A Typical Scenario

A church blessed with a new facility suddenly becomes inundated with requests from various public and private groups to utilize the church property.  As simple common examples: a local men’s group contacts the pastor asking to use a small portion of the facility every Thursday night for their Toastmasters International sessions; a hybrid homeschool program seeks the pastor’s approval to use available space for in-session classes during the week; and a host of couples from the area request the use of the facility for their wedding services and/or receptions on open dates at the church.  The church could likely accommodate all these requests because portions of the new facility are unused at various times every day.  Moreover, the fees generated from such third-party usage would surely help the church’s finances.[i]

So, the church wants to move forward and offer its facility to these groups, but the pastor is a bit leery.  How does the church protect its strongly held religious beliefs amid all these different groups?  How does the church protect the right to remove a group that acts contrary to the church’s beliefs?  How does the church limit liability for these groups’ actions on church property? And how does the church keep peace with all these different groups if the relationship goes sideways?  As the pastor grapples with these and other concerns, he wonders aloud how to open the church’s doors for these activities while protecting our Lord.

Facility Use Agreements

Based on the above situation, is it time to have legal counsel draft an ironclad lease agreement?  No.  The church’s best guide here is often a facility use agreement (also called a facility use license agreement).  For our purposes here and for clarity of thought, let us use the term “facility use agreement” moving forward.  A facility use agreement represents a legally binding contract granting third-party permission to use church property for specific purposes, such as meetings or events.[ii] In other words, a facility use agreement grants the user a license to use church property as opposed to a lease to the property.[iii]

Facility Use Agreements Versus Leases

This is an essential initial point regarding facility use agreements.  All state and local jurisdictions maintain voluminous rules, regulations, and statutes governing lease arrangements between parties.  In the present situation described in our scenario above, if the church utilized a lease, it would be subject to every secular requirement related to leases in that jurisdiction.  This includes all the mandated processes involving evictions, notices, disputes, payments, and secular civil litigation processes, which could carry on for months or years before the church could truly remove a bad actor from the leased premises.  There are numerous aspects to facility use agreements that are too lengthy for our current purposes here.  However, a summary of some key considerations related to facility use agreements helps explain their vital importance to churches. And more on the term “secular” soon (see Sections E-F).

A facility use agreement eradicates the entire leasehold relationship between the parties and instead grants the user a finite license to utilize church property under certain conditions set forth in the written agreement between the parties.  Such license is further clarified in the facility use agreement to underscore that: the user obtains no property rights; the users (as opposed to the church) remain obligated to properly supervise and control the applicable church area while the users’ activities occur; and the user retains no right to assign the license to any other parties.  These elements of the facility use agreement clarify the nature of the license granted to the specific user by the church while also helping set the stage for other provisions in the facility use agreement, further mitigating the church’s liability risk.

Limiting Liability (Mitigating Risk)

One primary purpose of a facility use agreement is to limit church liability for a user’s actions at the church.  Every facility use agreement should contain indemnification and hold harmless provisions where the user agrees to indemnify the church and hold the church harmless from any claims or damages resulting from the user’s activities at the church.  Furthermore, we recommend that the facility use agreement contain a provision mandating that the user maintain a liability insurance policy at a certain amount (usually the statutory minimum), naming the church as an additional insured on the policy.  Such a provision helps protect the church if a party asserts a claim against the church for anything related to the user’s activities at the church.  Other provisions in the facility agreement critical to mitigating risk include warranty-type provisions, full releases of all claims against the church, and childcare/child safety provisions (if the user will be involved in children’s activities or childcare-type activities).

A Church’s Statement of Faith and Beliefs Trumps Secular Worldviews

Let us return for a moment to the concern regarding secular matters impacting the church.  Unlike a lease, a facility use agreement permits the church to conspicuously mandate that the use of church property remain consistent with (or, not contrary to) the church’s statement of faith and beliefs.  Every facility use agreement should undoubtedly and unequivocally contain a provision requiring every user to comply with (or not act contrary to) the church’s statement of faith.  In our example above, let’s assume a certain couple signs a facility use agreement for a wedding reception, and the agreement contains the statement of faith provision.  The following week, the couple shows up with some of its group for rehearsal and preparations.  The group commences preparations by placing posters, pictures, placards, and gifts of a sexually deviant nature, along with playing abhorrent music glorifying sin.  Aside from speaking with the group and explaining their unGodly behavior, the church retains the sole and exclusive right under the facility use agreement to immediately terminate the arrangement and remove the user (group) from the church. Failure to abide by the church’s statement of faith and beliefs violates the facility use agreement, granting the church full right to end the license with the user.  This serves as another crucial aspect of facility use agreements as opposed to some form of lease arrangement with a user.

Christian Alternative Dispute Resolution Avoids Secular Courts

In addition, the church avoids secular courts under a facility use agreement by including a provision mandating Christian alternative dispute resolution (Christian mediation and arbitration).  Specifically, Christian alternative dispute resolution is a structure designed to resolve conflicts and restore relationships according to Holy Scripture while avoiding the often anti-Christian secular court system. The Bible serves as the foundation and backdrop for reconciling conflicts between the church and the user.  Here, too, the church avoids secular courts and secular litigation common to lease arrangements by resolving any disputes under the facility use agreement through a Christian-based process.[iv]  Courts routinely enforce these provisions in favor of churches, and a church would be remiss to exclude such a provision in the church’s facility use agreements.

Summarizing Some Essential Elements of a Facility Use Agreement

Based on this brief backdrop about facility use agreements, the following list offers a synthesized list of some elements that should appear in every church facility use agreement.  A handful of these essential elements include, but are not limited to:

• Clear identification of the parties;
• Detailed description of the facility and church areas in use by the user;
• Specific explanation of the purposes of the use of the church facility/property;
• Description of dates/times/schedules for use;
• Defined fee terms and other expenses to be paid by the user (e.g., cleaning fees);
•  Statement of Faith and Beliefs requirements;
•  Explanation of the user’s insurance requirements;
•  Explicit indemnification provision to protect the church;
•  Explicit hold harmless provision to protect the church;
•  Explicit release, and warranty-type provisions to protect the church;
•  Clear childcare and child safety provisions (as applicable);
•  Robust Christian alternative dispute resolution provision;
•  Outline of other rules and requirements as set forth by the church (e.g., alcohol guidelines, clean up, time deadlines, etc.);
•  Simple termination provision (often, the church may terminate for any reason); and
•  Definitive prohibition against the user assigning the agreement to any other party.

Best Practices

The best practice for the church is to utilize legal counsel who focus exclusively on churches, ministries, religious schools, and other nonprofits to help draft a robust facility use agreement.  From there, legal counsel can assist the church in an annual review of the church’s facility use activities and records. To the extent necessary, legal counsel can also provide the church with training to better understand the important legal nuances related to facility use agreements.  The example scenario summarized earlier in this brief analysis is ripe for proper guidance from competent legal counsel.  In all, legal counsel should help protect the church, support the church’s mission, and help the church glorify God.

Conclusion

If you have a need for a facility use agreement, ensure you utilize a law firm that would be honored to assist and help—biblically and in a way that honors God—protect the church.

[i] The Internal Revenue Service recognizes and accepts that churches may receive facility use agreement fees from third parties.  Depending on the nature of the activities permitted under the church’s facility use agreements, some (or all) of the fees may be deemed unrelated business income.  The topic of unrelated business income and unrelated business income tax is for another day.  However, please note that generally, if a church’s unrelated business income represents 20%-30% of the church’s overall revenue for a fiscal year, the Internal Revenue Service may raise concerns about whether the church is actually a for-profit entity cloaked as a church.  This is often not a concern for churches due to the lower fees normally generated from facility use agreements as compared to overall revenue.  However, it remains an issue for churches to consider on an annual basis.  Please feel free to reach out to experienced legal counsel like us for a more detailed discussion about such matters. We can provide the church with guidance and recommendations on how to mitigate this risk for the church without ceasing all other activities.

[ii] See e.g., Perez v. Roman Catholic Bishop of Oakland, No. RG17870189, at 4 (Sup. Ct. Cal. – Alameda Dec. 03, 2019) (slip op.) (confirming that a “[f]acility [u]se [a]greement creates contractual obligations owed to” the church by the user).

[iii] See e.g., Metropolitan Sports Facilities Comm’n v. Minnesota Twins P’ship, 638 N.W.2d 214, 224-230 (Minn. Ct. App. 2002) (stating that a certain facility use agreement “is not a typical . . . leasing contract”).

[iv] E.g., Encore Productions, Inc. v. Promise Keepers, 53 F. Supp. 2d 1101, 1108-1118 (D. Col. 1999) (confirming the appropriateness of an arbitration provision, process, and award where the parties agreed that “the Holy Scriptures (the Bible) shall be the supreme authority governing every aspect of the conciliation process” and because, in part, the Christian alternative dispute resolution provision expressly controlled “except where the state or federal rules specifically indicate that they may not be superseded” (internal quotation marks and emphasis omitted); Prescott v. Northlake Christian School, 244 F. Supp. 2d 659 (E.D. La. 2002) (upholding a Christian arbitrator’s decision wherein the “contract and the arbitration agreement stress[ed] the supreme authority of the Bible in the employment relationship between [the parties]. The parties intended to be guided not only by state and federal secular law, but also by the Bible.”), vacated and remanded on other grounds, 369 F.3d 491 (5th Cir. 2004).  See also Institute for Christian Conciliation, “Conciliation Clauses,” available at https://www.aorhope.org/icc-contract-clauses (last visited Aug. 25, 2024) (summarizing other courts and cases enforcing Christian alternative dispute resolution provisions).