Introduction
With Christmas just around the corner, many community associations are currently planning parties to celebrate the holiday season. Holiday parties are a great way to bring the community together and converse with your neighbors. These parties frequently involve the catering of food and alcohol as well as live entertainment which helps foster community participation.
While holiday parties are generally encouraged by all, there are a few concerns that community associations should be aware of beforehand. Among these concerns include the concern that the expenses of the party might be an improper use of association funds, potential liability to the association or individual board members, and properly addressing the concerns of members in the community who disapprove of having holiday parties.
Using Association Funds for Holiday Parties
Boards of directors must be cautious in using association funds for holiday parties as the determination of whether association funds can be used for a holiday party will depend on the specific language used in the association’s governing documents. For large associations, the costs of these parties can easily reach thousands of dollars and are often paid for with association funds. If the Master Deed and Condominium Bylaws for a particular condominium only permit the association to use funds for costs that are necessary for the operation of the condominium, it may be helpful to review the Articles of Incorporation. Often times, an association will have a provision in its Articles of Incorporation authorizing the association to “levy and collect assessments against and from the Members of the Association and to use the proceeds thereof for the purposes of the Association”. This broad authority could be used to justify an association’s use of funds for holiday parties.
For subdivision or homeowners associations, governing documents, and the provisions authorizing assessments, vary drastically from one development to the next. Accordingly, the documents will need to be reviewed on a case by case basis to determine whether association funds can be used to pay for these types of events. A sample provision authorizing assessments for a platted subdivision is as follows:
The assessments levied by the Association shall be used exclusively to promote the health and safety of the residents in the Subdivision and maintain the property values thereof.
An association with the above provision might have a difficult time demonstrating that a holiday party promotes the health or safety of the residents or maintains the property values within the subdivision. Contrast the above provision with the following alternative provision which could reasonably be used to support an association’s use of funds towards a holiday party:
The Assessments levied by the Association shall be used exclusively to promote the recreation, health, safety, welfare, common benefit and enjoyment of the Owners in the Subdivision.
In the latter case, the association could justify the holiday party expenses as promoting recreation or the enjoyment of the members. Similarly, a homeowners association could look to its Articles of Incorporation for additional authority to use assessments towards holiday party expenses. In short, as long as the governing documents authorize the use of association funds for such purposes, your community associations may have holiday parties.
How to Proceed if your Governing Documents do not Authorize the use of Association Funds for Parties?
If your governing documents do not permit the use of association funds for these purposes, you should not be discouraged from having the party. In these instances, invitations could still be sent out to all members and indicate that attendance is optional but in order to cover the expenses of the party, all attending guests will be asked to contribute a portion of the total cost. This way, your association can still have the party, but instead of using funds from the association’s bank account, the attendees of the party each make a small contribution to cover the expenses.
Dram-Shop Liability and Liquor Licensing Requirements
Finally, individual board members must be particularly cautious regarding the serving and consumption of alcohol at any association sponsored event. If alcohol is being served, proper precautions must be taken to ensure that all individuals consuming alcohol are required to present identification and that limits are set to avoid over-consumption of alcohol. Many of these concerns are diminished if the party is held at an outside venue since the venue will be responsible for checking IDs and monitoring alcohol consumption.
If your association plans on having a party in a clubhouse or other common area under association control, a temporary liquor license or other regulatory approval may be necessary. A review of the association’s insurance policies, including Director and Officer Insurance, should be conducted to determine coverage for potential liability if the association plans to have an on-site party with alcohol. It may also be prudent to obtain dram-shop insurance or associations and board members alike could face potential liability if minors are served alcohol or if individuals consume excessive amounts of alcohol and cause injury to themselves or others.
Conclusion
While many community associations in Michigan have authority to use association funds for holiday parties, a review of the governing documents must be conducted prior to doing so. Even if hamstrung with constrictive governing documents, associations can still have these parties by asking attendees to contribute to the expenses. A simple and effective method to avoid, or limit, much of the potential liability associated with alcohol consumption is to hold the party at an outside venue. If a party with alcohol is held on-site, it is critical for an association to obtain the required licensing and insurance. Finally, associations should also be sensitive of different religious beliefs and should avoid gearing holiday parties toward any particular religion.
Brandan A. Hallaq is an attorney with Hirzel Law, PLC where he dedicates the majority of his practice to representing condominium associations and homeowners associations. He litigates cases involving defective construction, contract disputes, shareholder/member disputes, quiet title actions to determine interests in property, enforcement of restrictive covenants, real estate foreclosure actions, and bankruptcy matters representing creditors. He also has experience preparing documents for business and real estate transactions including purchase agreements, franchise agreements, loan/financing documents and commercial and residential leases and mortgages. In each year from 2018 through 2020, he has been recognized as a Rising Star in the area of real estate law by Super Lawyers Magazine, a designation that is given to no more than 2.5% of the attorneys in the State of Michigan each year. Mr. Hallaq obtained his Juris Doctor degree, cum laude, from Wayne State University Law School where he served as an editor on the Wayne Law Review. He can be reached at (248) 986-2290 or at bhallaq@hirzellaw.com.
