Drafting a Cottage Operating Agreement

The cottage operating agreement is the key document in your cottage succession plan. The objective is to compile the wishes of every owner so each owner is willing to sign the operating agreement.

The process of drafting a cottage operating agreement is different for the "Immediate Cottage LLC" and "Springing Cottage LLC" but the goals of the agreement are the same.

The Operating Agreement is where the rules are established for management and use of the cottage.

Member or Manager Management?

The family will need to choose between a "Member Managed" or a "Manager-Managed" method for controlling their company. The management method will depend on the size of the family and the number of members.

Member Managed
The smaller the family the easier it is to be a "Member Managed" LLC. Ultimately you want to keep things simple and add key points to the operating agreement which are important to each member with a provision that those key points require unanimous agreement.

Manager Managed
When there are more than three owners problems could arise when voting on issues. An alternative is to have the operating agreement permit members to appoint company "managers" and establish committees to oversee the usual operation of the cottage. The allocation of power can be determined by the members. These are typical types of cottage operation "managers":

  • Operations and Maintenance Manager
  • Record-Keeping and Scheduling Manager
  • Financial Manager

Important Decisions for All
These are operating issues which every member should vote on to have control of the outcome:

  • Annual budget
  • Capital improvements
  • Operating agreement amendments
  • Amendments to the Articles of Organization of the Company
  • Merging the company
  • Dissolving the company
  • Establishing a cottage use fee for members
  • Select or replace company managers
  • Mortgaging the cottage
  • Renting the cottage
  • Changing the company to a different legal form
  • Endowment contribution
  • Amend the operating agreement
  • Approve construction or remodeling which alters the character of the cottage
  • Increasing members portion of property insurance, property taxes, and standard maintenance expenses
  • Selling the company
  • Selling the cottage

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