Subsidies to Non Residents of HOA

Dennis,

I assume that the bar / restaurant is (or at least should be) a for-profit business?
If so, then it really shouldn't matter if the customer is a member or non-member. The real focus should be on how to make the business profitable.

The membership can vote to close due to the losses.

Gather support and have it placed on the agenda at the annual meeting.
I'd suggest an amendment that defines these entities as income generation vs. an amenity to be maintained by the Association.
Utilize the cost savings per individual owner to gather support.

Dennis,

I would think that the members can spend their money anyway they would like. I assume members can bring in guests to enjoy your other amenities, so in some way you are already subsidizing non-members since they don't contribute to any maintenance costs for those amenities. One thing you could do is to have member and non-member costs in your restaurant/bar. $130K loss and a $70K bonus.... I'm in the wrong line of work!

I can't comment on what CA law does and does not allow, but the HOA membership is under no obligation -- absent a contractual commitment made for a fixed period of time that has not yet run -- to continue loss-generating activities.

I suspect that if the governing documents placed prospective homeowners on notice of the fact that dues would be used to -- among other things -- operate a restaurant and bar, then you are stuck with what the governing documents prescribe.

In any event, this is an issue on which you need to seek the advice of an experienced community association law attorney in your area of CA. A sharp attorney can often find loopholes in the governing documents not evident to mere mortals... ;-)

Some costs are variable. Some costs are fixed.

The variable costs can be eliminated if you close the business. The fixed costs may not go away when you close the business.

You might want to compare the income against the cost of food and staffing to get a better picture on whether eliminating the business would actually eliminate the loss that your records are showing.

Good suggestion, James.

NpS - Our food and beverage business line pays no fixed costs. There is no charge for the value of the space, no charge for utilities, no charges for maintenance of the facilities, no insurance charges. They only cover the cost of food, labor, and miscellaneous expenses. In 2015, food costs were 34 percent of revenue, labor costs were 60 percent of revenue, and misc. costs were 15 percent of revenue. Simply amazing for sure to lose that much money, and they are on track to lose about $200,000 this year.

food,non alcohol, liquor, wine, and beer costs are identified under separate line items. Costs for catering are not. Revenues for catering, bar, and restaurant are separate line items, but labor costs and misc expenses are simply combined. As such, you can never determine which of the three are making money or losing money.

Agree, NpS. Labor costs are so high above industry standards it is beyond belief. The best approach many in the minority want to see happen is to contract the facilities out for them to run as a for profit enterprise. Closing down is not an option due to the significant size of the facilities. Here is a link to our HOA web site and you will see what I mean. There is also a link to our restaurant, Mederians.

http://suncity-lincolnhills.org/

http://www.meridiansrestaurant.com/

You are not just subsidizing non residents, you are subsidizing everyone. Make it profitable or shut it down.

Be sure to let us know what you do and how it works out.

Dennis

You might start asking around other Sun City locations as to how they handle food and beverage. I know in Sun City Hilton Head, F&B are contracted out to a Chicago based F&B Group. I believe they pay Sun City to lease the facilities thus they are a profit center for Sun City.

I will look into that, John. When the subject of contracting the facilities out comes up, they always tell us it is impossible to do and we will lose all control.

Who runs the golf clubs?

Good points shared by Tim and Larry.

My personal/philosophical take on this issue, FWIW: since this is obviously not an emergency/urgent situation, time is your friend and not your enemy. Therefore, take adequate time to recruit and appoint a special committee comprised of successful businessmen and women -- including as many as you can find who have backgrounds in the restaurant/bar industry -- and methodically investigate alternatives to the status quo.

Consider how other local and state restaurants/bars with similar local demographics operate, and learn from their experiences - both positive and negative.

Consider as well a substantial number of nationally/regionally established franchises offering a comparable menu (I don't know your demographics, but there's a wide spectrum of them to evaluate: Chili's, Applebee's, Friday's, Outback Steakhouse, Bonefish Grille, Longhorn's Steakhouse, Olive Garden, etc.) and take the time necessary to find out whether any/some/all of those options would likely prove both a community-supported and cost-effective option (including, of course, a successive polling of your community ownership and residents as the options are narrowed down over time and as initial polls are completed).

Explore as well the possibility of contracting with an owner-backed entity -- assuming there are any owners who are interested in owning/operating such a restaurant/bar business -- who might offer some unique offerings, e.g., karaoke nights, live music nights, comedy nights, poker nights, bingo nights, trivia nights, family movie nights, etc., that might have additional appeal to your community.

Obviously, the effectiveness of this process will be dependent upon the number and calibre of volunteers willing to serve on the committee, as well as the realistically viable options in your geographic market (for example, there will be far more options to choose among in a greater metropolitan area vs. a smaller, more isolated market).

Just my 2 cents...

Good luck!