So You Want to Sell Your Church?
Updated: Sep 10, 2020
Written by Richard C. Baker, Esq.
I recently received a call from a Pastor who was inquiring with regard to our firm’s representation of the church in the sale of its church home since 1938. He indicated he thought it should be a simple matter. Before knowing much about this specific church, my response was that it usually is not a simple matter. As we discussed the particulars of this sale, it became immediately apparent that there were many issues that would need to be resolved in the process of selling the property. So when the question comes up, here are five “W’s” to consider: Why, Where, When, Who and What?
Two related questions should first be asked as to why? Why is the church planning to sell its property? Related to that question is: why is the buyer buying the property? As for the seller, some of the considerations may include:
Downsizing or upgrading and moving to a new location;
Dwindling membership or loss of leadership resulting in closing the ministry and winding down; or
Prohibitive cost to repair the property, poor location or the property is otherwise obsolete.
It is important also to know what the buyer’s objectives for they too will have a profound impact on the terms and timing of the transition.
It has been said that three of the great stressors in life are taxes, moving, and death. For a church, taxes are usually not a consideration, but moving and death are. And in both cases, whether downsizing, upgrading, or ending a ministry, the transition is extremely stressful on a congregation. All too often the selling church does not fully appreciate how much goes into the sale and move of a church and end up with too little time to smoothly complete all the necessary steps.
So, in both cases of “death and moving,” the management of expectations and getting the congregation involved and on board in the transition are essential. In the case of a sale and move, having a place to “land safely” is crucial.
On the other hand, with the ending of a ministry, questions of legacy, celebrating the impact the church has had over the years, and carefully planning where the remaining members and assets will end up are major considerations. If the question “to be or not to be” has been answered “not to be,” then in considering where will the members will go, a merger with another existing church or a dissolution and donation to another church or ministry might be a better strategy. As for where the assets will end up upon ending a ministry, both Federal tax law and Illinois not-for-profit and trust law require that church assets go to another exempt organization and not to the pecuniary benefit of any individuals. Unfortunately, I have seen more than one case in which the leadership earmarked the remaining assets to go to themselves.
When you sell, where will the church go? What contingencies are to be put on an offer to purchase given that the church’s ability to purchase the new facility is contingent upon the sale of its current facility? A related question once the "where" has been answered is, what renovation issues face the church in making the transfer to its new home?
The “when” of the sale is closely related to where the church goes after the sale. Among the myriad of questions to be answered are the following: If the church is moving to a new facility, what is the timing of the sale and the purchase? Has enough time been allotted to make a smooth and orderly transition? If renovations to the new property need to be made before it can be used by the church as its new sanctuary, how long will those renovations take? Will a post possession agreement to allow the selling church to remain in its building be necessary as a part of the church’s transition? Failure to plan in this area will cost the leadership credibility and may cause an exodus of members.
While it may seem to be obvious, who owns the property is key and not always as clear as one would think. Looking up the title to the property is only the beginning. On a number of occasions I have represented selling churches that were formed many years ago. While the church had a deed in its name or in a previous name of the church, it did not have any proof that it was ever incorporated either under the Illinois Not-For-Profit Corporation Act or the Illinois Religious Corporation Act. You can see the problem: XYZ Church, a religious corporation is the recorded owner of the church property, but there is no proof that the selling church is XYZ Church, NFP or Religious Corporation. It is also necessary, if the selling church belongs to a denomination, to determine whether the denomination needs to sign off on the sale.
Who your church is selling to will also have major impact on the transaction. Therefore, careful consideration should be given to who the buyer is and what unique challenges they will face in completing the purchase of your church? Are you selling to another church? If so, what kind of church? Is it an established church or a start up? Is a developer and some other commercial enterprise buying your property? What do they intend to use it for? Will the church property no longer be Kingdom real estate after the sale? What are the buyer’s financial considerations? Does the buyer have to sell its church first? Will the buyer need financing? Remember, financing for a church can take more work. As one accountant who advised many churches used to say, “show me the money!”
A further consideration with regard to the sale, depending on why you are selling, is the “who in your leadership will carry out the plan. Do you still have the leadership intact to carry out the sale according to your bylaws? Do you have legal counsel familiar with the nuances of the sale of a church and working with its leadership and congregation through the whole process?
Last, but certainly not least, is the question of what will be needed to carry out the sale? Under the “who” section I already raised the question of “do you have the corporate documents to prove your church’s corporate existence?” But other practical considerations will inevitably arise. For instance, do you have a workable set of bylaws to effectuate the sale or will they need to be amended? Once the bylaws are in place, have you followed them in preparing to sell your property? This usually involves a membership vote to sell. As the buyer will inevitably ask, can the church prove that the church is exempt from real estate taxation? Another all too frequent issue that the buyer will ask, especially if it is another church is: are there parking issues that will need to be addressed? What other liens and encumbrances are there against the property that you will have to clear in order to give the buyer clear title? One that frequently arises is the water bill. Under Chicago’s regulations, the selling church must get a water certificate to close. I have seen many times that that outstanding bill can be over $10,000, even after the partial water exemption given churches. And finally, the question will come up as to whether you have the zoning documentation needed for the buyer.
Now you can see why my answer is that, in my experience the sale of a church usually is not a simple matter. A lot of planning and time is needed to put all the moving pieces in place for a smooth transition.
Given the complexity of this article, here is a quick list of questions for the 5 W’s of selling a church.
Why is your church selling?
Why is the buyer buying?
Why sale rather than merger or dissolution and donation?
When your church sells, where will it go?
What contingencies are to be put on the selling church’s offer to purchase given its ability to purchase a new facility is contingent upon the sale of its current facility?
What renovation issues face the church in making the transfer?
If the church is moving to a new facility, what is the timing of the sale and purchase?
Will a post possession agreement be necessary for the church’s transition?
Who owns the property?
Who is the buyer and what unique challenges does the buyer face?
If your church is part of a denomination, do you need approval from the denomination to sell?
Who are the leaders that will effectuate sale and move?
Do you have the corporate documents to prove your church’s corporate existence?
Have you followed your bylaws in preparing to sell your property?
Can you prove that your church is exempt from real estate taxation?
Are there parking issues?
What renovation issues will the buyer raise?
What liens and encumbrances are there against the property that you will have to clear in order to give the buyer clear title?
Do you have the zoning documentation needed for the buyer?