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The offer of a $1/year lease – are there any downsides?
During our recent webinar on FASB’s new lease standards, a number of
participants asked off-topic about how to record and otherwise handle
facilities leases that were provided by local government at essentially
no cost to locally important nonprofits like senior centers, animal
shelters and arts organizations. We have seen a number of these
relationships terminate or change sometimes quite precipitously adding
sudden extra cost burden to small organizations – do you have any
advice for what to do to mitigate potential changes in these kinds of
beneficial arrangements? -
2 Replies
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My advise is to explore options where government gives or sells the buildings to the NPO or has a long term lease. Otherwise the leases run the risk of being impacted by changing political climates. But absent that understanding the risk is important if you are going down that path.
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for small local organizations that provide a needed service to the local populace, these kinds of essentially temporarily donated facilities have been very helpful. We tend to see them supporting such stuff as senior centers, arts organizations, health clinics and animal shelters; The problems emerge, as another commenter mentioned, when “political climates” change which they do with some regularity in local government. If a city manger or city council decides, for some reason, that the expenditure is inappropriate, you may need to have a plan B complete with budget ready for immediate deployment. There is also the problem of potentially sinking facility costs into a building that can be taken back – sunk costs and all. Here is an article on the topic https://nonprofitquarterly.org/1-rent-trap-another-nonprofit-finds-real-estate-risk/
nonprofitquarterly.org
The $1 Rent Trap: Another Nonprofit Finds Its Lease at Risk - Non Profit News | Nonprofit Quarterly
All over the country nonprofits get discount lease agreements with local governments that reflect the public sector’s interest in the nonprofit’s work. But what happens when circumstances and administrations change?