Many long-standing institutions own more land than their operations need and less cash than their operations require. Selling is often impossible, sometimes prohibited and almost always contentious. Leasing is neither.
Many institutions hold land under deeds, bequests or governing documents that restrict conveyance, and many more face a membership that will not approve a sale of ground held for generations. A lease is a different vote. The land is still theirs, the decision is reversible in the long run, and the organization is a landlord rather than a seller.
It also preserves optionality. A ninety-nine year lease on an underused parking field does not foreclose a future campus plan on the rest of the site.
Lease out. The institution stays the landlord and receives ground rent. Income, no capital event, maximum control, and the organization carries the work of being a landlord for ninety-nine years.
Monetize the fee. Where the need is a capital sum now rather than income later, the institution can sell the fee interest under an existing or simultaneously created lease. That produces a single capital event, and the institution can remain the tenant if it continues to occupy.
Which is right depends on whether the problem is a deficit or a building campaign. A deficit wants income. A campaign wants a number.
The escalator. Flat rent for ninety-nine years is a slow transfer of value. Fixed annual escalation, with an inflation test at intervals, is the standard. A rent that does not grow is a gift.
Subordination. Agreeing to subordinate the fee to the tenant's construction lender means a foreclosure can extinguish the institution's ownership. Most institutional land capital will not take that risk and neither should a church.
Use restrictions. What the site may and may not be used for over ninety-nine years, enforceable against successors. This is the clause institutions care most about and draft least carefully.
Reversion condition. What the improvements have to look like when they come back, and who is obliged to maintain them in the meantime.
Transfer and consent. Who the counterparty may become. The developer signing today will not be the tenant in year forty.
Rent from real property is treated differently from active business income for exempt organizations, and the presence of debt on the property affects that analysis. It is a real question with a real answer, and it belongs to the organization's tax counsel before a term sheet is signed, not after.
Expect a governance calendar. Boards, vestries, denominational bodies and attorneys general in some states all have a say. Build that into the timeline rather than discovering it in month four.
Not tax or legal advice. Exempt-organization tax treatment, state charitable-property rules and denominational approval requirements vary and require your own counsel.
No. The fee stays with the organization and the improvements revert at the end of the term. It is a lease, not a conveyance.
Yes, and this is the common case. A parcel is subdivided or legally described and the rest of the campus is untouched.
A lease is frequently permitted where a sale is not, but the governing documents have to be read. That is a counsel question and the first one to answer.
Generally no. Subordination means a foreclosure can extinguish your ownership. Unsubordinated is the institutional standard.
Rent from real property is treated differently from active business income, and debt on the property changes the analysis. Ask your tax counsel before signing.
The real estate is usually the fast part. Board, denominational and in some states attorney general approvals set the calendar.
Tell us the parcel, what the governing documents allow, and whether the need is income or a capital sum. We will tell you which structure fits and what the terms should look like.
Email us the property