How to Choose to Own, Lease, or Accept Free Space for Your Nonprofit
Stability, convenience, and cost — in addition to location — are key factors to consider when selecting your nonprofit’s home. It’s important to consider all the implications of ownership, leasing, and receiving donated space.
The pros and cons of owning
Because of the tax benefits of private home ownership, many people assume that owning a building is best for a nonprofit organization. Although a nonprofit’s building can be a valuable asset, remember that a nonprofit is already exempt from paying most business taxes, so any interest it may pay on a mortgage or building loan isn’t a deductible expense — it’s just an expense.
Two possible advantages of building ownership are
Ownership stabilizes costs. If your organization is based in a real estate market where prices are rising, purchasing a building may help to prevent steep rent increases or an untimely eviction.
Ownership improves the public image of your organization. Organizations owning their own buildings appear in the public eye to be stable institutions. This perception may help them raise money.
Major disadvantages of building ownership for nonprofits can be that it increases the staff’s workload and requires a continuing investment. If the organization buys a building that’s larger than its needs, it may become a landlord to others and must be prepared to advertise the property, negotiate leases, and manage maintenance and repairs. Whether or not it has tenants, it becomes fully responsible for the building’s care.
If your nonprofit organization buys its own building, be sure to set aside a cash reserve for building maintenance.
Consider renting space for your nonprofit
When you rent a home for your nonprofit organization, you’re taking on costs that you need to cover month after month. Often these costs increase from year to year. Rent may not be the only such expense. Here are a few things you want to understand fully before signing a lease:
What costs are covered? Is your nonprofit responsible for all or some of the utilities?
How long is the lease and does it include options for you to renew it at a similar rate?
If property or other taxes increase while you’re a tenant, do you pay for the increase or does the landlord?
Which repairs are the landlord’s responsibility and which ones are yours?
Who’s responsible for routine building maintenance?
What will the landlord permit you to change about the building?
Budget for your monthly building costs and your one-time move-in costs and create a facility contingency fund to cover minor repairs or occasional expenses.
Decide whether to take donated space for your nonprofit
Taking a free ride through the donation of public or private space to your nonprofit sounds wonderful, doesn’t it? Indeed, it lowers your operating costs and allows you to use more of your resources for programs. But you must be willing to look a gift horse in the mouth. A free building is worthwhile only if it’s in the right location and is the right size.
Two possible disadvantages to accepting free space are
Inappropriate connections: Making use of free space belonging to another public or private entity identifies your organization with the building’s history and other uses.
Loss of control: If someone provides something free to you, you’re put in a weak bargaining position. You may not have a lease, ensuring your use of the space for a prescribed period of time. You may not feel that you can complain if building maintenance is sloppy or repairs are postponed.