Letting Outside Groups Use Your Church Building: Facility Use Agreements, Liability, and Your Tax Exemption

Your church building may be the most valuable asset your ministry owns — and for most of the week, much of it sits empty. It’s no surprise that churches across California regularly open their doors to outside groups: other congregations, schools, recovery programs, homeschool co-ops, community organizations, even private events like weddings and memorial services.

Sharing your facility can be good stewardship and good ministry. But saying “yes” without the right framework in place can increase your church to liability, jeopardize your property tax exemption, and create conflicts your leadership never saw coming.

Here’s what California church leaders should understand before handing over the keys.

Why a Handshake Isn’t Enough

Many churches allow outside groups to use their buildings based on informal arrangements — a conversation with the pastor, a note in the church calendar, maybe a suggested donation. That informality feels consistent with a ministry culture of generosity. Legally, it leaves everything undefined:

• Who is responsible if someone is injured during the outside group’s event?
• Whose insurance responds — and does the church’s policy even cover the activity?
• What happens to your property tax exemption when the use isn’t your own religious activity?
• Can the church decline a request that conflicts with its beliefs — and on what basis?

A written facility use agreement answers these questions before a dispute arises, rather than after.

What a Facility Use Agreement Should Cover

A well-drafted facility use agreement is not just a rental contract. For a church, it serves three purposes at once: allocating risk, protecting the exemption, and preserving the church’s religious identity and control over its property. At a minimum, it should address:

1. The parties and the permitted use. Identify the group, the specific spaces they may use, the dates and times, and the activities permitted. Vague permission invites scope creep.

2. Fees or donations. Whether the church charges rent, a cost-recovery fee, or nothing at all matters for both tax and exemption purposes (more below). The agreement should state the arrangement clearly.

3. Insurance requirements. The outside group should typically carry its own general liability insurance and name the church as an additional insured, with proof provided before the event. Your church’s insurer may also have specific requirements — many carriers offer facility use endorsements or “special events” coverage, and some will want to review your standard agreement.

4. Indemnification. The agreement should require the outside group to indemnify the church for claims arising out of the group’s use of the property.

5. Supervision, safety, and security expectations. Who is responsible for supervising minors? Who locks up? Does your church’s security plan apply during outside use? (If your church has volunteer security personnel, remember that California’s SB 1454 framework applies — see our earlier article on volunteer security teams.)

6. Rules of use. Alcohol, decorations, equipment, kitchen use, occupancy limits, parking, cleanup — the unglamorous details that generate most real-world friction.

7. A statement of religious purpose and use standards. Perhaps most importantly for a church: the agreement and an accompanying written facility use policy should make clear that the building is a religious facility, that all uses must be consistent with the church’s religious beliefs and mission, and that the church retains discretion to decline requests inconsistent with those beliefs. A church is in a far stronger position when its use standards are adopted in advance, applied consistently, and grounded in its governing documents and statement of faith — not improvised in response to a particular request.

The Property Tax Exemption Question

This is the issue church leaders most often overlook. California’s property tax exemptions for churches — the church exemption, the religious exemption, and the welfare exemption — are generally tied to how the property is used, not merely who owns it. When part of your property is regularly used by an outside group, the exempt status of that portion can be affected, depending on factors such as:

• Who the outside user is. Use by another church or an exempt charitable organization is treated differently than use by a for-profit business or private parties.
• Whether the church charges more than its costs. Arrangements that go beyond cost recovery can raise questions.
• How often and how much of the property is involved. Occasional use raises different issues than a standing weekly lease of a dedicated space.

The consequences aren’t limited to property tax. Regular rental income can also raise unrelated business income tax (UBIT) questions at the federal level, although rental income from real property is often excluded — with important exceptions, including debt-financed property.

None of this means churches shouldn’t share their buildings. It means the arrangement should be structured deliberately, and the church should understand how a particular use can affect its exemptions before committing — especially for recurring or long-term arrangements. County assessor practices can vary, and outside uses may need to be reported in connection with annual exemption paperwork.

Frequently Asked Questions

Can a church rent its building to a for-profit business?
It may be possible, but this type of use can affect the availability or scope of a property tax exemption for the space involved and can raise UBIT questions. The result depends on the specific arrangement and applicable county assessor practice, so seek advice before signing a recurring lease with a commercial tenant.

Does letting another church use our building affect our exemption?
Use by another exempt religious organization can be more compatible with an exemption than some other outside uses, but the result depends on the details — including what you charge, how the property is used, applicable county assessor practice, and whether the proper exemption filings are in place.

Can we decline a rental request that conflicts with our beliefs?
Churches may have constitutional and statutory protections relating to the religious use of their property, but the availability and scope of those protections depend on the facts and applicable law. A written facility use policy, adopted in advance, that ties use of the building to the church’s religious mission and is applied consistently can help support the church’s position. Consult counsel before declining a request, particularly where the request may implicate applicable nondiscrimination or public-accommodation laws.

Do we really need the outside group to have insurance for a small event?
Requiring insurance and additional insured status is one of the simplest, most effective ways to keep someone else’s event from becoming your church’s claim. For small or one-time events where the group has no coverage, ask your insurer about event-specific options before waiving the requirement.

The Bottom Line

Opening your building to the community can serve your mission — when it’s done with clear terms, appropriate insurance, and an understanding of how the arrangement can affect your exemptions. A facility use agreement and a written facility use policy can help manage risk and reduce the likelihood of disputes.

If your church is currently sharing space on a handshake, or considering a new arrangement, Tyler Law’s church and ministry attorneys can review your situation, prepare a facility use policy and agreement tailored to your ministry, and help you understand the exemption implications before you commit. Contact us to schedule a consultation.

This article is for general informational purposes and is not legal advice. Exemption and tax outcomes depend on the specific facts of each arrangement.