Incorporated v. Unincorporated Condominium Associations – Should the Association be Incorporated?

The facts and circumstances of each condominium project will determine whether it is prudent to incorporate a condominium’s association, but in most cases it is highly advisable to do so.  This is true if the developer is the condominium declarant controlling the association during the early stages of the condominium’s development and operation.  It is also true if the association is controlled by its unit owners after the period of declarant control ceases.

Whether you are involved as the Declarant (i.e. the developer) or merely as a unit owner, there is no inherent “corporate” protection for an unincorporated condominium association.  In certain circumstances, the association may qualify as a partnership underRhode Islandlaw – potentially exposing each of the unit owners to personal liability for the obligations of the association.  In most circumstances, the association will not be considered a partnership; however, this does not eliminate the risk of personal liability for individual unit owners.  Partnership status or not, there may still be personal liability for obligations of the association under common law agency theories and other applicable law unique to the facts of each association.  This personal liability may extend to all unit owners, some unit owners, and/or members of the association’s board of directors.

There are also practical operational issues to consider.  Some businesses, including lenders and insurers, are unwilling to do business with a loosely organized group such as an unincorporated condominium association.  This can make it difficult (or impossible) for the association and its executive board to satisfy its obligations (fiduciary or otherwise) to unit owners. 

Ultimately, the most prudent approach is to consult with counsel experienced with condominium and corporate law to ensure that the unit owners, association, and/or developer are properly protected.