Question of the Month - Liability for Apartment Under Lease

Question of the Month - Question of the Month 2009

We purchased a church with a 4 unit apartment building on the premises. Same address. We have remodeled one of the apartments and are renting (at cost of utilities only) to a single mom with terminal cancer and her son. Some of our board members are concerned about their liability and our tax exempt status. What is the best way to protect our board members/church and maintain our tax exempt status? Insurance policy? Separate entity?

First, I would own your property in a separate but related nonprofit LLC property holding company and have a typical renters agreement that requires insurance such liability and renters insurance.  I also would have property insurance on the building in the church and/or entity name. Obviously, you would have to prove (through resolutions or policies) that this activity was directly related to your ministries tax exempt purposes in providing benevolence and/ or below market rental to low income families to avoid unrelated business income tax.

Please download the memo “Nonprofits Subscriber and Affiliates-21st Century risk management for churches and nonprofits” in the subscriber only section at www.nonprofitchurchlaw.org.