The holiday season is upon us, and while it is unusual this year, one tradition that persists is holiday giving. Donations to charities rise dramatically during the months of November and December and often supply much of a charity’s budget for the entire year. Tips to service workers and gifts between neighbors and friends bring joy and enrich the community.
In light of social distancing guidelines, your HOA may have to avoid certain holiday traditions this season. While you look for ways to continue sharing the holiday spirit, community members must evaluate the associated legal and ethical issues with gift-giving.
As always, be sure to consult your legal team for specific information about your local and state laws and regulations regarding giving and accepting gifts.
Use of Association Funds
All members of the homeowner’s association pay regular fees or dues to the HOA to be a member of the community. These fees make up a publicly held fund used to manage the community and are known as “association fees.” They are typically required under the Covenants, Conditions, and Restrictions held within the board’s governing documents, which means that association fees are legally mandated payments. They are not donations; they must be used for specific purposes within the HOA.
While it may be tempting to dip into association fees for charitable giving or holiday tips, it may not be ethical—or legal. According to the Los Angeles Times, HOA boards that use association funds for charitable giving are placing themselves at risk. “Given the dire consequences attached to the mandate for titleholders to pay assessments, homeowner association boards are not in a position to give any money away as tips and bonuses.” While it is true that courts typically defer to HOA boards to make the best use of their funds, boards are also bound to make “sound business decisions.” If a litigant can show that the board acted in bad faith, fraud, or gross overreaching, the HOA board may be held liable for misuse of association funds.
Gifts to Board Members
It is also tempting to give board members gifts of appreciation during the holiday season, but gifts can be considered “compensation” under some state laws. The amount to which a gift makes up compensation varies from state to state. Joseph Adams, an attorney in Fort Myers, Florida, suggests avoiding gifts to board members entirely. “The general theory of the relatively broad immunities in the law for association directors is that they are volunteers. Payment, even if a token, goes against the grain of that theory and could be raised by someone looking to hold a board member liable for some issue.”
Individual gifts from one member of the community to another, even a board member, are not always considered compensation. Still, board members should be wary of the value of any gift they receive. Nevada law, for example, limits board members from receiving gifts that exceed $100 from attorneys, employees of law firms or vendors, or “any person responsible for the construction of the applicable community or association.” (NRS 116.31185). These limitations and issues rarely apply to employees of the association that regularly receive compensation.
Avoiding the Appearance of Impropriety
Even when gift or charitable giving is legal, board members should remember that accepting or giving gifts can create unwanted issues. Florida law prohibits board members from accepting any good or service for their own benefit from anyone providing goods and services to the community. However, this paragraph does not prohibit an officer, director, or manager from accepting services or items received in connection with trade fairs or education programs. (FS 718.111). This law does not prohibit board members from accepting items from trade fairs or educational programs.
A community’s faith in its board can be damaged by ethical violations or even the appearance of impropriety. In order to avoid these kinds of issues, some boards have placed restrictions on giving and accepting gifts beyond what is required by state law.
Here are a few ethical questions to address before you engage in holiday giving in your HOA this season:
- What are the laws governing gift-giving in my state? Have I consulted the HOA’s attorney before giving or receiving any gifts?
- Who is receiving the donation? Are they considered a vendor or attorney? A charity? A board member, neighbor, or friend?
- From where is the money coming? Will this be drawn from association funds or personal donations? How was this money raised?
- What or who might present a conflict of interest? Are there any relationships, circumstances, or potential influences that would create the appearance of impropriety or unfair treatment?
While the holidays are a time of giving, board and community members must reflect on how their choices will impact the community. Speak with your legal team and consider consulting a third-party attorney before using any association funds or accepting gifts as a member of the board.
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