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Sharing Religious Property With Other Nonprofits: Benefits, Considerations, and Challenges

In New York’s dynamic landscape, religious buildings serve not only as sacred houses of worship and community centers, but also as venues for mission-related activities. However, despite the importance of these buildings in their communities, these spaces often remain underutilized for significant portions of the week. By sharing or leasing spaces to other nonprofit entities, religious organizations can unlock benefits that extend beyond financial gains — such as developing stronger community connections, enabling vital services, and broadening their organizational reach2. This arrangement can vary depending on the needs of each organization, ranging from leasing an entire building or a portion of it to one or multiple nonprofits, to sharing the same spaces in the building but at different times. However, space sharing comes with a set of considerations and challenges that necessitate careful planning and foresight.

Published in the New York Landmarks Conservancy | Issue: June 2024

Benefits of Space Sharing

1. Financial Advantages:

Opening religious buildings to other nonprofit users can generate new revenue streams. This additional income can help cover operating expenses, fund capital improvements, and support broader mission goals. Additionally, sharing expenses like utilities, security, and cleaning services reduces the financial strain on the religious organization.
2. Community Service and Engagement:

Nonprofit users often provide essential community services such as schools, daycare centers, counseling, and social services. Hosting these services transforms religious properties into community hubs that comprehensively serve the needs of local residents.

3. Promotional and Partnership Opportunities:

Shared spaces frequently lead to joint events and initiatives, fostering community and collaboration. These activities not only enhance the visibility of the hosting religious organization but also integrate it more deeply into local community networks.

 

Considerations Before Sharing Space

1. Space Utilization:

Identifying underutilized spaces within the building is crucial. Many religious buildings are primarily active on weekends and serve various functions during weekdays (often at night). Therefore, these spaces can be used by other nonprofit organizations during regular business hours. This adaptive use of space ensures that facilities are maximized without interfering with the religious practices traditionally held.

2. Regulatory Building Compliance:

Understanding and adhering to zoning laws (such as the type of activities that can be used in the space, for example, community facility use), occupancy classifications and requirements, and fire/life safety codes, is essential to ensure that the shared spaces meet the legal requirements. Proper compliance helps avoid potential legal complications and ensures that facility usage is safe and lawful. Religious organizations should consult with an architect or attorney to navigate these regulations.

3. Tax Implications:

Under New York Law, to receive a property tax exemption, a religious organization must own and solely utilize the property for its own exempt purpose. However, there is an exception to the law which provides that if a religious organization leases or shares space with another nonprofit entity, as long as maintenance, depreciation, and carrying costs of the building exceed or are equal to the rental income, the religious organization is still eligible for a real property tax exemption (i.e., the religious organization is not making a “profit” on the sharing or leasing of space). The nuances of the tax laws are beyond the scope of this article, but the religious organization must understand and discuss with an attorney and/or financial advisor the potential implications of the real property tax exemptions and Unrelated Business Income Tax prior to opening their building to other users.

4. Statutory Requirements for Religious Organizations:

Religious organizations are subject to specific statutory regulations under the New York Not-For-Profit Corporation Law and the Religious Corporations Law. Consequently, except where exemptions apply, these entities must secure approval from the Attorney General and/or the Supreme Court for any leases that extend for five years or longer. This requirement introduces an additional expense and procedural steps that must be clearly understood and discussed with all parties from the beginning of any contract negotiation.

5. Risk Management:

Beyond just holding proper insurance coverage, space sharing increases liability exposure that must be proactively managed. Below are a few examples to help mitigate the risk: Include clear facility use policies and security protocols.

Require tenants to indemnify, name the religious organization (including its members, agents, invitees, etc.) as an additional insured, and provide evidence of insurance prior to entry. Inform the religious organization’s insurance broker that other entities are utilizing the space and confirm the existing insurance extends to uses within the building or purchase additional insurance or endorsements if necessary.

 

Navigating Complexities of Sharing Space

1. Tenant Compatibility:

Before embarking on a space-sharing arrangement, religious leadership must carefully select and vet prospective users. The ideal users are those that are mission aligned and have similar values and community objectives. This synergy is crucial for minimizing potential conflicts and ensuring that the shared space is used in ways that complement the organization’s mission.

2. Coordination:

Sharing a building involves logistical considerations, particularly when it comes to scheduling and managing spaces that are traditionally used sporadically throughout the week. Religious leadership must understand the needs of its own organization and the services already provided in the building so that space is not leased that is needed for hosting the organization’s ministry. Effective coordination and clear communication are essential to ensure that all activities are seamlessly integrated without disrupting religious practices and mission related events.

3. Increased Operational Demands:

Hosting external entities can lead to increased security needs, additional storage requirements, and more frequent maintenance and repairs. Scheduling can also become a complex issue, requiring robust management to prevent conflicts. Religious organizations must take these costs into account when determining the rent or donation requested from users.

4. Control Over Premises:

Sharing space often means ceding some level of control over the property, which can pose a challenge for many organizations. Religious organizations should prepare for potential pushback from the congregation and discuss this with their members.

5. Operational and Financial Responsibilities:

Being a landlord extends beyond merely providing space to users. Depending on the terms of the legal arrangement, the responsibilities often include prompt maintenance and having the financial wherewithal to address issues as they arise. For larger congregations with multiple users, a dedicated building manager is often prudent.

 

Legal Framework and Agreements:

It is imperative for the religious organization to engage an attorney at the initial stages to draft an agreement that delineates the relationship between the parties involved and safeguards the religious organization and its property. While this requires an upfront financial investment, it is a judicious measure that can save significant time, money, and prevent potential conflicts in the future.

Depending on the duration and nature of usage, different agreements will be appropriate. Such types of agreements include a Facility Use Agreement for one-off events (such as weddings, or conferences), License Agreement for shorter-term usage (such as an after-school program held once a week) or a Lease for a longer-term arrangement (such as leasing an entire portion of the building). These agreements must outline the permitted uses of the space, length of term, financial arrangements (rent/donation, payment of utilities, and operational expenses), maintenance obligations, insurance and indemnity requirements, etc. Clarity and detail in these areas are key to preventing misunderstandings and future disputes between the parties.

 

Conclusion

While sharing or leasing space offers numerous benefits, both financial and mission-oriented, it also necessitates a thorough understanding of legal, financial and operational considerations. Religious organizations should approach these opportunities with strategic planning and establish clear agreements to ensure that the advantages are fully realized without compromising their mission or the safety of their organization and buildings.

 

Jodi Warren, Esq. is a partner at Capell Barnett Matalon & Schoenfeld LLP, a New York City law firm, where she specializes in Real Estate, Corporate and Commercial Transactions, and Religious and Charitable Organizations. Jodi represents and advises clients in all aspects of property development, construction, finance, acquisition, and sale. Jodi routinely represents religious and not-for-profit corporations on complex real estate transactions including long-term leases, purchase and sales of properties, joint ventures and development projects. She serves as counsel to numerous denominational governing bodies as well as individual congregations and nonprofit organizations.

2 This article specifically addresses the sharing and leasing of property from a religious organization to other nonprofit entities. It does not explore arrangements with for-profit organizations. The analysis and tax implications for engagements with for-profit entities are significantly different and warrant a detailed, separate analysis.