Funding HOA Social Activities.

Below is an argument in support of HOAs funding social activities, a topic that comes up here fairly regularly. From the 4/13/23 issue of the Adams Stirling Newsletter, Davis-stirling.com. Adams Stirling is a Calif. HOA Law firm.

"MISUSE OF FUNDS AND EMBEZZLEMENT

QUESTION: Our association spent $2,000 on a holiday party. We were told that doing so was a violation of our board's fiduciary duties, a misuse of funds, and embezzlement. The person claims the board has to refund the money to the HOA immediately. Is that true?

ANSWER: No, it's not true. It is common in the industry for associations to host different events for homeowners and board members. Neither instance amounts to a breach of fiduciary duties, misuse of funds, or embezzlement.

Community Events. Money authorized by the board for community barbecues, tennis tournaments, Christmas decorations, bingo nights, a New Year's dance, etc. all benefit the community even if some members attend but others do not.

Board Appreciation. Money spent on a board appreciation dinner as well as certificates and plaques given to volunteers is perfectly legal. It rewards volunteers and encourages others to volunteer. All of these activities are common in the industry and do not qualify as a misuse of funds or breach of fiduciary duties.

Possible Defamation. Embezzlement is the fraudulent taking of money or property of another by misrepresentation or concealment of information. Community events and board appreciation events do not qualify as embezzlement. Persons who maliciously accuse boards of a crime face possible defamation actions.

RECOMMENDATION: Members should be grateful that neighbors are willing to volunteer their time to help the community. Instead of being a Grinch and criticizing special events, members should support and participate in them."

Every party has a pooper that's why we invited you Party Pooper dee dee.

There's one in every crowd.

As for accusing someone accusing another of embezzlement, they better have evidence.

We budgeted $15K annually for social events and none came from assessments.

our city gives people grants based on social activities to bringn the community together. so sometimes it makes financial sense to spend a little bit of money to get a lot of grant money.

I, too, am curious about where Max's $15K funding came from. In my HOA, everything is funded from assessments. Yeah, there's some miniscule amount of interest, too - probably enough for lunch for two at McDonalds{1}.

FWIW, my HOA (~600 homes) has a Social Committee with a $6K/year budget for events, of which there usually about 4-5 per year: Easter (egg hunt), Independence Day, NNO, and a Holiday Party, maybe "Jazz at the Pool". Spending on each event is typically in the $500-$1000 range, and they've never come close to exceeding their budget. Attendance varies (especially during/after COVID) but I was told we had 120 people at the recent Easter Egg hunt{2}; I checked, reimbursements totaled $420.34.

I'm a bit surprised at some of the responses here. One of the first questions I asked here concerned social event spending, and I recall that most responses were along the lines of "sure, if it makes people happy" and "gee, you call that a party?!" I'm personally fine with this social stuff: all of the money is verifiably spent on things like soft drinks and bounce houses, there are no 'special luncheon meetings of the Board' at Ruth's Chris. And compared to the $4500/month we spend on basic landscape upkeep and maintenance, it's peanuts. Yeah, easy for me to say, *my* HOA reserves are fully funded. Still: I think there's a good case to be made for the value of the occasional social event.

Re the possible slander / libel claim: I guess it's possible but I seriously doubt it. As long as there are residents who are unhappy with someone on the Board, there will be scurrilous gossip about misappropriation of funds, pool committee chairpersons going for naked midnight swims with a "friend", Board-member immunity from lawn-care violations, and so on and so forth. It's a big world; I'm sure that this kind of thing has gone to court before, somewhere. But every neighborhood seems to have at least one nutcase, and everyone knows who they are, and they tend to have nicknames, and neighbors who have never met before will meet and discuss the issues of the day and one of them will say "we need to get Smithers on that" and everyone laughs. Yes, I'd be unhappy if someone pointed the finger at *me* and claimed I was enriching myself. But (especially if it was from Smithers or one of the other Usual Suspects) taking it to court is probably the very worst move I could make - people would wonder why Bill didn't laugh and flip him the bird like he usually does.

YMMV.

Bill

{1} old joke from my corporate days:

"We're having a contest! First prize is lunch with your boss!"

"What's second prize?"

"Two lunches with your boss!"

{2} I was asked not to attend because I scare the children.

I don't think anyone is questioning the value of social events. I'm certainly not. What some object to is the method of funding, especially in communities that have money issues and especially in ones where there is nothing in the CC&Rs that would allow the use of assessment dollars for such things.

As for sources of funding in addition to the actual participants of the event:

* At an apartment complex I lived in, area merchants donate door prizes of various sorts for the annual pool party. It can be hard to convince some of them to do so, but merchants who believe that donations can increase traffic to their business will just write off the donation as advertising. Pick your targets wisely.

* At a workplace, excess funds from our vending machines provided Friday morning treats/donuts each week. You can use a similar model when setting the usage fees for your amenities.

* Free activities such as corn hole. There are probably a few folks in the community who have the equipment and who will happily bring it to a picnic.

* Raffles, although you need to know what you're doing when you pick the prizes - ie. don't pick stuff that appeals to a small minority. (Is that gambling? I'm not sure of the laws.)

* A small university town where I used to live held an annual Fun Run. This was a scavenger hunt that was entirely supported by the participants and by donations from town merchants. The winners each year formed the planning committee for the following year. It was great fun and very popular - it was also successful because it was tailored to the community (eg., the merchants wanted to encourage residents to shop in town and not head to the nearest city).

* My condo community has an annual picnic that is entirely funded by participants (and their corn hole sets). We also have a pre-Halloween "trick or treat" night which is basically people with kids exchanging cheap candy.

* Holiday decorating contest. Prizes are bragging rights and publication of your home's photo in the community newsletter. (Never underestimate the value of bragging rights.)

Kerry,
I agree with you, and I have 2 different examples one from Ca. and the other from Tx.

In Ca. we had a 438 SFH HOA and we had about 15 volunteers including the board members. We had a landscape committee, Social Committee and a gate committee. We only used our PMC for management, violations, finance and meeting. We were a Portfolio account for them.

Our committees did a lot of work and met monthly. This included lots of meetings and the social group having 12 to 15 events annually.

At the end of the year the board would invite all of the volunteers and their significant others to a nice luncheon. We spent about $1500 for this event. The volunteers looked forward to it annually and the spouses who gave up time with the volunteers got to meet others in this group. This was always budgeted and was an obvious line item annually. We also budgeted about 20k annually for social events including 3 concerts in the Park, Easter and a very Large Christmas event every year. We had many complainers over the 8 years I was on the board but never anyone who was against this money being spent.

In Texas when I moved here, I asked about a social committee (It was how I became active in my first HOA) and was told no one ever volunteers for anything. This surprised me since I have found people from the South much more friendly. Once I was on the board and was able to see the numbers, I noticed that we were paying our PMC 20 hours a month to provide social activities in our 1450+ HOA. As it turns out we find it nearly impossible to get volunteers for events. Many attend but few ever offer to help. We have tried many different ways to recruit and have used the S Monkey to try and get suggestions and volunteers and although we get many obscure ideas of peoples favorite activities no one ever steps up to join the group so we spend about 25K for the PMC to supply a 20 hour a month social person who does a great job and we budget 30K for activities every Calander year. She also manages other duties including Pool and Club house rentals. Our PM is also onsite 20 hours a month. In this HOA we do not have an annual event since the only volunteers we have are our elected board members. Once again never had any complaints about money being spent on social events.

It's clear to me that the HOA lawyers at Davis-stiring.com are generalizing to all HOAs given their use of "common in the industry." They see no need for specifics in the CC&R. So far as I know they are highly respected firm. In their opinion and my HOA's previous and current attorneys' opinions, expenditures that benefit the Association are OK. I'd be very interested in seeing an opposite opinion written by an HOA attorney.

Rewards for service are visible examples to all that the board and Association value volunteers. Volunteers DO matter in my HOA. Our Board provides a very nice coffee mug with our logo, the retiring director's name, their dates of service on it and a fine bouquet flowers the night directors retire. These small gifts of appreciation are hardly bad optics and they are presented publicly at open board meetings. Committee volunteers are regularly and individually presented a bottle of wine at year's end. The board authorizes a budget for Social Committee activities every year.

So one benefit to the HOA that public recognition and modest gifts at these meetings and mentions in our monthly newsletter in the President's Message prompt others to consider volunteering. Our CC&Rs. require an Architectural Committee of three so we really must have them or directors must serve.

But how do social events like our recent April in Paris indoor/outdoor party, which drew 70 residents (we're 200+ high rise condos) benefit the Association?

1. Provides a sense of belonging. Those who feel a part of a larger social group, a community, are more likely to follow the rules and take pride in their community than those who remain separate from the community.

2. Builds friendships & camaraderie among residents, which also provides sort of a social glue between & among them. Shared interests do emerge and some become a source of, "You know? The Landscape Committee could use some extra volunteers. Wanna join with me?" Volunteers benefit the HOA. These interactions also foster new ideas.

3. The Social Committee and others are the main pipeline to board service. Even learning just a piece of the HOA and having their own budget to stay within, Social Committee members, for instance, become a little educated about the functions of our HOA. Further, for the board in my HOA, 100% came via community service.

4. Relationships forged at social events can ward off overstepping or rogue boards. Rogue boards, we've had two, and one, recognizing the the powerful togetherness that social activities foster, took down notice holders in our elevators so that social activities couldn't be publicized. They wouldn't promote them in our newsletter. Committee members slid notices under residents' doors. That board's abusiveness is what led to new directors being elected and the take over of the board in one year by much better directors. All had served on committees.

Social committees funded by the associations are common in my urban neighborhood. Still, I can see why some HOA boards would not want to spend a nickle on such activities especially if they're financially troubled. Cathy's ideas for activities look great in certain family settings and many would be fun. But volunteers still are needed to put those ideas into action.

I see that Davis-Stirling is generalizing and they say so, but I think it's a mistake on their part not to state explicitly that this may not apply to individual associations. People read stuff and assume it applies to them - and all of the experienced posters around here know that's not necessarily true.

California may have an issue since HOAs and condominiums are subject to the same law (yes?). But it appears from what others have said that condominiums may look at social events differently.

****

I took a closer look at how my community's CC&Rs define common expenses. The Declaration is somewhat vague, and it punts to state law which essentially restates what's in the Declaration. From ORC 5311:

A) All costs of the administration, operation, maintenance, repair, and replacement of common elements are common expenses.

(B)(1) The declaration, either as filed and recorded by the declarant pursuant to section 5311.06 of the Revised Code or as amended by a vote of the unit owners exercising not less than ninety per cent of the voting power of the unit owners association, may provide that, regardless of undivided interests, the following common expenses shall be computed on an equal per unit basis:

(a) Expenses that arise out of the administration, operation, maintenance, repair, and replacement of security, telecommunications, rubbish removal, roads, entrances, recreation facilities, landscaping, and grounds care;

(b) Legal, accounting, and management expenses.

(2) Expenses not included in division (B)(1) of this section shall be computed on the basis of the undivided interest in the common elements allocated to each unit.

Relevant bits:

* Social activities are not mentioned.

* It appears they can maybe be added via amendment to the Declaration, but they're subject to section B(1). The resulting expense will be calculated based on par value/percentage of ownership rather than on an equal per-unit basis, which will charge some owners more and others less regardless of usage or participation.

* Contrariwise, the other common expenses are limited to maintaining the common elements and the supporting services necessary for that. There nothing here or in our Declaration that refers to something like "social welfare or benefiting the community."

* Taken all together, it's hard to conclude that social activities should be treated like other common expenses, which address maintenance of the physical property of the condominium. To me, social events are more like usage of the amenities which can carry a separate fee *and which fee is paid by the users, not the entire community*. Example: a nearby HOA offers swimming lessons in the summer. Participants are charged a fee, although I think the HOA "eats" some of the administrative costs such as making sure all participants have signed waivers. So there is something of a precedent here.

One exception I've seen so far is the 55+ "active adult" community up the street, in which activities are one of the stated purposes of the community. Assessments pay the salary of a full time social director in addition to maintaining the large clubhouse and pool. It's also an HOA, not a condominium - which supports the idea that HOAs in general may treat social activities differently.