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 organization’s home. These considerations will have an impact on your organization’s budget and finances, so selecting carefully may mean success or failure.
The pros and cons of owning
Because of the tax benefits of private homeownership, 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.
Two possible advantages of building ownership include:
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.
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 responsibilities and which ones are yours?
Who’s responsible for routine building maintenance?
What will the landlord permit you to change about the building?
Decide whether to take a freebie if it’s offered
Taking a free ride through the donation of space sounds wonderful. Indeed, it lowers your operating costs and enables you to use more of your resources for programs. But, a free building is worthwhile only if it’s in the right location and is the right size. Doing effective work is very difficult in an inappropriate space. If the building weren’t free, would you have chosen it for your nonprofit?