Can HOA form a separate LLC for their pool?

Recently attended a budget meeting with our Board about what to do about our seemingly never ending budget problems. Their plan was to turn the 44 homes that hadn't paid their 2008 & 2009 over to an attorney and let him seek a judgment against them. When we (illegally) transitioned from a voluntary to mandatory association there was a grandfather clause that prohibited the filing of liens against current owners for nonpayment of dues. This attorney was to get a judgment and pursue obtaining the judgment through every other means! Fortunately we convinced them that they would be opening a pandoras box as several residents were prepared to challenge them and the revised covenants in court.

I had an idea during the meeting that I'd like to run past you to see if any of you have addressed it with your HOA. Back at the January 2008 annual meeting the Board tried to get approval for them to lease our recreation area to the YMCA to get out from under the upkeep expenses. Fortunately we found out about it and managed to inform the neighborhood in time to stop them. It occurred to me that if they had already worked out the details on how they could let another entity come in and take over our rec area, why couldn't our neighborhood set up it's own LLC (or something similar) and let the HOA lease the pool to the LLC? If that could be done legally it could accomplish a lot! The rec area expenses could be removed from the HOA dues which would return the dues to a more reasonable amount. Since the rec area wouldn't be a part of our dues then membership should increase. The LLC could operate under a different tax structure and not jeopardize the nonprofit status of the HOA.

Anyone heard of an this arrangement like this before or know if it would be doable? Our pool is the better of the three in this township that sells outside memberships so I'm confident that we could attract enough outside members to make up for those households that would drop back to just the basic HOA fees.

Thanks,

Randal

Randle depending on how your documents are worded, you probably cannot do something like this without: A - Getting enough signatures (100% in our case) to sell off an HOA asset. or B - Amending the documents to allow you to dispose of an asset which I'm betting would require 100% approval. All it would take is one homeowner to challenge this and you can probably plan to spend all of you time and HOA funds battling it out in court for the foreseeable future.

Good constructive Posts folks.

You all have covered a lot.

OP sounds interested and constructive, would make a great volunteer for his community. Hint, hint!

This is a slippery slope. As others have pointed out,the board likely does not have the authority to form a separate legal entity.

Creating a wholly-owned legal entity transfers some governance and management from the owners association (of which the owners are members) and another entity (of which the owners are not members). Money inevitably ends up being transferred between the two organizations. Separate accounting is required. Separate audits are required with consolidated financial statements.

To ensure that owners rights are not compromised, it is essential that the appropriate governing document for the subsidiary entity include a provision imposing all of the governing documents for the owners association on the new entity. Or better, the provision should be in the appropriate governing document for the owners association.

It is, indeed, a slippery slope. Careful thought is advised.

I agree,
Unless some covenant forbids it I think the Board has the right to collect income from common properties. I really think they have to consider tax questions but to me that is all Greek.

I also would suggest this use of common property be covered and spelled out in the documents, either a blanklet kind of thing or specific items.