Homeowners Associations need to be wary about the possible ramifications about discounting fees. One goal of a discount is to help the membership. It may also induce payments and thereby create a financial benefit for the association. However, discounts could hurt both the Association and its members.
1. It Is Likely to Create Accounting Challenges
Creating and following an operating budget is one of the most important obligations of HOA boards. They have to arrive at their budget methodically and implement thorough accounting procedures in order to monitor costs and expenses. They arrive at their calculations based on anticipated revenue that residents pay in a predictable time pattern. Discounting dues can create potentially serious budgeting issues, and it can make their bookkeeping activities more complicated, time-consuming, or expensive.
It may be difficult to predict how many people will be eligible for a discount. Also, reduced dues could affect budget line item calculations that a budgeting committee determined by applying fixed amounts from every unit owner. Unnecessarily complicating asset management may be violation of fiduciary responsibility and subject the Association to legal action. If the Association does not have sufficient HOA insurance coverage, a legal claim could further jeopardize its finances.
2. Disparate Treatment Could Result in Discrimination Claims
Offering a discount to HOA members is unlikely to involve any type of discriminatory intent. Nevertheless, courts evaluating discrimination claims consider not only the intent of alleged discriminators but also the effect of their actions. If an action affects a diverse group in a way that creates significant disparities among people who belong to a protected class, it may be discriminatory in fact even if unintentionally. For example, a discount for advance payments may be inaccessible to individuals who are disabled and cannot work full-time or elderly individuals and have a fixed income.
A discrimination claim can be very onerous and costly to an HOA board. This type of claim could name individual board members as defendants jointly and severally. If an HOA insurance package does not include officers and directors insurance, the board could face personal liability for alleged discriminatory conduct.
3. Taxes May Lessen the Bargain for Members
Some HOA members may be surprised to learn that lowering HOA fees may increase their tax liability. A discount may be imputable income according to the Department of Revenue in the state where a person files his or her taxes. If the HOA discount was a percentage, the value of that percentage could depreciate considerably after tax reconciliation.
HOA boards need to be vigilant about their approach to managing finances. Consistency and precision are integral elements of this key fiduciary function. There is no room for error in an HOA’s accounting methods, so there is probably no room for discounts.
About Kevin Davis Insurance Services
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