Maybe you’re looking for another source of income, or perhaps someone approached you asking if they could rent your church facility. Renting out space for a fee seems like an attractive prospect. You can earn more money for the church while helping your community. But before you sign any agreements with a potential tenant, you need to be fully aware of the risks and rewards.
Can Churches Rent Out Space?
Churches are legally allowed to rent out their facilities. However, a church interested in renting out space must carefully evaluate the legal implications of becoming a landlord.
Here are some important things to consider before renting out your church facility. Please note that this article is for informational purposes only and should not be construed as legal advice. Always consult with an attorney before making any decisions for your own church.
Will You Create an Event Use Agreement or a Lease Agreement?
There are important differences between these two types of agreements. Event use agreements specify that your church will only be used for a set amount of time, while leases create long-term agreements. The type of agreement that’s right for you will vary depending on the individual situation.
In general, you should use an event use agreement for one-time rentals. Lease agreements are more appropriate for long-term, repeated or continuous use. For example, you might create an event use agreement for a couple that wishes to rent your church’s banquet hall for a wedding. On the other hand, if a church plant wants to rent your sanctuary every week for their services, a lease could make more sense.
Will You Provide Seating and Furniture?
It’s also worth considering whether your church will provide seating and other furniture, or require the renters to bring their own. There are pros and cons to each of these approaches. If your church provides the seating, this could make it a more attractive venue option. You could even charge a separate rental fee for the chairs. However, make sure your rental agreement clearly outlines who is responsible for set up and clean up.
Need event seating? Shop ChurchPlaza’s versatile folding chairs.
Lawsuits Might Be an Issue
Renting out your property comes with both rewards and great risk. Your church could very well get sued if you don’t take the proper precautions. Before renting, consult with an attorney. An experienced lawyer can help you write a detailed contract for the party you’re renting to and make sure your church is protected. A “hold harmless” clause is essential – this ensures your church will not be held liable for any accidents, injuries, or damages that occur on the church property. However, this is not an excuse to neglect your facilities.
You Have a Responsibility to Maintain Your Facilities
Even if you have a “hold harmless” clause in your Facility Use Agreement, it’s still a good idea to properly maintain your church facilities. Premises liability is a complex area of law. Prevention is the best remedy against a lawsuit. By keeping your church space clean and free of any hazards, you can reduce your legal risk.
Be Careful Who You Rent To
Who you rent to is as important as any other precautions you might take to prevent legal issues. Make sure your tenants have sufficient insurance coverage and name your church as an additional insured on their policy. Also consider what the group or individuals stand for, and whether their mission aligns with your church’s mission. You want to avoid any bad publicity or backlash with your choice of tenants.
A very important question to consider is whether you will rent out to anyone (including for-profit companies) or if you will only rent to other churches and nonprofits.
Know Your Tax Liability
Renting out your church can be a good source of income, and maybe that’s the whole reason you want to do it. But be aware of any tax liabilities that come with that extra income.
- Sales tax: Check and see if your state charges sales tax on any rental income.
- Property tax: In some states, renting out your church may jeopardize your tax exempt status. Consult with a lawyer to see how rental income will impact your taxes.
- Unrelated business income tax: Churches that still have a mortgage may be subject to unrelated business income tax when renting out their facility. The 85 percent rule comes into play here – if you’re primarily renting to an organization that is closely related to your church’s mission, you’ll likely be exempt from this tax. Always discuss your unique situation with a lawyer.
Create a Fair and Consistent Pricing System
Make sure you’re renting out your facilities at a fair price, and treating all organizations equally when setting the costs. Work with a financial advisor and a lawyer to help you determine rental rates. You’ll want to take into account a variety of factors, including:
- Maintenance costs
- Square footage being rented out
- Staff costs (i.e. do you need to support your tenants’ activities with your own staff)
Is Renting Your Church Worth It?
At the end of the day, you need to weigh the risks against the rewards to determine whether you should rent out your church facilities. This decision needs to be made with careful planning and expert advice.
If you decide you do want to rent your church facilities and are in need of any seating or furniture for potential renters, get in touch with ChurchPlaza. Our experienced representatives can help you determine what you need and provide a quote.