Q&A: Party On!

Q A member wants to use the clubhouse for a for-profit party. Are there any issues with that? What are the insurance consequences for leasing out the clubhouse to an outside party? Is it wise to simply maintain the clubhouse strictly for social events instead?

—Concerned about Clubhouse Use

A “Many declarations for condominiums and community associations contain provisions within them that prohibit either the corporate entity itself, or the owner/members from maintaining a for-profit enterprise on association property,” says Charles Keough, an attorney at the law firm of Keough & Moody, P.C.in Naperville. “Since the clubhouse is very likely part of the common area or common elements, it is the job of the board to dictate policy regarding what activity may occur there in the absence of express, written guidance found in the declaration. Thus, the central question is authority—whether the board may grant permission to an owner to conduct a for-profit party.

“Assuming that there is no unambiguous prohibition against it, the board must consider many issues, such as: (1) Is there a precedent for this activity and if not, what precedent will be set by permitting the activity?; (2) Has the board already created written guidelines for the use of the clubhouse and is this party in keeping with such guidelines?; (3) How may the board protect the association’s interests from liability associated with this type of gathering?; and (4) Because the revenue generated by the party is taxable to the association, will the board properly account for same?

“The association should have its own general liability insurance policy, but the limits of such may not be large enough. Further, that policy may not be applicable if liquor is served at the event. A special event policy, which includes liquor liability, may be the way to go. The limits for that policy may be $1,000,000 for the evening whereas the association’s general liability policy may be $1,000,000 for the whole year. The cost of such a policy is relatively small, and should be either charged to the member hosting the party, or to the association, which would then charge that cost back to the member. It is also wise to name the association and the board members and additional insureds; the cost of which is also a nominal sum.

“The profit motive associated with permitting the member to host such a party must be balanced against the board’s job of ensuring that the clubhouse is kept in good condition and state of repair for all owners who wish to use it. Even with using insurance to indemnify the board and the association from foreseeable liability in connection with the party, the consequences of opening up the clubhouse to these events are not always known in advance. The board could benefit from the input of the owners in shaping a policy for use of the clubhouse prior to approving a for-profit party of this type.”