How Do Churches Navigate Commercial Lease Agreements?

Though many established churches are long-time building owners, there are many newer churches or churches that have outgrown older facilities, which find themselves entering into commercial lease agreements. Just like the documents involved in purchasing a new residence or a new car, the commercial lease agreement may be lengthy and difficult to understand.  How do churches navigate complicated lease agreements?

Tips to Consider When Signing a Lease for the Church:

Avoid providing a personal guarantee.  In most circumstances, pastors should avoid making their personal assets available to guarantee that the church will pay its obligations.  Landlords often request a personal guarantee from the pastor, especially when the church has limited assets and therefore cannot demonstrate its financial viability. Generally speaking, a pastor should only sign a lease agreement in his or her capacity as an official representative of the church entity, not on his or her own behalf.

Ensure you have adequate insurance.  Many commercial leases require liability and property insurance up to certain limits.  Send a copy of the proposed lease agreement to your church insurance carrier for review before you sign it in order to ensure that your current policy complies with the lease terms, or to find out how much extra coverage you will need.

Know what will happen if you have to get out early.  Be sure you understand what happens if the church ends up not being able to pay its rent for the duration of the lease.

• Will you be allowed to sub-lease the property?
• Will you be able to break the lease by paying a penalty?
• Will you be released from the remainder of the lease once the landlord is able to find another suitable tenant?

Entering a lease always requires some risk, but be sure you know exactly what the risk is before signing.

Understand all that you will have to pay. Will you incur additional fees for the maintenance of parking lots and other common areas?  Will you pay any portion of property taxes or utilities?  Can the base rent or additional rent increase during the term of the lease, and if so, how will the increases be determined? 

Check the hours when you are allowed to use the leased space.  Be sure the lease allows you to meet in the evenings and weekends if needed.  Many standard commercial leases provide that the tenant will only use the facility during normal business hours, Monday through Friday.  Churches often need office space for evening meetings, and certainly need worship space on weekends.

Seek expert advice.  When in doubt on any key language in a lease agreement, take the time and invest the money to have an expert review the lease and advise you. Retain the services of a real estate professional or an attorney for review.  The time spent and the expense incurred to obtain professional advice may end up being minor compared to problems you avoid.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com