HOA not-for-profit status

Started by CharC1 • 12 replies • 2880 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in

CharC1 (Tennessee)
Posts: 2

Posted:

FredS7 (Arizona)
Posts: 927

Posted:

Others may have an opinion about the not-for-profit aspect.

However I would oppose it as an inappropriate use of association facilities, which exist for the benefit of residents.

I would feel differently if the classes were for residents only.

FredS7 (Arizona)
Posts: 927

Posted:

Apparently I did not read carefully enough.

Would the HOA get any profit from the activity?

PetunkaM (Florida)
Posts: 1,009

Posted:

Does it jeopardize a not-for-profit status if resident members want to use the club house facility for a for profit business? This would be a member using the club house to teach yoga for a fee. Another scenario would be a non- resident using the HOA facility to teach yoga for a fee.’

I do not think this will jeopardize the non-for-profit status. Many HOAs are now trying to figure out how to make a few extra $. However the terms of the contract between the Association and the instructor could be important. Would only the members attend the yoga classes? Does the ownership agree to it? And, have you discussed this with the insurance company in the event your covenants restrict the use of the club house in any way? These are just a few questions which come to mind.

PS: If the yoga classes are to be advertised and opened to non-members, that could create problems.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By CharC1 on 09/29/2011 11:08 AM
Does it jeopardize a not-for-profit status if resident members want to use the club house facility for a for profit business? This would be a member using the club house to teach yoga for a fee. Another scenario would be a non- resident using the HOA facility to teach yoga for a fee.

No, I wouldn't think so, as long as the HOA is not running the classes (unless your Articles of Incorporation state that you are in that business, which likely they don't).

As far as renting the clubhouse for such activities, the only thing to remember is that income from the rental of the clubhouse is non-exempt income. Non-exempt income cannot exceed 40% of the HOA's annual budget to be allowed the favorable tax treatment for an HOA. Also, non-exempt income is taxed (after a $500 deduction), whereas exempt income (your HOA dues) are not taxed.

CharC1 (Tennessee)
Posts: 2

Posted:

The HOA is not involved with this venture at all. 12 members got together and wanted to have yoga classes using the HOA clubhouse. The Board was concerned since the instructor, also a member, would be charging. The CC&Rs state that "the association shall not be deemed to be conducting a business of any kind". However, if we let others conduct a business and they are members isn't that the same thing. The association would receive no money from this. All members are invited to participate. The board was concerned that we would be letting someone use a not- for-profit facility to conduct a business. In the interim, they are having classes and making a donation (not a set fee)to the instructor.

PetunkaM (Florida)
Posts: 1,009

Posted:

Char,

your explanation is now clear as a bell. The Board has every right to be concerned. I would say ‘NO’ to classes if the instructor charges real money. However, I am not sure about ‘voluntary’ donations. I’d probably be a nice guy and close my eyes on that one, because these classes benefit the owners and it really is not a business venture in a true sense. But, that is me. It truly is your decision.

JohnO6 (Georgia)
Posts: 424

Posted:

If you restrict the answer to the original question asked, the answer becomes clear just by "following the money" btween the participants (entities) involved:

The HOA presumably owns the clubhouse.

The HOA enters into an arrangement whereby an individual (never mind the individual is a member of the HOA - that portion is, frankly, irrelevant) has use of the clubhouse to conduct an activity.

If the HOA charges the individual, it becomes non-exempt income to the HOA (as Bruce has already pointed out). While this is "for profit" income to the HOA, it's unlikely to compromise the HOA's non-profit status because of the comparatively small percentage of income the HOA receives overall.

The fact that the individual generates a profit to him/her by charging a fee to participants should have absolutely no bearing on either income or non-profit status of the HOA.

IMHO, that summarizes the situation for the original question asked.

As has been pointed out, however, there remains a separate (but arguably important) question as to whether or not the HOA wants to be in the business of renting it's clubhouse to entities that use it to generate a commercial income/profit. That is a different question than was originally asked.

SusanW1 (Michigan)
Posts: 5,202

Posted:

John's reply is right on.

I wish people would realize that non-profits CAN conduct business operations. If the HOA printed T-shirts or had a bakery in the community center, that would be one thing. But just renting out rooms would hardly be considered a real revenue issue.

Besides, the clubhouse would have its own operational budget. It would be highly unlikely that any amount of "rentals" would offset these costs in order to produce a "profit."

As far as WHO is eligible to rent rooms, like John said: that is the issue. If you rent to "outsiders" how are you screening them? Who will deny rental privelges to a person who might be conducting objectionable business?

Sometimes, HOAs will rent to someone if they have a Member sponsor the renter.

BradP (Kansas)
Posts: 2,640

Posted:

Char

in my opinion there is no issue with this...there are internal issues you as an HOA need to sort through. Taking the clubhouse offline so that members can not use it needs some justification in my opinion. Renting the facility out to make some money to offset costs is justification to me. Letting them use the facility for free is not.

If you are going to get into the rental business there are a whole host of issues to look into, the first one is a standard contract that you can use. Secondly is a fee structure...third is what kind of insurance are you going to require the rentor to have...Those are just to name a few.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

This is apples and oranges. The HOA can rent out their clubhouse and has no effect on non-profit status at all. However, if the HOA was to have a lemonade stand/garage sale to raise money for themselves then that money could be subject to taxes. Neither situation would take away it's non-profit status.

If the HOA ran a golf course and could buy up property for expansion, then that isn't a non-profit HOA. That would already be set up as a For-Profit HOA. Usually the IRS determines if your non-profit or not as well.

Non-profit HOA is NOT the same as a non-profit charity. So no one can "donate" items to the HOA for a tax break as a charitable contribution. People on here more informed on the tax laws can provide you the exact paperwork differences between the two.

You need to do some more research and get a better understanding between non-profit corporations (HOA) and other non-profits. You would then understand that renting out the clubhouse has no effect at all at your status.

Former HOA President

PetunkaM (Florida)
Posts: 1,009

Posted:

Where did the OP said the Association is ‘renting’ the club house or, in any way profiting financially?

DonnaS (Tennessee)
Posts: 5,671

Posted:

Petunka is correct in that Char did not say that the clubhouse would be rented but a member wants to use it---or a dozen want to use it for yoga. The only person benefitting from this is the teacher who is charging a fee.
It sounds like a member or non member will teach the classes for a fee and where the fee goes has not been established. I think that some members want to use it, have found someone who will teach the Yoga for a price.

Char said--"This would be a member using the club house to teach yoga for a fee. Another scenario would be a non- resident using the HOA facility to teach yoga for a fee."

So the question is? Do the members have the privledge to use the clubhouse for personal use?

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here