Q&A: Clubhouse Rental Results in Legal Exposure for HOAs

Q I live in a 133-unit HOA 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? We are 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? A In today’s difficult economic times home owner assoc-iations and condominiums (collectively “associations”) are looking to rent their clubhouses to non-members as an additional source of revenue. Whether a board has the authority to rent the clubhouse to non-members is dependenton the language contained in the governing documents of the Association. As such, associations wishing to rent their clubhouses to non-members should first have their attorney review their governing documents.

Associations who rent their clubhouses to non-members are not acting as just a volunteer organization but are in the business of renting their clubhouse, and therefore may not be insured under their master insurance policy. Master insurancepolicies typically provide coverage only when members use the clubhouse, and not when rented to non-members.

Some associations enter into agreements where the non-member renting the clubhouse agrees to purchase their own insurance and to indemnify the association for any and all liability for any claims or causes of action arising out of or connected with the use of their rental and use of the clubhouse.

However, a person sustaining an injury related to the clubhouseuse could bring an action against both the person renting the clubhouse and the association.

While a renter may provide a Certificate of Insurance as proof of insurance, without the association’s insurance agentreviewing the policy, the association cannot determine what is actually covered.

If there is judgment in favor of the injured party and the renter does not have sufficient insurance or assets to satisfy the judgment, the association could be liable for the balance. As such, associations cannot rely on the person renting the clubhouse providing his or her own insurance or an indemnification agreement with the renter. If associations rent theirclubhouse to non-members they should obtain their own additional insurance in order to protect the association.

— Patrick J. Brady, Esq.

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