Minimizing the Liability in Your Property: Facilities Use

Many ministries are choosing to maximize their existing facilities by either renting  space to outside groups or by creating separate businesses, such as fitness centers or daycares. Your venture into the rental and for-profit spaces may help you reach people and fund your mission, but it also could have a big impact on your ministry’s assets, tax-exempt status, and reputation.

Loaning Facilities

Christian ministry is all about community, so inviting others to use your church or school building is commonplace. But allowing others to use your facility also invites the potential for lawsuits and damage claims. Before you loan out your facilities, take these three steps to protect your ministry.

Step 1. Start with a written agreement (view our Sample Facilities Use Agreement), signed by you and the renter. Make sure your agreement includes the following components, as well as any others that may be recommended by your local attorney:

• Borrower has a public liability insurance policy with at least $1 million limits of liability coverage. The policy should also contain premises medical payments coverage with at least a $5,000 limit. Each scenario may require a different amount of liability coverage. Speak with your agent about appropriate limits for your specific situation.
• Your church or school is named as an “additional insured” on the borrower’s policy for liability damages arising out of its activities on your premises. Make sure the borrower’s policy is primary, and your ministry’s policy is secondary.
• Obtain a certificate of insurance before the event. This certificate demonstrates the borrower has obtained adequate coverage and that your church or school is named as an additional insured. 
• Include a hold-harmless, indemnity, and defense clause in favor of your ministry for any liability claim arising from the borrower’s activities on your premises.

Step 2. If you advertise portions of your campus available for rent, you can take an additional step by prominently posting your use expectations and belief statements on promotional materials, on any webpages about rental options, and on your facilities use agreement. Get more information about renting your facilities here.

Step 3. If lending or leasing facilities, it’s a good idea to require that facility use be tied to your organization's religious mission and purpose. This step may help avoid being classified as a place of public accommodation.

Mixing Ministry and Business

Your mission to preach the gospel is tax-exempt, but a for-profit business is not. There are some specific rules to follow in order to maintain tax-exempt status. Miss these important steps, and your ministry could be subject to fines, loss of tax-exempt status, or even lawsuits. In some situations, your ministry may be subject to Unrelated Business Income Tax (UBIT). Make sure you check with a local attorney or CPA to see if UBIT may apply in your situation.

What is your corporate structure? If the ministry’s business operates as a profit center, you may consider setting it up as a separate entity. It’s also important to create a distinct organizational structure, including a separate board and separate assets. If possible, set up the business entity as a separate legal entity. If that’s not feasible for your ministry, you’ll need to consider your risk appetite and decide if the ministry is willing to take the risk. It’s important to work with a local attorney who can help you determine which structure is best for your ministry.

Are you a place of public accommodation? When a ministry undertakes an activity that invites the general public onto its property, there is the risk that the ministry would lose its exemption from complying with public accommodation laws. This could mean that an after-hours fitness center operated by a Christian school, for example, would need to comply with accommodation laws, including ones that went against its sincerely held religious beliefs. If lending or leasing facilities, it’s a good idea to require that facility use be tied to the organization’s religious mission and purpose. This should be broadly communicated on documents, public websites, social media, and anywhere else the service is advertised. This step may help avoid being classified as a place of public accommodation.

 * Coverage determination is made at the time of the claim, subject to all policy terms, conditions, and exclusions.
** There could be tax ramifications, including challenges to tax-exempt status, if no fee is charged to a for-profit entity. Ministry leaders are encouraged to work with a locally licensed attorney and/or tax professional when developing any policy or procedure to ensure compliance with all applicable laws.

Additional Resources

• The Deacon's Bench Online - Precaution
• Sample Facilities Use Agreement
• Facilities Use for Colleges and Universities
• The Importance of a Facilities Use Agreement

Posted November 2021

The information provided in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We encourage you to regularly consult with a local attorney as part of your risk management program.