• The offer of a $1/year lease – are there any downsides?

    Posted by Mark_Hager_Forum_Moderator on November 9, 2023 at 8:53 am

    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?

    ruth replied 5 months, 2 weeks ago 3 Members · 2 Replies
  • 2 Replies
  • Bill

    Member
    November 9, 2023 at 1:46 pm

    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.

  • ruth

    Member
    December 3, 2023 at 7:34 pm

    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/