Q: Our homeowners association is trying to raise funds for a clubhouse renovation. We have been advised that the Board has the ability to make the changes, but we are not sure how to fund the renovation. Any recommendations?
A: Great question. There are a few traditional options. First, the Board of Directors could levy a special assessment. Because this is presumably a one-time expenditure that is not in your operating budget, you could levy a special assessment for this purpose. The Board could levy a lump sum payment requirement or could break the special assessment into installments.
The other traditional option is borrowing. This is also an attractive option when you do not want to burden the owners with a lump sum payment but also require up-front cash to fund the actual renovation project. There is also authority permitting the Association to provide owners with an option to paying their share of the loan up front to avoid interest charges, and charge the interest and borrowing costs against the owners who elect by choice to pay over time.
The above options are generally available, but the critical task to review the governing documents to determine whether the Association is required to obtain member consent for either option. For example, the articles of incorporation may require the owners to consent to any loan or encumbrance, and the Bylaws may require the owners to consent to a special assessment.
Thus, while both options are good options, it is important that you work with experienced counsel to determine the appropriate approval requirements before binding the Association to a significant financial commitment.
Steven J. Adamczyk Esq., is a shareholder of the law firm Goede, Adamczyk, DeBoest & Cross, PLLC. T o ask Mr. Adamczyk questions about your issues for future columns, send your inquiry to: firstname.lastname@example.org. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, PLLC or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.