Q&A: Clubhouse Rental

Q I live in a 133-unit HOA in New Jersey with a nice clubhouse. The residents of the HOA are allowed to rent out the clubhouse. My question is, can a clubhouse be rented out to persons not living in the community? The association is looking to bring in a little extra income. However, our insurance company will not cover us if we choose to do this, and wants to charge us extra per day to be able to rent out the clubhouse. What if a certificate of insurance was provided by the party renting the space? What are the possible liability issues?

—Inquiring Board Member

A “Unless stated to the contrary in your homeowners association’s governing documents, I am not aware of a reason why your clubhouse cannot be rented out to such persons, so long as such rental is not inconsistent with the rights of homeowners,” says David R. Dahan, Esq., a shareholder in the Community Association practice group of Parker McCay in Marlton. “It is common for a master deed or bylaws of a homeowners association to permit the board of trustees to license or lease property rights with respect to the common elements. Furthermore, the statutes that govern a not-for-profit corporation such as a homeowners association, specifically allow a corporation to lease its property and assets, subject to any limitations provided in its certificate of incorporation or bylaws.

“However, it is important to remember the rights of homeowners to use the clubhouse. In this regard, the association should consider a policy, which gives homeowners preference to use the clubhouse. There are many other details that need to be addressed such as insurance and liability issues. In this regard, a detailed rental contract should be adopted. This contract should specify the rights and obligations of both parties. Most importantly, the contract should state that the individual renting the clubhouse is fully responsible for any claims and damages arising from such use and that the individual will indemnify the association for any claims and damages for which it may be found liable in connection with such use.

“Moreover, the association should require that the individual renting the clubhouse obtain insurance to cover the event, or, alternatively, to pay the association the extra insurance cost imposed by its insurance carrier. From a legal point of view, I recommend that the association require the individual to obtain his/her own insurance. However, I am uncertain as to whether such insurance can easily be obtained. The only feasible option may be for the association’s insurance carrier to provide coverage and to pass any extra charges to the individual renting the clubhouse. However, any claims submitted to the association’s insurance carrier related to such use will typically be reflected as part of the association’s ‘loss history’ which is used to calculate premiums in the future.”

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