So you have to be careful about how you’re phrasing things.”
- Vending machines are a maybe—The question on this front isn’t documents but aesthetics. “This is similar to my clients who charge to use washing machines and dryers, and they get fees back from that as well,” says McCormick. “There are benefits to this, but I could see pushback against vending machines if they’re in an inappropriate place or people don’t like how it looks.”
Chaffee likes this idea. “If you have the right kind of facility, like a clubhouse or pool, and you have these by the bathrooms so it doesn’t violate your pool rules, I think it could work in the right situation,” he says.
Doolan hasn’t had any of her condo clients add vending machines, though she could see the issue arise in the future. “I’m not sure how much you’d generate from that,” she says. “I have communities that offer washers and dryers for a fee, but the money they make is so minimal. What they make in a year wouldn’t replace one washer.”
5 Ways Associations Have Grown Income
Our experts say smart boards have raised funds with no repercussions. Here are five examples:
- Require new buyers to help fund reserves. Different states call this fee different things, and some don’t allow them at all. “A lot of my clients will do a capital improvement or preservation fee when someone buys a unit,” says Doolan. “It’s a set amount or a certain percentage of the assessments, and that goes into the reserves to pay for future repairs.
“It may be three times the assessment, and that could be $10,000,” she explains. “Or if you’re buying a $200,000 house, you now have to pay the $3,000 preservation fee. That helps generate revenue and reduces special assessments. I see it a lot more in condos than in single-family home communities. That makes sense since condos are a little more expensive to maintain.
“I’ve heard some boards want to charge a percentage of the sales price,” adds Doolan. “I’ve advised against that. The fee should be related to what the association needs for the future.”
- Put unused space to use. “One HOA had a little common area that was like a parking area,” says Chaffee. “They created an extra lot for RV parking and entered into licenses for people to use it for their RVs. If you have extra common area space that’s not used and doing something like this isn’t taking away from someone, that’s a way to be creative.”
- Test sponsorships, though tread lightly. “We’ve had associations that have local business sponsor events like an activity or the summer party,” says McCormick. “Or they seek donations for events. We have an over-55 community that has a huge annual meeting. Local businesses donate gift cards, and the association raffles them off at the end of the meeting.”
- Shop around for safe but better returns on your idle funds—”Florida just passed a law saying reserve funds are allowed to be invested, and it lists a few places where that can be done, like CDs, savings banks, and a few other institutional places,” says Eisinger. “I think that’s a great idea if you have extra money you’re theoretically not going to be using. It’s a good way to generate income.”
- Pursue funds you’re entitled to—”Another thing that naturally lets associations generate income is proceeding with collections,” says Eisinger. “So many times, an association in Florida can foreclose on a unit that’s delinquent, take title, and rent that out until that bank forecloses on the mortgage. I’m shocked at the number of banks that never foreclose when they’re entitled to do that. I have a handful of associations that have been renting out units like that for years and years.”