Renting Common Areas Business in Front – Party in the Back

Renting Common Areas

Having a fantastic party room, gazebo, or other common space is a great amenity for a condo or HOA—not only does it give residents a place to gather for celebrations, meetings and other community events, it adds real value to the property. Well-appointed common areas also are a potential revenue stream. For those in communities whose residents don’t mind periodically sharing some of their space with outsiders, renting to such groups could make sense.

Renting common spaces to non-residents for functions allows buildings and associations to bring in some money without having to make much of an upfront investment, other than the partial dedication of staff members’ time. But nevertheless, there are a few important considerations involved in renting common areas to non-residents, and board members and property managers should understand them. It’s not all just a question of renting a space and collecting a fee—the process calls for some vetting of both hosts and guests, and clear, well-defined guidelines.

Space Available

Depending upon the size and type of condo or HOA, community rooms, rooftop decks or even golf courses and pools might be made available for use by outside groups. That availability, or lack of availability, really is dependent upon the collective wants and needs of the residents living in the community. They can decide if they want the community room available to outsiders 10 days per year, or 30—or not at all. They can decide who they want to rent space to, and how they must conduct themselves while on the property.

Sometimes the layout of a building or community dictates that one amenity is used in conjunction with another. In many Chicago high-rises, that’s the case; the community room is adjacent to the pool, so you’re renting the two spaces together as a package, says Rosemarie Wert, a certified property manager with Community Specialists, a management firm in Chicago that deals exclusively with high-rises.

Who's Liable?

Some of the legal and procedural considerations involved with renting community property to non-residents include delegation of responsibility for the guests who will be attending the function. Generally speaking, whoever signs the agreement to lease the space is legally responsible for the people who attend the event while they are there. It’s actually the same situation as when a resident uses the common space for a function—the resident will be liable for any damage to the property that happens as a result of those attending the event.

Really though, what damage could be done? Aside from destruction resulting from a wild party in which a fight erupts, it might seem that no real property damage could be done unless party-goers are acting like fools. That's not entirely true—damage could result from simple activities, like people making their way through the hallways and up to the community room. Or problems could come even from guests simply riding the elevator. It's a matter of wear-and-tear, and more people herding through the building.

Even when the space is reserved for a resident, if problems arise as a direct result of the guests at the event, it’s the resident’s responsibility—like it or not. “People don’t like it when they are found liable because of guests’ behavior,” says Howard Dakoff, an attorney who specializes in community association law, and who is a partner with Chicago-based Levenfeld Pearlstein. For example, if they overfill the elevator and damage it, the unit owner [who’s hosting the party] is responsible.”

Some might think that no one pays any attention to the weight limits posted on elevators, but anyone hosting a party or planning to allow an outside group to host one on community property, should most definitely pay attention. When reserving the space for the host, the property manager - or whomever is acting on behalf of the building - should remind the host to make sure they're mindful of details like weight limitations on elevators, or the need for guests to be courteous and quiet as they move through hallways toward the event space, and to communicate those things to his or her guests. If they neglect or disrespect the rules of the house, they should plan to pay for the transgression.

Regardless of whether a resident is reserving the space for a small family party or for a larger, fundraising event, or if an outside group is renting the room, whoever signs the agreement for use of the space will be held responsible for the behavior of those who attend. Since they are not residents of the community, outsiders hosting an event there (or even guests attending a resident’s party) cannot be expected to know the house rules, unless their host tells them about the rules, that is. Even in that case, it's incumbent upon the host to make sure they do. To be on the safe side, the host could escort guests back and forth from the front door to the community room and make sure everyone behaves like adults, Dakoff says. “When you let people into the building, you are responsible for those you invite there.”

Who’s Coming?

Another crucial security-related measure that must be taken whenever a common space is being used for a private function in the community, is a guest list of those in attendance to keep track of who’s there. The property manager and doorman should have that list in advance of the event, and the doorman should ensure that only guests on the list are allowed in.

Communities usually have guidelines under which common spaces can be used. Those rules often include stipulations on how far in advance of an event that reservations can be taken, dates when the common space is available for use, and fees that should be charged for use of the space, says Michael Kim, a Chicago attorney who works with multifamily buildings and communities. Other requirements for use of a common space might include whether alcohol is permitted with such uses, as well as the requirement that a guest list be submitted to the property manager, well in advance of the event.

When a building’s management is renting common areas to outside groups, one set of rules that supersedes all the others are the laws requiring public accommodations for individuals with disabilities, Kim says. That means the building’s common areas must be Americans with Disabilities Act (ADA)-compliant. For some communities, this could mean renovations would need to be done to the common space—upgrades the building’s residents may not want to pay for, or simply be unable to afford. If residents want to make money from that common space, however, those accommodations will need to be made.

Having nonresidents on commonly shared space in a multifamily community in and of itself isn’t anything out of the ordinary. Residents, of course, want to enjoy their homes, and sometimes that means spending time with a party of friends who aren’t residents. Generally, the building’s insurance policy covers having guests on the property. But when a building rents space to a non-resident group for an event, the necessary insurance coverage is different, too.

In such a case, management should make sure the outside group that will be renting the common area has the proper insurance. They should have liability insurance, dram shop insurance, and property damage insurance, Kim says. And the short-term renter should provide a certificate of insurance to building management well prior to the event to be held there.

Just because the association is leasing the common area at a nominal rate for one night to a resident, that doesn’t mean the building’s general liability policy will cover everything. More coverage could be needed. If the resident is hosting a party at which alcohol will be consumed, Kim says, that resident should get what's known as host liquor insurance, which is similar to dram shop insurance. Having the proper coverage is absolutely essential, Kim says, because after all, “Something can always go wrong.”

So there are disadvantages to renting common space to outside groups, and potential costs that must be weighed when doing so. While the community has much more security in dealing with a resident who is using such space (since there’s a legal basis on which to hold the resident accountable), management doesn’t necessarily want to charge a resident top dollar to use an amenity that’s part of the community they’ve bought into. But in dealing with an outside group, market rates for use of prime space apply.

Determining the rate an association can charge an outside group for use of a common space is mostly a question of what the market will bear, and also how competitive the association wants to be with the offering. Boards can choose to charge whatever they can get for giving outsiders the privilege of enjoying their facilities, but they should let the rates of other comparable event facilities in proximity to their building inform the rates for such use in their own building. Competitors’ rates could be much higher than a board knew or expected, and could make the difference between a building’s residents’ approving, or nixing, any plan to open up facilities to the public.

After approving such use, a community can get the word out about their available facility space by way of the same avenues that it uses to market properties for sale: by advertising in local media and by spreading the word with realtors and other professionals serving the local real estate industry.

Where the funds that are earned from renting common space to outsiders go, is up to the board of directors of the community. But that income could be taxable revenue, and so the building’s accountant should be consulted about how to handle the funds. Often, such income can go into the community’s reserves, or into the operating budget.

But considering the advantages and making sure you have the proper liability and coverage, renting out your common area space could be a win-win for the community at large.

Jonathan Barnes is a freelance writer and a regular contributor to The Chicagoland Cooperator.

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