Shared Space Agreement – License to Use Space

When a Church enters into an agreement to share space with another Congregation, it is wise to form a clear understanding of all expectations. Your Trustees might consider adopting a Memorandum of Understanding between the two congregations which would include at least the following elements:

1. The specific Space (rooms) to be used and the Day(s) and Time(s) of use each week

2. The Arrangements for storage of items (hymnals, musical instruments, etc.)

3. Identification of special Services or Events during the year which may alter the regular weekly schedule (for each congregation)

4. Description of the Process by which to deal with unanticipated space needs that may come up from time to time

5. Designation of Responsibility for clean-up, room arrangements, etc.

6. The amount which will be paid in exchange for a License to Use the Space under this agreement

We recommend that the Church should also:

7. Obtain for its file a copy of tenant Congregation’s documents (Certificate of Incorporation, By-Laws, IRS Letter of Determination, etc.) if they exist. Bear in mind that no law requires any church to have either document (albeit all are helpful and advisable).

8. Recommend strongly that the tenant Congregation obtain its own insurance to cover its personal property and liability with the owner Church named as a co-insured. The owner Church’s own insurance will defend and cover it in the event of an incident arising out of the tenant’s occupancy, but it will not protect the tenant. It is primarily for the tenant’s own benefit that it have its own insurance policy. Naming the owner as a co-insured simply provides additional protection to the owner, usually before having to use the owner’s own insurance.

Ecumenical Fellowship

We also suggest, further, that it would be a good idea that times be arranged during the year for inter-congregational, ecumenical fellowship – such as joint Christmas and Holy Week Services, occasional luncheons between the two services, joint events, etc. Representatives of the two congregations (pastors and lay people) might occasionally attend the regular service of the other congregation as a visible sign of fellowship.

Determining your Costs

While a License to Use Space on a part-time, non-exclusive basis is different than a lease which would have implications under the laws governing real property tax exemption, it can be a useful exercise for the Church to determine its costs in operating its building and providing the space covered under this (or any other shared used) agreement. You should calculate a cost factor based on the building cost per square foot per hour. Here’s how:

1. Determine the total expenses to operate the building for the year (include utilities, insurance, repair, custodial maintenance and supplies (inside and outside), cost of supervision of building and scheduling (generally a percentage of the total annual compensation package of the Pastor, Secretary or other employee responsible for supervision/scheduling), and either the annual mortgage payments or a factor (3-5% of building value) to account for deprecation, etc.

2. Calculate the area (square footage) in each of the rooms in the building (omit hallways, restrooms, etc.).

3. Determine the number of hours the building is typically in use – alternatively, use 40 hours/week for 50 weeks (omits public holidays) = 2000 hours/year.

4. Divide the total annual cost by the total area, and then divide that amount by the total annual hours of use to yield a cost per square foot per hour. This will yield a factor which is typically a fraction of a cent so carry it out to 5 or 6 decimal places.

5. Then multiply the area in a particular room times the number of hours that room is to be used times the cost/square foot/hour factor. This will determine the cost to you in providing the space. Under the laws governing tax-exempt property, this would be the maximum you could charge another nonprofit organization to rent/lease that space.

Whatever the fee charged for the License to Use Space, it is always good to understand the actual cost of providing that space.

Note also: It is perfectly legal for you to rent space to another nonprofit organization subject to certain regulations on use and lease payments. It is also legal for you to license space to be used on a non-exclusive basis. The payments are properly called "rent," or "lease payment," or "use fee" as appropriate. Nothing changes by calling them euphemistically "donations" – so don't try to pretend the payments are something other than they are.