5 Things Your Church Needs to Know About Leases

Written by Founder Raul Rivera on Sep 13, 2016 in Church Planting

I was surprised when I received a call from Pastor David a few weeks ago. We helped him establish his church’s legal foundation through our StartRIGHT® Program last year, and so it had been a while since we last spoke.

Like many new churches, Pastor David’s church began in his living room. It started with a small group of individuals who were committed to following Jesus and making a positive difference in their community. Before he knew it his living room was packed! He needed to find a larger meeting space, and fast!

When I spoke to Pastor David I could sense his excitement about his church’s recent growth, but at the same time, I could tell he was anxious about his next steps and he was in need of some guidance.

Growing beyond the four walls of your home

Most pastors dream of outgrowing their current worship space, but many don’t know what steps to take once that happens.

The goal of most churches is to hold worship services in its own facility or church building. The fact is that meeting in a public location, as opposed to private space like a home, is more inviting to the public and safer for both the homeowner and attendees.

For this reason, most churches will seek to rent space that is easily accessible to those in the community.

Now there are a few pitfalls to avoid when it comes to renting space for the church. However, with a little planning and forethought, finding a rental space can be easy.

Let’s review some key factors to look at when searching for a place to hold worship services.

Location, location, location

When considering your options, you’ll want to make sure that the location is ideal for reaching your community.

The most common concern I hear from pastors who are searching for a place to rent for the first time is price. It’s true that traditional options like an independent church building or commercial property can be expensive.

However, we have found that most churches can find an affordable place to rent in their community if they just think outside the box.

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Let’s look at some nontraditional options that you should consider:

  • schools
  • daycares
  • movie theaters
  • other churches
  • community or civic centers
  • hotel conference rooms
  • libraries

The availability and pricing of venues in your community will vary. Don’t be afraid of asking local churches if they are willing to share their space when they aren’t using it. This is often overlooked by many pastors and leaders. You may find that the church is willing to let you use their space free of charge.

Get it in writing

Once you have decided on a location, you’ll want to make sure to have a written contract with the landlord. Even if you are renting from another church, it is important, for your church’s protection, that the terms are clearly outlined and agreed upon in a written contract.

Most churches can find an affordable place to rent in their community if they just think outside the box.

Here are a few things to think about before signing a lease:

1. Clear terms:

It is important that the lease outlines the determined length of time and any requirements to maintain the lease. A clear definition of time and requirements provide the church stability. Here are some things to consider:

  • Are the utilities included in the rent?
  • Who is responsible for maintenance and repairs?
  • Is the church able to sublease? (This question is important in the instance that the church outgrows the space before the lease has expired.)

2. Protective language:

The lease should be explicit about when and how the contract can be terminated. It should state the notice and conditions needed if either party wants to terminate the lease. This language prevents the church from being evicted unduly and without notice.

3. Fixed payment vs. percentage:

Most leases have a set monthly, weekly, or per-use rent amount. However, I occasionally run across a church whose rent is based upon a percentage of their income. In this instance, it is important that the terms are clear and that the percentage has a reasonable cap, up to a specified amount.

4. Contract in church’s name:

Once the church is incorporated at the state level and has its own Federal Employer Identification Number (FEIN), any contract made should be done so in the church’s corporate name, using the church’s FEIN. Using an individual’s name and/or social security number opens that individual up to personal liability and overall is not a good business practice.

5. Insurance:

Lease agreements often require the tenants to obtain renter’s insurance in case of damage to the building or property. Whether or not the lease requires it, carrying insurance is always a wise choice. In addition, don’t forget to look into liability insurance.

Some venues may allow churches to use their space free of charge or at a lower rate since it is a nonprofit organization. However, be aware that even though the church is a nonprofit organization, landlords cannot receive a charitable deduction on a reduction in rent.

The importance of Form W-9

The type of landlord you church chooses to rent from also has tax implications. If your church rents space from an individual, as opposed to a leasing company or corporation, the church will have some additional requirements to meet.

Churches who pay rent directly to an individual need to request and maintain on file a Form W-9 from the landlord at the outset. This form will help the church prepare a 1099-MISC for the landlord at the end of the year. The landlord will need the 1099-MISC, as he or she will be responsible to pay taxes on the rental income.

Under IRS guidelines, if your church does not acquire the needed information to provide the landlord with a Form 1099-MISC, the church will then be responsible to withhold and pay 28% of the total rent amount to the IRS. Failure to do so may result in penalties.

If the church pays rent to another corporation, such as another church or hotel, there is no need to ask for a Form W-9 or provide a 1099-MISC. The receiving corporation will be paying income taxes as a business.

Rejoice in the harvest

Pastor David and I discussed his options for seeking a public meeting space and the different pitfalls to avoid. He came up with a few nontraditional venues to look into. He ended the conversation with an excitement and peace about finding the perfect location for his new church home.

Church growth is good! Don’t let the enemy rob you of the joy and celebration that this milestone should bring. It’s our desire at StartCHURCH to provide you with resources and knowledge to help you lead your church as it continues to grow.

If you’ve not yet done so, I encourage you to consider attending our Ultimate Church Structure Conference to learn about other strategic methods you can implement to empower your church and ministry.

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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