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Renting Your Church
Tips for Creating Good Relationships
By Robert E. Kyte

The Any Town Adventist Church purchased a spacious parcel of property for its future location.  Plans were expansive to include a school building, sanctuary with attached fellowship hall, Sabbath school rooms and offices.  There was even room for more expansion on the back portion of the spacious campus.  Eventually, the school was built and then a church building with sanctuary, fellowship hall, office and Sabbath school rooms.  But as time passed the strain of the continued cost of maintaining the facility, much larger than the congregation had previously occupied, started to be evidenced through lack of maintenance, and church board meetings that dragged on late into the night as the board wrestled with the need to increase funds in the church and school budget to pay for the utilities, insurance and repairs, as well as doing routine maintenance.  Preventative maintenance was a long way off the priority list. 

Several opportunities soon came along that gave the church board and the congregation hopes on its financial challenges.  A Sunday church congregation, the Sunday Christian Church, about the same size as the Adventist congregation, was in need of a church home.  Surely this was a great opportunity to rent out the church and make extra money to pay for the costs of the maintenance.  A short time later, a group of real estate professionals approached the school wanting to rent its gymnasium weekly for a friendly game of basketball.  They were willing to pay $100 per week for the use of the gymnasium for two hours.  That extra $400 per month would be a great help paying utility bills for the school.  A third opportunity presented itself when a nonprofit soccer league offered to rent a large parcel of vacant land at the rear of the property to have its soccer games played.  The league would also pay the costs of maintaining the property it used including mowing the grass and watering it.  All of these arrangements were gratefully agreed to by the pastor and the church board.

How often do scenarios like this play out across the North American Division?  Thankfully most of these scenarios work out in a positive way.  But let’s look at some of the potential consequences and how to deal with them.  Before we do though, let me add that this article is not meant to discourage you from renting out your church facility.  There are many good reasons to do this including helping out a Sunday church in need of a place to worship and to help recoup some of the operating costs for the church or school.  Okay, let’s look at some problems that could come up.

The Any Town Adventist Church signed a letter of understanding in which both pastors agreed that on Sundays the church facility would be used by the Sunday Christian Church.  It was written in the spirit of friendliness that the pastors wanted to share in this arrangement.  However, as the months went on some things started to happen that created problems.  The Sunday Christian Church allowed its members to smoke just outside the church and the janitor complained about all the cigarette butts around the building.  A member of the Adventist congregation requested the use of the church on a Sunday afternoon for his daughter’s wedding but the Sunday Christian Church insisted they had the right to the church all day on Sundays.  The Sunday Christian Church wanted to leave their Sunday school and other materials in the church rather than transport them weekly but there was nothing anticipated for storage in the letter of understanding.  The worst thing that happened, though, was when the Adventist church secretary came in on a Monday morning and discovered the Sunday Christian Church had used the kitchen facilities and someone had left the gas stove on.  The Adventist pastor was not aware that the Sunday Christian Church was using the kitchen too!

She wondered aloud to the pastor—would our insurance cover the loss if a fire had started?

Meanwhile, over at the school the real estate professional’s basketball group came weekly and played.  All went well there until the principal stopped by one evening to check on things and discovered that the players brought coolers with them and enjoyed cooling off with some chilled beer.  He wondered what would happen if one of the players got intoxicated and was in an accident driving away from the game.  He supposed this would not create liability for the school.  He also wondered what the reaction would be if parents found out that alcohol was being consumed on the premises.

The pastor was growing concerned about the Sunday congregation issues and nearly forgot about the soccer league use of the field at the rear of the church.  However, he was jarred to reality on this when the league started up its activities in the spring and suddenly the first Sabbath of the soccer season when the members came to church they were met by a parking lot full of happy soccer playing kids and their parents.  Somehow the pastor forgot that Saturdays would be a busy day for soccer matches and failed to put any restriction of use on the property for Sabbath games.  When the congregation arrived and realized that the church property was being rented out for Sabbath games, the reaction was not positive.  If this were not enough, the local county tax assessor showed up the following Monday morning indicating that he had heard the church was renting out it properties for purposes that were other than for use by the church for its religious exempt purposes.  He was there to assess the value of the property for charging property taxes because of this use.

What—this would never happen?  It has and does happen when renting of a church, school or other property is not carefully considered, documented thoroughly and the extent of the impact determined.

So here are some tips that you should consider in renting out your church or school property:
  • Have a written agreement that covers all aspects of the rental arrangement.  What is included? What is excluded?  Since the local conference is really the owner of the property, consult with the conference treasurer.  If possible, use the conference lawyer to assist in the drafting of a rental agreement or lease.  Do not use a standard form rental agreement as it generally will not cover everything you need in the agreement for a church or school facility.  An attorney who assists you needs to know more than real estate law.  The lawyer must have understanding of the tax consequences of such an arrangement for a tax exempt organization.  Taxes in this case may be for property tax or even unrelated business income tax.
  • Be careful who you rent to.  Does the tenant have a stable congregation and income stream to pay the rent and are they willing to abide by the spirit and letter of your agreement?
  • Before you sign an agreement, know what the consequences are to your church in terms of taxes.  In some jurisdictions you may be ending significant tax exemption benefits through renting your church or school.  Find out what you can and cannot do in your jurisdiction before you rent.  In some jurisdictions renting the church or school merely to raise money to offset your costs will terminate a tax exemption, whereas a shared use where the tenant congregation pays something to offset the costs of their use may be okay.  Rental of church property for religious use, or a school for education use may not trigger a tax, but rental for other activities (e.g. the soccer league or the basketball group) may cause a tax liability. 
  • Be sure the tenant congregation has ample insurance for their use of the property.  We suggest requiring the same amount of limits that your church must insure according to NAD policy.  They need to name the Seventh-day Adventist Church as an additional insured so that if an incident caused by the tenant occurs, their insurance will cover your church.  Check with your conference treasurer on the exact name that should be included as additional insured.  Remember, the property is owned by the conference legal entity, not the congregation.
  • Be sure the agreement includes an indemnification and hold harmless clause that clearly states that the tenant will cover all costs and damages associated with any claim related to the tenant’s use and that they will protect the SDA church as landlord from any such claims arising.
  • Be clear what space is rented and what is not rented.  Also include any equipment they have rights to use and equipment they cannot use.
  • Your written agreement should be clear as to what is permissible activity and prohibited activity.  For instance, how do you address smoking on the property or consumption of alcohol?  What about alcohol used in communion services?  Does the congregation have the right to use the kitchen, and what about the type of food permitted on the premises (meat or pork)?  Do you allow dancing in the fellowship hall?  Do you permit or limit marriages in your church such as same-sex marriages?  We are not suggesting how you address these issues but they often come up after the fact and can create frustration within the SDA congregation because they assumed the tenant would not do certain things.
  • Who is responsible for clearing sidewalks and parking lots if there is snow or ice on a Sunday morning or some other time the tenant uses the facility?  A slip and fall on the church property raises liability issues for both the landlord and the tenant.
  • It is smart to appoint someone to be the facility liaison with the renting congregation other than the pastor.  It is best to keep the pastor in a position that he can be neutral if problems arise.  The liaison should work with the tenant congregation on property and other concerns that come up during the tenancy.
  • Be clear how the tenant should leave the property each week and then monitor it.  Should papers and debris be gathered or is that the role of the SDA church-provided janitor? Conversely, the SDA congregation should be mindful of the needs providing for a clean facility for the renting congregation.
  • Are there provisions for your needs to use the church facility on the same day as the other congregation and how do you accommodate this?  For example, what if the other congregation rents the property for all day Sunday and one of your church members wishes to use the church for a Sunday wedding?  Figure this out in advance as it is a lot less frustrating to everyone than waiting till it comes up.
  •  If a potential tenant wants to rent the church or school property for uses other than religious services (remember this could impact any tax exemption), be equally careful in how the liability is addressed and the details of the arrangement.  For example, I have worked with churches and schools that rent their fields for soccer leagues.  This is a great community program but don’t lose sight of the impact to the church.  Soccer leagues like to play on Sabbath.  Parking can be a big issue whenever they are using the fields even on other days when church activities are being conducted.
Many times we have seen an Adventist church that has been damaged by fire or other events turn to a local Sunday church for rental accommodations during reconstruction.  Similarly, an Adventist church is a very obvious place to turn for Sunday congregations who have needs.  While there is inherent risk in any such activities, these risks can be addressed if they are carefully thought through and planned for.  Our encouragement is that if you are willing to help out another congregation, use this as an opportunity to show others that we are helpful to the community and that the Seventh-day Adventist Church is a friendly landlord to work with.  Much of that can be addressed by anticipating the needs of both congregations and outlining the relationship in advance so that during the course of the tenancy the congregations can view each other as supportive of their respective religious and facility needs.

Robert Kyte is the President of Adventist Risk Management.