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Subject: Club House
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DonF2


Posts:0


05/01/2021 5:40 AM  
I am the president of the Fall Creek Villas HOA in Tonganoxie, Kansas. I was appointed by the Declarant along with the other four board members. Our HOA when completed will be about 95 homes. It is a +55 commmunity. The Declarant is a developer who purchased the land from a bankrupt developer about 8 years ago and he will have the last 15 homes completed this next year. He has asked me to either have the HOA to start paying a rental fee for the clubhouse or have the HOA purchase the clubhouse from him. He seldom attends board meetings and prefers a hands off approach. He has 51% of the voting rights of the board but seldom votes on any issues. He says he would like for the board to agree to pay a rental fee without him forcing that decision on the HOA. I have discussed it with a few of the board members and they, of course, don't want to have the HOA pay to rent the clubhouse because it would increase their dues. If the HOA paid $1000 per month for the clubhouse we would (95 homes) have to increase dues $10 from $60 to $70 per month. The clubhouse is used for various meetings and resident scheduled parties etc. It also has a basement that has exercise equipment that can be used by the residents. All members have a key. It also acts as a storm shelter for those members who do not have a basement. The dues typically cover the cost of mowing, fertilizing, snowing removal, and general maintenance.

I am stuck between the other board members and the declarant. What should I do?
TimB4
(Virginia)

Posts:17599


05/01/2021 5:54 AM  
Don, Should have read the posting rules.

Typically, the clubhouse would already be part of the HOA.
I'd suggest contacting an attorney to have your documents reviewed about who already owns the clubhouse before making any decision.
CathyA3
(Ohio)

Posts:1888


05/01/2021 6:17 AM  
Posted By DonF2 on 05/01/2021 5:40 AM
I am the president of the Fall Creek Villas HOA in Tonganoxie, Kansas. I was appointed by the Declarant along with the other four board members. Our HOA when completed will be about 95 homes. It is a +55 commmunity. The Declarant is a developer who purchased the land from a bankrupt developer about 8 years ago and he will have the last 15 homes completed this next year. He has asked me to either have the HOA to start paying a rental fee for the clubhouse or have the HOA purchase the clubhouse from him. He seldom attends board meetings and prefers a hands off approach. He has 51% of the voting rights of the board but seldom votes on any issues. He says he would like for the board to agree to pay a rental fee without him forcing that decision on the HOA. I have discussed it with a few of the board members and they, of course, don't want to have the HOA pay to rent the clubhouse because it would increase their dues. If the HOA paid $1000 per month for the clubhouse we would (95 homes) have to increase dues $10 from $60 to $70 per month. The clubhouse is used for various meetings and resident scheduled parties etc. It also has a basement that has exercise equipment that can be used by the residents. All members have a key. It also acts as a storm shelter for those members who do not have a basement. The dues typically cover the cost of mowing, fertilizing, snowing removal, and general maintenance.

I am stuck between the other board members and the declarant. What should I do?



What an interesting question. Here's where I see the issues:

* The Declarant still holds 51% of the vote so is still in control. But your community will have about 95 homes, of which 15 remain to be built (or about 16%). In many HOAs that's past the time in which control should have been transitioned to the homeowners. What do your bylaws say about developer transition?

* What does your budget look like, especially with respect to the clubhouse? Is it adequate? Are you contributing toward the reserve fund for future repair and replacement? What about reserve funding for other common areas? Without knowing any of the details, it's impossible to say whether or not what the Declarant is asking for is reasonable. I will say, though, that budgeting toward some "magic" assessment number is a prescription for financial pain down the road.

* It's not unusual for HOAs with a clubhouse to charge a usage fee to homeowners who use the facilities, in addition to the clubhouse's share of the assessment dollars that go to routine upkeep (utilities, insurance and the like). Whether this is appropriate for your community depends on the nature of the usage. It's also not unusual for an HOA with a good-sized clubhouse to direct a good chunk of the assessment dollars toward this one item.

What the Developer is asking for dollar-wise may be completely reasonable, although it may be misleading to refer to it as "rental" if the HOA owns the thing.

Bottom line is you have to pay the bills, both for routine operating costs and for funding the reserves for the big ticket items down the line (roof and window replacement, etc.). Figure out what everything costs for all of these things and then set your assessments accordingly.


AugustinD


Posts:313


05/01/2021 7:20 AM  
I agree that the first question is: Who owns the clubhouse and the land on which it sits? Some ways to find out and other questions:

-- Do the plats show that the clubhouse sits on "common area" land?

-- Do the plats show the building that you all call the clubhouse?

-- Does the HOA Declaration (a.k.a. "CCnRs") list the clubhouse as a common area (a.k.a. "common element")?

-- Like CathyA3 posted, is there a reserve study, and is the clubhouse listed on it?

-- If there has never been a reserve study, then it is overdue.

-- I agree with CathyA3 that identifying whether the board should have been turned over to membership control is an important question. Use the Bylaws and Declaration to figure this out.

-- If the developer still lawfully controls the board; wants to increase the dues; and the HOA's governing documents permit the Board to impose a sizable increase, then this is what is going to happen.

-- $10 per month x 95 homes x 12 months = $11,400 per year.

-- Besides the clubhouse, what are the major capital assets of the HOA? Parks, roads, pool?

-- By any chance is the HOA responsible for a massive amount of landscaping of a large park-like area?

-- How much is in the Reserve Fund right now?
TimB4
(Virginia)

Posts:17599


05/01/2021 8:22 AM  
I get the impression that the Association has been turned over to the membership.

I would expect that what the OP is referring to with the developer controlling 51% of the vote, is for general membership meetings. Often documents will allot 1 vote per lot for homeowners but several votes per lot for the developer (class A vs class B owners).


I suspect that the developer is tired of maintaining the club house and wants to earn some money on it either by having the HOA pay rent for the upkeep or purchase what may already be owned by the Association.

AugustinD


Posts:313


05/01/2021 8:37 AM  
Posted By TimB4 on 05/01/2021 8:22 AM
I suspect that the developer is tired of maintaining the club house and wants to earn some money on it either by having the HOA pay rent for the upkeep or purchase what may already be owned by the Association.
If for some reason the clubhouse does legally belong to the HOA, yet the HOA's annual income is not paying for the maintenance of the clubhouse, then I think this is strange, and the developer's position makes sense.
JohnC46
(South Carolina)

Posts:10952


05/01/2021 10:01 AM  
Don

Who owns the clubhouse? The developer or the HOA?
KellyM3
(North Carolina)

Posts:1695


05/01/2021 11:06 AM  
Don,

If the developer owns the clubhouse, then the HOA should adjust its monthly dues and purchase the clubhouse at a fair market value for such a property. I'm not sure of the legalities of this from an HOA perspective, but a transaction like this seems perfect for an "owner-financing" type purchase arrangement.

You do not want to have an empty clubhouse due to "saving HOA revenue" by not paying rent or a mortgage. This seems really weird that the developer wouldn't "bake" the clubhouse into the sub-division's creation and future operations, but I'll take you at your word. I assure you this developer sold every single one of those lots and homes with the promise of a clubhouse, exercise room and amenities associated with that clubhouse infrastructure.

An attorney's advice is well-suited because leveraging the promise of community's service and then demanding rent or compensation for an advertised amenity seems to raise an ethics question (but I've never seen this so who knows?).
TimB4
(Virginia)

Posts:17599


05/01/2021 12:21 PM  
Posted By AugustinD on 05/01/2021 8:37 AM
Posted By TimB4 on 05/01/2021 8:22 AM
I suspect that the developer is tired of maintaining the club house and wants to earn some money on it either by having the HOA pay rent for the upkeep or purchase what may already be owned by the Association.
If for some reason the clubhouse does legally belong to the HOA, yet the HOA's annual income is not paying for the maintenance of the clubhouse, then I think this is strange, and the developer's position makes sense.




Not strange at all.

A developer will artificially keep assessments low to encourage buyers.

The original developer, knowing the assessments were low, likely kept up the clubhouse on their dime so as not to force an increase in dues. Then they failed and sold to the new developer who, I expect, doesn't want to foot the bill to keep up the clubhouse but is concerned turning it over to the Association, it won't be kept up like they are.

I think the developer is simply trying to pull a fast one and no matter which choice the Association accepts, the developer has an income they didn't have before.

If the Association pays rent - the developer might never turn over the Clubhouse.
If the Association buys it - the developer doesn't have to turn over the clubhouse.


As I posted, without reviewing the documentation, I expect the clubhouse is the Associations. The control of it simply hasn't been turned over. I further suspect the current developer is trying to pull a fast one. IF they are, it's a bit sleazy.

This is why I said to get a legal opinion on who owns the clubhouse first.
TimB4
(Virginia)

Posts:17599


05/01/2021 12:22 PM  
Posted By JohnC46 on 05/01/2021 10:01 AM
Don

Who owns the clubhouse? The developer or the HOA?




This is the key question that must be answered.

Keep in mind that who controls the clubhouse is not the same as who might own it.


AugustinD


Posts:313


05/01/2021 2:57 PM  
Posted By TimB4 on 05/01/2021 12:21 PM
Then they failed and sold to the new developer who, I expect, doesn't want to foot the bill to keep up the clubhouse but is concerned turning it over to the Association, it won't be kept up like they are.
I do not really disagree with anything you are suggesting about this situation, except maybe the idea that a developer turns over control of the common areas piecemeal, such that the clubhouse might truly be the developer's responsibility to maintain until ____ (per the covenants) happens, but the rest of the common elements are the HOA's to maintain? Could the covenants be written thusly? I suppose it is possible.

An update clarifying all this could be interesting.
CathyB7
(Colorado)

Posts:5


05/01/2021 4:18 PM  
Had a similar situation. Less than 100 condo units. Developer had very low assessments to get people here. Turned over to homeowners and wanted us to rent the clubhouse. On the plat it was within the common area for the association. We didn't have to buy it, it was already ours and when the association budget was turned over, it had all the utilities for the clubhouse included. So we turned around and charged the developer rent if they wanted to use the clubhouse for the sale of their last 18 lots. I think they are trying to pull a fast one.
TimB4
(Virginia)

Posts:17599


05/02/2021 6:53 AM  
Dons post count has gone to zero.

This is an indication that he resigned from the forum.

Hopefully, he got the answers he needed.
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