What is a Facility Use Agreement and Why Would We Want to Use One?

Pastor Smith of the Acme Seventh-day Adventist Church wants to allow a “Stop Smoking” organization to hold meetings at the church. He believes such an organization is consistent with the health message and wants to support the effort to help people give up tobacco. Pastor Smith believes it’s important to make the church available for outreach.

At the same time, Pastor Smith felt it necessary to ensure the use of God’s house be in harmony with Seventh-day Adventist (SDA) beliefs and practices. When Pastor Smith checked with his conference administrators he learned it’s probably best to have a written agreement to clearly state the requirements and to set limits on such things as the serving of certain foods and beverages along with certain actions while people use the church.

How do you communicate and get those who wish to use your facilities to understand and agree to your conditions and limitations?  A rental agreement or lease is one option, but it may not be the best choice.    A lease creates a tenancy which, under most state and provincial laws, is an exclusive interest in the land which passes to the tenant.  Under such an arrangement, a landlord will have a difficult time imposing restrictions on the use of the facility. Also, a lease is harder to dissolve or terminate, and each state or province has a different, detailed process for eviction.

What are the alternatives?   

One option is a Facilities Use Agreement. A Facilities Use Agreement is a contract, but it is not a lease and cannot have the characteristics of a lease. Rather it is a contract that extends a license to someone who has no other right to use the property. Such a license allows use of the property for a specific time and purpose. It does not grant the licensee exclusive control of the property and does not attach to the land. It is permission to use the property for a specified purpose. Examples of such uses for a church may be a wedding, funeral, smoking cessation program, weight loss program, or other similar short-term events. Importantly, a Facilities Use Agreement cannot impose a regular rental payment on the licensee.  If there is rent, a court may interpret the agreement as a lease rather than a license. If it is a lease, it is harder to end the relationship, and the tenant has many more rights which may encumber the land and the property owner.   

Any Facilities Use Agreement should also follow or include the local church’s facility use policy. This can be included by reference. Churches should work with their conference to develop a facility use policy.  While rent cannot be charged to the licensee, a charge can be imposed. Such a charge should be specifically characterized in the Facilities Use Agreement. These charges should be below market rental rates. If they are not, a court may treat the document as a lease thereby granting rights to the land user that they would not otherwise have. It can be characterized as an offset to expenses such as upkeep and maintenance, clean-up costs, insurance, utilities and the like. There should be some basis for the amount charged to such expenses that can be explained. For example, if a smoking cessation program uses the facilities every Thursday evening, then four days of utilities can be charged to that organization on a monthly basis.  The characterization should make sense and be explainable. The Agreement cannot be, or appear to be, a commercial agreement. Churches engaging in commercial ventures can jeopardize tax exempt status and subject the church to public accommodation laws. These laws may interfere with the church’s ability to limit certain practices and behavior when others use the church facility.

Reducing risk and liability  

The landowner should manage and reduce the risk through the agreement. Specifically, Facility Use Agreements should require the licensee to carry sufficient insurance and contain strong hold harmless provisions, including an indemnity obligation. The Facility Use Agreement should specify what type of insurance is required and the limits of coverage. If necessary, name the church and conference on the licensee’s policies as additional insureds.  It is important to get this right from the outset otherwise the church is exposing itself to liability for activities it has little or no control over. 

A Facility Use Agreement should state that it is not a lease and that the parties intend to grant a limited use license to the licensee for the facility. A Facility Use Agreement, like any contract, will be judged by the words used as a reflection of the intent of the parties. Avoid ambiguities, and ensure the document is clear and straightforward.    

Finally, a Facility Use Agreement, like any agreement, should be carefully drafted with your local attorney’s assistance and expertise. Each state or province may have requirements or pitfalls that need attention in the drafting of the agreement. Working together with your local conference and local attorney and relying on their expertise and assistance can help you avoid and avert any potential risks.