Are There Too Many Clubs in the Clubhouse?
The bigger the community association, the more likely members will form social clubs–for reasons ranging from recreation to promoting philanthropic goals. While social clubs can enhance the quality of life for your members, they can also pose serious risks for you and the association.
Clubs often exist as organizations independent from the association. They collect their own fees, organize their own events, and may even have strict membership criteria. But they may also freely use your association’s name, rent your clubhouse facility to host events, and ask association staff to help set up club activities. These activities can sometimes blur the lines of who’s liable if an accident happens at an event or some sort of fraud becomes apparent in the running of a club. The concern for managers and association boards is that the association will be ultimately responsible or will have to expend time and resources proving that it wasn’t at fault.
That’s why it’s important to make and record a clear distinction between the club and the association. You need to be able to show that the clubs in your community are not sponsored by the association or operated by it. The association needs to be able to show a separation of operations and finances.
To minimize an association’s liability, the club can become properly incorporated as its own entity, adopt its own bylaws, maintain separate financial records, and have separate bank accounts. For a list of documents the association should request of clubs to ensure that they’re operating independently of the association, as well as a discussion of club insurance and tax concerns, see “Distinguish Between Social Club, Association to Minimize Liability,” available to subscribers here.