When a church decides to do something with extra land, the first instinct is often "let's sell it." Sometimes that's right. But most churches across the country that are building housing on their land aren't selling. They're using a ground lease.

What a ground lease is

A ground lease is a long-term rental of just the land. The church keeps owning the dirt. A builder leases it, usually for 50 to 99 years, and puts a building on it at the builder's own cost. The builder pays the church rent every year. When the lease ends, the land, and often the building, goes back to the church.

Think of it like renting out a parking spot, except the "car" is an apartment building and the rent check comes for decades.

Why churches like it

• The church keeps the land. Future generations of the congregation still own it.
• It creates steady income. Instead of a one-time check, the church gets rent that can fund ministry year after year.
• The church can set the rules. The lease can say what can and can't be built, and what the building has to be used for.
• It's required for the new Kentucky law. Under House Bill 333, a church has to keep owning the land for 15 years to build affordable housing without a zoning change. A ground lease is how you do that with a developer.

The tradeoffs

• Less cash up front. A sale puts a big check in the bank now. A ground lease spreads it out. Some churches negotiate a larger first payment to fund a building project right away.
• A long relationship. You're partnering with a builder for a very long time, so who you pick matters a lot.
• Taxes. The leased land and the building on it will likely be taxed, even though the sanctuary stays exempt. See our guide to taxes and fair housing.
• Approvals. Many denominations require regional approval for long leases, not just sales.

A real example

Here in Louisville, Zion Baptist Church partnered with The Housing Partnership to build Zion Manor II, 34 senior apartments on church land in the Russell neighborhood, funded in part by the Louisville Affordable Housing Trust Fund and Kentucky Housing Corporation.

Questions to ask before signing anything

• How long is the lease, and what happens to the building at the end?
• How much rent does the church get, and does it go up over time?
• What can be built, and what is off limits?
• Who pays property taxes, insurance and repairs?
• What happens if the builder goes bankrupt or sells the building?
• Has the church's own attorney reviewed every page?

Frequently asked questions

Is a ground lease better than selling church land?

Not always. Selling can be right if the church needs cash now or doesn't want a long partnership. But if the church wants long-term income, wants to keep the land for future generations, or wants to use Kentucky's House Bill 333, a ground lease is usually the better fit.

How long is a typical church ground lease?

Usually 50 to 99 years. Builders need a long lease to get a loan for the building.

Does the church have to pay to build anything?

Usually not. In a ground lease the builder pays for the construction and the church provides the land.

Want a free look at your church's property?

I'm Rob Bergeron, owner of Winner Realty here in Louisville. I'll put together a free review of what your church owns: what each property is worth, whether it qualifies under the new law, and what your options are. No cost, no obligation, and I'm not asking to list anything. If it ever turns into a deal, we talk fees up front and your attorney reviews everything. The congregation always decides.

Grab a time here, or text or email me at Rob@thewinnerrealty.com.

This article is general information, not legal or tax advice. Every church should run a specific project by its own attorney, accountant and denominational leadership.