House Corporation - Best Practices

There are many types and variations of housing assets within Phi Gamma Delta - from traditional chapter houses owned by house corporations (HCs), to houses owned by universities or private parties. In other instances, chapters have lodges or private residences that used by members. We recognize that these different types of housing assets will require different levels of oversight and involvement by HCs and that some of the items listed below will not be applicable.

The 1848 Housing Committee will be developing resources and support materials as appropriate to assist house corporations in accomplishing the items listed below.

With the goal of providing excellent housing, HCs are encouraged to meet or exceed the following best practices.

Corporate/Fiduciary

  1. Report annually to the graduate brothers of the chapter on the financial and physical condition of their assets
  2. Conduct an an annual meeting (preferably in conjunction with the chapter's Pig Dinner, to maximize attendance and participation of the chapter's graduates)
  3. Meet at least annually with the chapter to explain HC operations
  4. File state and federal filings on time including form 990s and 941 (if you have employees)

General Operations

  1. Conduct either biannual or quarterly inspection of the asset (1848 Properties has a recommend inspection list)
  2. Invite undergraduates (chapter president, treasurer, house manager) to attend house corporation meetings and inspections
  3. Conduct HC meetings at the assets location (provides visibility to the HC and provides an inspection opportunity)
  4. Organize and implement an annual house improvement weekend
  5. Hire a graduate advisor or house director living on-site (for chapters with houses that have at least __ men living in the asset)
  6. Implement a "no pets allowed" policy in asset's facilities

Finances/Budget

1. Annually review P&C insurance to ensure it is commensurate with HC's asset
2. Create a reserve study and review annually (Reserve Study Tool)
3. Maintain cash reserves equal to at least six (6) months of operating expenses
4. Operate in full compliance with HR/payroll practices in their jurisdiction
5. Insure PGD room & board rates are at or above average rate charged on campus
6. Review/compare condition of assets to other fraternities on campus (our goal is to be in the top 30% of assets)

 7. Implement a scheduled maintenance plan to reduce peaks and valleys in facility condition and extend the life of the facility assets

Routine maintenance on the various components of your chapter house will both extend the useful life of each component and reduce the possibility of an unexpected service interruption (as in having the furnace go out in the dead of a winter night for example), and emergency service calls come at a high cost and are often only a temporary fix to a greater problem.

Begin by making a list of all the various components that make up the physical plant (chapter house). These will include both structural components such as the roof and finish items such as painting. Components should also include personal property items such as furniture.

A comprehensive list of components would include:

  • Roof - which may be under a full or partial warranty provided by the last installer
  • Exterior walls – which need periodic re-grouting if brick or replacement if wood due to dry rot, joint separation or just age
  • Plumbing - which includes all fixtures and hardware but also includes unseen and maybe difficult to access pipes such as the sewer lateral to the street
  • HVAC - which includes all Heating, Ventilation and Air Conditioning units and their related components such as ducting, controls and filters
  • Windows
  • Doors
  • Electrical - which include both fixtures and service line components such as circuit breakers
  • Flooring
  • Life Safety components such as fire extinguishers, sprinklers and illuminated exit signs
  • Personal property which includes furnishings such as tables and chairs, window treatments and movable appliances such as ovens and refrigerators

After a list is made review each item to assess condition and determine whether the item has components needing regular servicing such as forced air heating filters, fire extinguisher refill or replacement, drain cleaning etc. For each item identified consult service manuals, service providers or the web to determine recommended servicing and replacement suggestions. It’s also quite possible that a Graduate Brother in the contracting business can be a good resource for you on this.

Once a scheduled maintenance plan has been established keep the plan in a safe place and schedule an annual review and update to the plan as a regular annual chapter or House Corporation event.

 8. Charge parlor fees to members not living in the house for their share of the cost to use and enjoy of the chapter house

The chapter house represents many things and has many uses. While not all brothers can or maybe even want to live in the house, if the house offers live-in space, there is no question that all active brothers benefit from the privilege of having a place to meet, socialize and develop the lifelong friendships that the Fraternity encourages. The house also becomes part of the chapter’s identity on and off campus for good reasons or for bad. For these reasons all brothers should be asked to (and hopefully willing to) help cover the operational expenses of the house.

A "parlor fee" is a traditional term in the Fraternity world for an assessment to non-live-in brothers to help cover the annual operating expenses of the property. While there is no specific formula for determining an appropriate fee, one practical approach is to budget total annual operating expenses for the coming year being sure to include appropriate replacement reserves and debt service on any property-related loans, subtract total room rental income from live-in brothers and then equally divide the difference among all live-out brothers. An exceptionally high allocation suggests an imbalance between the total occupancy cost of the chapter house and either or both the size of the chapter and the amount being charged to live-in brothers and will need to be addressed separately.

9. Have an alternate minimum flat annual rate rental amount that the chapter is obligated to pay, regardless of actual occupancy

 10. Have a written room contract with each individual tenant that is guaranteed by a parent/guardian

Option 1: House corporation should have a master lease with the chapter and have the local chapter have individual leases with members.

Option 2: House corporation should have individual leases with members that are guaranteed by parent or guardian.

(Note: Another of the best practices is to be charging non-live-in members a “parlor” fee for their use/wear & tear on the house. Some/all of these funds should be given to the house corporation to offset repairs and maintenance. Details on this topic are addressed in another section.)

Background/Information: 1848 Properties recognizes that there are situations where one best method of how do something might not be reasonable or practical. We feel in the case of leasing arrangements, having having two recommended approaches for house corporations is optimal. That said, we do feel that there is a “better” and “best” approach to handling the leasing function.

The "best" approach would be for the House Corporation to have a “master” lease with the chapter (see sample document). The reason we believe this is the better model is due to some recent court rulings (Fritzie for instance) which suggest that when the House Corporation is dealing just with the chapter this provides for a bit more “separation” from the conduct of the members and the programming of the chapter itself, resulting in more of protection to the house corporation should there be an incident at the property. (In more simple terms- we are the landlord renting to the chapter, we aren’t responsible for or knowing who the chapter has rented rooms to or what specific activities they are doing on the premises.) The key to this approach is being sure that the House Corporation stays in its lane and doesn’t get involved in Chapter Advising roles or doesn’t have men serving simultaneously in both a House Corporation and Chapter Advisor role.

The "better"  method of leasing would be for the house corporation to take responsibility for individual leases but to have these guaranteed by parents/guardians. The practice of guarantees is common in both the Greek system and by the University itself. Students living in University housing are almost always required to have a parent/guardian sign or guarantee the lease because it is understood that in the vast majority of instances the parent/guardian is fully/partially responsible for payment of the college experience and that studen’s generally don’t have assets. Further, it is understood, that the “threat” of recourse to a parent/guardian is often useful leverage in getting compliance by a student that is not cooperating.

Tools: Please note that real estate/leasing laws vary from state to state. Therefore, if you use one of the sample leases, it is important that you invest in a legal review from a local attorney to insure that are compliant with your state’s laws. (For instance, the amount of time you have to return a housing deposit varies from state to state.)

Further, in the sample lease with a chapter, adjustments will be needed to account for practices such as who is paying for the utilities or repairs.

See sample House Corporation/Chapter Lease
See sample House Corporation/individual member lease

11. Charge a room damage deposit and have a room inspection form that tenants use when moving in/out of the house

 12. Budget for higher than expected operating costs (recommended at least 5% over planned budget)

Consistent with prudent financial planning the chapter or house corporation should prepare an annual chapter house operating budget and have it adopted, ideally before the start of the next fiscal year. With regards to operating expense projections the best approach is to look at each item separately to determine an appropriate estimate for the coming year. Some items such as property taxes in some states have maximum annual increase limits which make budgeting easily. Most items are on a best guess basis however. A review and comparison of actual annual costs from previous years can yield an average growth rate estimate which can be useful but is not precise for many reasons. If historical expense costs are unknown or not relevant for whatever reason an estimate based on the most recent published annual CPI index can be used. This figure is published by the US Bureau of Labor statistics and is readily available on the internet. Once an appropriate cost amount has been determined for each item be sure to add an additional 5-10% of the amount determined to account for the likelihood of unexpected cost increases over the coming year.

13. Budget for bad debt (recommend at least 5% bad debt as part of their standard budget)
14. Require chapters to have a local rule for a live-in requirement, so if/when house occupancy rates fall below 90%, members would be required to live-in or move in
15. Require the chapters implement a local annual housing assessment (e.g. $50/man/semester) designated for care and upkeep of the chapter house

Safety & Security

  1. Perform an independent safety inspection annually (insurance company, university, fire dept.)
  2. Perform fire drill/alarm system tests at the same frequency that is done with university housing on their campus (recommended 2x/yr. minimum)
  3. Equip and maintain property with appropriate system for security
  4. Require chapter officers/house manager/chapter advisor to perform a monthly inspection of the asset to assess operational and safety issues (1848 Properties has a recommended inspection list)
  5. Require chapters hire outside security for large social events
  6. Install sprinkler head guards on sprinkler heads to prevent accidental discharge of water
  7. Install and maintain smoke detectors and carbon monoxide detectors in accordance with local fire regulations
  8. Replace batteries for smoke detectors semi-annually

 Reserve Study

Explanation

A best practice within Phi Gamma Delta house corporations (HC) is the use of a Reserve Study to help the HC plan for repair and replacement of major components of the house and the funding for the same. This tool/process will help insure proper funding/capitalization of the HC and avoid the need for continual appeals to graduate brothers to handle routine upkeep and improvements. Further, the use of this tool will enable the HC to properly calculate the full cost of operating the house, so that this can be factored into their rent calculations. Rent, of course, shouldn't just be about mortgage, insurance and utilities, etc., but needs to factor the costs of all the components of the house. With this information, the HC can factor in and charge brothers for their share of the use of this asset and the components annually, rather than pushing that cost out to brothers in the future.

Starting this process can feel daunting. Don't let this deter you! Even if you start with "guesses" about the cost of replacement of items and estimate the useful remaining life, that is better than doing nothing! Over time - say as you have the furnace inspected - you can ask for an assessment of remaining life and get an estimate for replacement from your vendor. Finally, don't be discouraged if your obligations outweigh your on-hand cash. Under capitalization is a common problem among HCs. And not only do you need to allocate some of your cash on-hand to your reserves, but you also should have several months of operating expenses on-hand as well. This is all part of the process of improving HC operations. For those with cash on-hand, we recommend that you allocate some of those funds to your reserves based on the items that will need replacing the soonest. And remember, reserve funds as a general principle should not use for daily operations.

Finally, this reserve study format is allocating the cost of house operations based on the number of brothers living in the house (beds). Of course, the brothers living in the house are getting "more" benefit and use than brothers not living in the house, but all brothers have access to the house and are benefiting from the roof, HVAC, common areas, chapter room, bathrooms, floors, etc., and they are contributing to the wear and tear. For this reason, we recommend that HC factor in an amount to assess/charge the "non-resident" brothers for their share of the use and enjoyment of the house.

Process

Here is the Reserve Study Tool.

The Reserve Study tool is only as good as you make it. We recommend that at least once every three years the HC shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components which the HC is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the HC. It is recommended that the board shall review this study annually and shall consider and implement necessary adjustments to the board's analysis of the reserve account requirements as a result of that review.

Have a Question About Housing?
Contact Thomas Lovejoy.