Is Your Facility Use Agreement Working For You?

February 2024 - With Valentine Day upon us and the official May-to-October wedding season not far behind, many couples are searching for the perfect wedding venue.  Schools and performing arts organizations are looking for end-of-year performance and graduation venues.  Your church or nonprofit facility might be the perfect match.  Engaging the opportunity has stewardship and community outreach benefits.  But opening your facilities to other activities and users involves risk.  A Facility Use Policy sets the standard for your facility use.   A Facility Use Agreement implements that standard.  To be effective,  leaders must answer three questions.

Is the Facility Use covered?

Premises liability describes claims for personal injury or property damage associated with the facility’s use.  (Example: a concertgoer slips and falls in the church parking lot.)  Premises risk is mitigated with good liability insurance coverage, “risk shifting” contract clauses and proper facility maintenance.  But insurance policies often exclude certain activities and/or users.  Before considering new activities, make sure your documents require a full description of the activity and attendees in writing. Then work with your insurance agent to determine if additional coverage is needed.   Depending on the activity, some Facility Use Agreements require organizational users to carry their own insurance (at least $1Million minimum limits), provide proof of such insurance and add your church or nonprofit to their policy as Additional Insureds. 

The Agreement should also include contract clauses that 1) require the user (both organizations and individuals) to indemnify, defend and hold your church or nonprofit harmless for any personal injury or property damage, 2) provide for faith-based dispute resolution instead of lawsuits and 3) clearly define responsibilities for services like security, technology and janitorial.  Always provide the new user with guidelines and rules for use (emergency evacuation, no smoking, etc.). Lastly, always inspect and correct any known hazards on your premises and have the new user inspect and approve the facility before use.

Is the Facility Use consistent with stated Religious Beliefs?

While church services and programs are open to the public, your facility is private property.  When your facilities are used primarily for religious practices, the use of the facility is protected by the First Amendment’s religion clauses.  Churches and religious nonprofits have the right to operate their facilities consistent with their sincerely held religious beliefs.  On the other hand, as government expands protections for the rights of individuals, conflicts may arise when certain “public accommodation laws” are inconsistent with your organization’s religious beliefs. Whether these laws apply to religious facilities depends on several factors.  Stated broadly, the more “public” a facility or “non-religious” an activity may be, the less protected a religious organization’s beliefs will be.  The more “private” and “religious” a facility or activity is, the more the facility and its uses are protected as religious expression. 

Public accommodation laws vary widely from state to state and even from city to city within a state. Some exclude religious organizations, others do not.  Churches and religious nonprofits need to work with legal counsel to understand the laws of their jurisdiction and draft their Facility Use Policy and Agreement to be consistent with and incorporate their Statement of Beliefs and Conduct standards.  Agreements should require users to agree in writing that the activity and its participants will abide by the standards. 

If Facility Use fees or rents are charged, are they in compliance with IRS rules?

As a tax-exempt organization, several IRS rules apply when charging (or not charging) fees or rents for facility use.  If the IRS determines the revenue collected is unreported UBI (Unrelated Business Income), an organization’s tax-exempt status could be at risk.  On the other hand, if no rent is charged to a for-profit business owned by the pastor’s wife, the IRS could determine private benefit is involved.  A full treatment of the IRS rules is beyond the scope of this article.  The point is this:  If your church or nonprofit is charging a fee for facility use – especially a fee greater than the costs involved – you should consult your tax professional to determine if the income is properly accounted for and does not violate IRS limitations.   

Application

Developing a good Facility Use Policy and Facility Use Agreement that responds to the complexity of risks involved is essential for any church or nonprofit that seeks to benefit from opening its doors to the community.  Best-practice documents:

·       require activities and use to be within liability insurance coverage and/or require user-provided insurance coverage and additional insured status for the church or nonprofit.

·       include clear, risk-shifting contract clauses such as indemnity, dispute resolution and defined responsibilities for each party.

·       require use to be consistent with the organization’s sincerely held religious beliefs and standards of conduct incorporated into the Agreement.

·       define fee structures only after determining compliance with the potential tax-exempt rules involved.

This information is provided as a general guide to highlight critical business issues facing your ministry.  It should not be construed as professional legal, tax, or human resources advice or service. Every situation should be evaluated independently, and professional advice sought from a lawyer or tax professional.