Churches often forget that property is a valuable asset that needs to be well managed just like any other of a church’s assets. An underappreciated part of church risk management is understanding commercial real estate leasing agreements. Property leases or lease agreements of all kinds are legally binding documents between a tenant (in this case the Church) and its landlord. The process of negotiating an agreement is one that demands clarity in communication between the landlord and such tenants, so it is important to be as concise as possible.
In the case of a Church property, management staff must understand the key elements of the lease so they can successfully interact with its landlord and understand any potential risks to the church. Asking relevant questions makes the management process efficient especially since many agreements are standard and include requirements with terms such as Triple Net (NNN), yielding substantial knowledge to landlords but not always to the tenant.
Leases that are truly beneficial to a Church are clear and cover the full scope of the loan. This includes rent price per square foot, up-front costs, operating expenses, additional rents (including CAM and NNN charges), and future rent increases. They also encompass the following:
- Rent price per square foot
- Size of the leased premises
- Length of agreement
- Terms of renewal
- Other key provisions which may include:
- Subleasing provisions
- Leasehold improvements
- Exclusives
- Permitted use of the premises
- Utilities
- Common area maintenance
- Easements
- Additional use of the premises
Understanding the key elements, the right questions to ask, and understanding the commercial real estate leasing contract are essential to effective property management for a church. The lease period has a direct impact on a Church’s worship services, spiritual growth, stewardship endeavors, facilities maintenance, and community involvement. For example, an overhaul of a worship space requires money and time. The management should be aware of the rental fees, and the landlord’s procedures in case of a lease default.
In addition, a growing church will likely need to reassess their lease agreement and could become landlocked in a high-demand area with no option to expand or relocate. At Prattville Community Church, we’ve had a tremendous response from our local residents to our “I Care” concept. For example, earlier this year, our congregation undertook a massive outreach project called “God Loves You Prattville” where we delivered boxes of practical items to families in need.
We delivered 1200 boxes with necessities such as gloves, hats, mittens, shampoo and conditioner, toilet paper, toothpaste, socks, blankets, warm hats and scarves, for our city residents. We distributed boxes to city residents at the Prattville Mill apartments, Montgomery County Housing Authority sites, Montgomery Area Mental Health Board, The Montgomery Housing Authority, The Boys and Girls Club, Child Protect and the Montgomery Area Food Bank.
Prattville Community Church is committed to connecting with our community and helping it thrive; as such, we have a vested interest in understanding the dynamics of our lease agreement. Any commercial real estate leasing contract between the landlord and the church must be a mutually beneficial one, in order to ensure a harmonious relationship.
Clarity and transparency are helpful characteristics of successful lease agreements, allowing the Church to focus on facilitating its mission. Wording is important in commercial leases, any ambiguities should be addressed. It is advised that a Church partner with an attorney for assistance in the review of any lease agreements that will impact long-term ministries.