For many community associations, it is either the middle of budgeting season, or they have just completed this financial review period for the coming year. Budgets include many categories, including maintenance, landscaping, legal, accounting, and management expenses. But what about a line item for social? Is a social budget appropriate or even allowed under the governing documents? I have been told that I like to use the phrase “it depends”, and that would hold true here.
If your association is organized for more limited functions, such as maintaining the private road and street lights, there may not be authority to use assessments for social activities. So where can we find association authority to spend money? Two places generally. First, North Carolina state statute gives associations various powers in both NCGS § 47F/C-3-102. For example, if your community is subject to the Planned Community Act or Condominium Act, there is the power to hire managing agents unless your declaration expressly provides to the contrary. So there may be authority under those statues to spend money for certain types of expenses. Second, you should look to your governing documents, generally in the purpose of assessment section, for authority to spend assessments.
Often the purpose of assessment section of the declaration provides a general and very broad statement that assessments can be used for the health, welfare, and safety of the owners and the properties. Would that language give enough wiggle room to interpret that a social budget is allowed? It very well may.
Even if there is authority to spend money on social activities, Boards need to be careful. As mentioned in a previous blog, the question becomes whether the Association spending money for a Thanksgiving pot luck or are they spending assessments to rent out a country club ballroom for a holiday party? Obviously this is a matter of degree. It may not be a wise use of funds to have an extravagant party when the roofs in the townhomes or condominiums are at the end of their useful life. Board members have fiduciary duties to the association, one of which is the duty to act in the best interest of the corporation. Spending money on a large social event may be seen as a breach of that duty if there are critical community maintenance needs.
As always, it is important to read your governing documents closely, rely on your community managers, and reach out to a community association attorney when necessary. Socializing as a community is important and is one of the great benefits of community association living. However, as stewards of the association finances, Boards must be smart with expenses. If you have questions about your social budget or whether or not you can even have one, please reach out to one of the community association attorneys at Law Firm Carolinas.