Pastors Often Ask Why a Church Lease Agreement Is Necessary
The purpose of a lease agreement, when it comes to renting a church, is to document all factors of the relationship between the church and your organization, including any conditions that are placed on your use of the space. The lease agreement also protects your organization by forcing the church to comply with terms it agrees to, by creating a legally binding contract between both parties. Once signed, the church can’t freely decide to increase or reduce rent, for instance, without giving you proper notice, in order to do so. While not as common, a church can also potentially counter sue your organization if you aren’t following terms of the lease when it comes to using the church, such as damaging the premises during an event .
Properly leasing your church can prevent problems in a variety of different areas. For instance, an oral agreement may seem binding for some every day agreements, but when it comes to renting a church and other activity involving real estate, it’s often incomplete and unreliable. Problems arise with these types of oral contracts because a range of interests are usually in play, such as the church wanting to make the most money possible, and your organization wanting to keep making a profit.
It’s important to have a clear, written agreement to ensure that everything is covered. This is also true of a termination agreement.
The Essential Components of a Church Lease Agreement
A church lease agreement, like a conventional commercial lease, should contain the critical economic and logistical details of the transaction. Specifically, the property description (including any improvements, parking spaces and easements), the term of the lease, rental payment, percentage rent/cost pass-through calculations, percentage of responsibility for taxes, and maintenance should all be carefully detailed. For example, the church management may want to compare costs between paying for utilities and janitorial services and the true cost of providing those services, or want a form of escalation clause to protect the church from unexpected increases in costs. The landlord may want to have an ability to inspect the premises and charge for repairs (including cosmetic repairs), as well as have approval rights over any signage either on the building or the property. And both parties should understand whether the building is ADA accessible and if not how much the improvements will cost to bring them into compliance.
The lease agreement should also describe the order of priority for any construction, alteration or tenant improvement approvals (e.g. signed off by landlord’s architect) and other pre-approval requirements, including any plans or specifications that need to be submitted before commencement of construction.
Legal Obligations to Consider when Leasing a Church Building
The provisions of a lease may be different from the purchase and sale of real estate. There is generally no obligation of good faith and fair dealing in leases based on Alabama case law. Your church can construct your lease to give yourself the maximum amount of discretion. Consider having a "real estate attorney" review your lease agreement. A real estate attorney will be familiar with state and local regulations concerning commercial leases.
Religious Use: Section 1(a) of the Constitution of the State of Alabama of 1901 provides that "Freedom of religious worship shall be secured to all persons." Religious use clauses should protect your use of the property pursuant to your beliefs and practices (i.e., hours of operation, Sabbath-day observance, etc.).
Zoning: The use of the building and the potential for your congregation to do any remodeling should be confirmed by a real estate attorney. If your church desires to build or remodel, such plans may be limited by the current zoning laws. In some cases, zoning laws may expressly prohibit the use of the property for a church. Speak with a real estate attorney to ensure that the agreement is written to conform to the local zoning requirements.
Covenants and Restrictions: Have the lease written to conform to any covenants and restrictions of an applicable homeowners association, community development district, or condominium association.
Understanding Church Lease Agreement Negotiations
An area which will often be the subject of negotiation between the landlord and tenant is the terms of the lease. It is important to communicate clearly about what the church requires at the outset and possibly during the term of the lease. For example, the church may require a rental payment increase after 2 years of occupancy and again after an additional 2 years . The church may also need to reserve the right to move out after a period of time or to renew for a few more months after the lease expires should they find themselves in a time crunch to secure a longer lease to another church. The lease may also need to be revisited in the rare event that the church needs to take legal action or obtain a legal judgment and church property is seized for forced sale by a creditor. Being upfront with these issues can help eliminate misunderstandings down the line and lead to better, more productive, longer-lasting relationship between both parties.
Issues and Solutions for Common Church Leasing Problems
There are a number of common issues that arise in negotiations of a church lease. Addressing them in advance is always preferable to dealing with them after the fact. Rental payments, maintenance obligations (i.e., building, grounds, parking lots and rest rooms), and addressing any needed alterations or improvements to the property will most probably need to be discussed to ensure proper care for the church building. For example, who will be responsible for interior maintenance of the church building (e.g., broken light bulbs, doors, windows, and carpeting)? If the church leases space in a multi-purpose facility, such as a school or community center, who will be responsible for the maintenance of the exterior doors and windows of each individual space that the church leases? The tenant (i.e., the church) should also be aware of the possibility that the amount of property taxes the tenant pays may increase during the term of the lease due to tax increases or reassessment of the property. Costs associated with repairs to or improvements on the premises or to the property may also serve as reasons for increases in rent.
Lease disputes-such as disagreements over whether the property owner or the tenant should be responsible for repairs or whether the landlord can enter the property without advance notice or consent-are relatively common.
Tailoring Church Lease Agreements for Different Uses
The lease agreement can be customized to accommodate different uses of the property. For instance, if a church is considering leasing out part of its building for community events, the lease should include specific rights and obligations regarding access to common areas, building maintenance and utilities.
Churches may also consider leasing church property to another church or ministry that may seek to hold a number of church-related events. In either case, the lease agreement may address day-to-day church operations, event scheduling, parking, insurance, liabilities, and utility costs, among other things .
Additionally, space sharing provides churches an opportunity to accommodate a variety of ministries through the lease of office space and classrooms. Lease agreements may provide terms that discuss hourly and full-time fees associated with space to be leased.
If the lease includes the use of space for educational purposes, the lease should address lease terms that discuss the frequency of use of space, the utilities, and the responsibility for general maintenance of that area.