What are the best practices for HOA donations?

Donations can be tricky to navigate, but boards can implement some key strategies to make it easier. Here are the best practices when making charitable donations: review state laws and governing documents, keep the amount reasonable, avoid using reserve funds, consider homeowner input, disclose the expense, and document the decision.

Can the HOA Donate to Charity of Choice?

Q: Is homeowner approval necessary for HOA donating to charity?

More often than not, an association does need to secure approval from the membership if the donation is significant in amount, outside of the normal operating budget, and not clearly authorized in the governing documents. The vote can take place at an annual or special meeting. That said, even if approval is not required, it is still a good practice. It helps promote transparency, which can reduce disputes and build trust. Open communication is always the best approach.

Q: Can the HOA donate to charity without owner approval?

More often than not, an association does need to secure approval from the membership if the donation is significant in amount, outside of the normal operating budget, and not clearly authorized in the governing documents. The vote can take place at an annual or special meeting. That said, even if approval is not required, it is still a good practice. It helps promote transparency, which can reduce disputes and build trust. Open communication is always the best approach.

No one can argue that donating to charity is a good deed, but can an HOA donate to charity? This is another subject entirely. Because associations source their funding from homeowners, it can ruffle some feathers when boards unilaterally decide to make a donation. Before making the jump, board members must first consider all sides and limitations.

Can an HOA Donate to Charity?

Generally, an HOA or condo association may donate to charity, but certain conditions may apply. Associations are organized as nonprofit corporations in most states, but this does not mean that they can freely give away money without approval.

In an association, board members have a fiduciary duty to use HOA funds for the benefit of the community. Donations may not be seen as benefiting the community, especially if the cause is too far removed from the association and its goals. This, in turn, can raise both legal and financial concerns.

That said, the general rule is that an HOA can make a donation if the governing documents allow it and the expense benefits the community in some way. The board must also follow proper procedures and requirements when securing approval. If the board fails to meet these conditions, owners may challenge the donation.

What to Do Before Making HOA Donations

Before the association donates to any charity or nonprofit, the board must first review its governing documents. These include the CC&Rs or declaration, the bylaws, the articles of incorporation, and the operating rules.

Some documents clearly restrict how the board can use association funds. Others may allow the board broader discretion, as long as the expenses are related to the community.

That said, if the governing documents are silent, the board must not take that as a license to act with free rein. It is still imperative to act within its fiduciary duty. This means avoiding expenses that don’t benefit the association, whether directly or indirectly.

Can the Board Use HOA Funds for Donations?

Currently, state laws don’t expressly allow or prohibit HOAs from making donations. In most states, it is only implied. For example, in Virginia, Section 55.1-1805 states that assessments may be used for common area operations, maintenance, repairs, replacements, or services.

This is where many boards run into trouble. An association’s funds come from dues and assessments paid by homeowners. These funds are usually intended for:

Maintenance and repairs
Insurance
Reserve funding
Administrative costs

Utilizing HOA voluntary funds for charity can be controversial. If the donation is unrelated to the association’s operations or does not benefit the community in any way, owners may argue that the board misused funds.

Additionally, board members should avoid using reserve funds for donations. Reserve accounts are typically restricted to capital repairs and replacements. Using them for any other purpose can expose the association and its board to liability.

Is Homeowner Approval Necessary for HOA Donating to Charity?

More often than not, an association needs to secure approval from the membership if the donation is significant in amount, outside the normal operating budget, and not clearly authorized in the governing documents. The vote can take place at an annual or special meeting.

That said, even if approval is not required, it is still a good practice. It helps promote transparency, which can reduce disputes and build trust. Open communication is always the best approach.

Making a donation without informing homeowners can expose the association to certain risks. This lack of transparency can lead to claims of fund misuse and accusations of favoritism or bias, especially if the charity is one that a board member personally supports.

At the very minimum, the board should disclose the donation to the homeowners. The association’s records, including the meeting minutes and financial reports, must also reflect the donation. When asked, the board must be prepared to explain the purpose of the donation.

HOA Charitable Giving: How to Choose a Cause

Choosing a charity should not be an arbitrary process. The board should not just blindly pick a cause or organization. Instead, it must use clear and fair criteria.

To do this, the board must answer some practical questions, such as:

Does the charity serve the local community?
Does it align with the association’s values or goals?
Will residents benefit directly or indirectly?

Some good examples include supporting a local school or park, contributing to neighborhood safety programs, and funding community events or outreach. Boards will have a harder time justifying donations that have no connection to the community. Such donations may also fall outside of the board’s authority.

Furthermore, it is a good idea to seek input from homeowners. Residents can make suggestions or even vote on the charity they wish to support. Another option is to rotate charities every year. This helps the community avoid bias while simultaneously increasing owner involvement.

Best Practices for HOA Donations

Donations can be tricky to navigate, but boards can implement some key strategies to make it easier. Here are the best practices when making charitable donations.

Review State Laws and Governing Documents. Before anything else, the board should check if it has the authority to make a donation in the first place.
Keep the Amount Reasonable. A donation that’s too large can raise eyebrows, even leading to accusations of fund misuse. Boards can’t justify a significant donation if they can’t even maintain common areas properly.
Avoid Using Reserve Funds. The reserves are only used for major repairs and replacements. Using these funds for anything other than their intended purpose can result in legal exposure.
Consider Homeowner Input. Before choosing a charity, ask homeowners for their opinion. Approval may also be required under the governing documents.
Disclose the Expense. Transparency is paramount when making donations. Financial reports and other records must clearly reflect the donated amount and purpose.
Document the Decision. To create a paper trail and protect the association in the future, the board must record the decision and donation in the meeting minutes.

Can an HOA Make Donations to Charity? Answered!

Can the HOA donate to charity? In general, donations are possible, but they often come with limits. The board can’t use association funds for personal use. Every dollar must go towards an expense that benefits or supports the community. When in doubt, board members should consult professionals.

Clark Simson Miller offers HOA management services to community associations. Call us today at 865.315.7505 or reach out to us online to request a proposal!

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