N.B. The following advice only refers to churches in England due to differing regulations in the rest of the UK.
For a church that has a manse, there are several options available for how to let it out. This article will offer you some advice for how to choose the best type of agreement and what you need to consider in each case.
When deciding which form of document you will need, the two main deciding factors will be who owns the property and who will be the tenant.
Who owns the property?
If your church is a Charitable Incorporated Organisation (CIO) then it is likely that the CIO owns the property in its own right. If the CIO is the legal owner then it would normally be possible for the CIO to act as a landlord. This is the arrangement we would most recommend. If your church is not a CIO and you would like to find out more about the process of becoming a CIO, there is more information available here (link).
If your church is not a CIO (or alternatively a charitable company) then it is likely to be a Charitable Unincorporated Association (CUA) and you will need a property holding trustee (or trustees) to act as the legal owner(s) of the property. If the property holding trustee is not a member of your church (e.g. if it is a separate company acting as trustee) then it may be unwilling to act as the landlord of a tenancy granted to a third party, because this would mean taking on the responsibilities of a landlord without having day to day knowledge of the property (although this should not prevent the church granting a service occupancy agreement – see below).
It is more likely that individuals within the church leadership who are appointed to act as property holding trustees may be willing to accept the position of landlord to third party tenants (but we would still recommend that it is better for them if a CIO acts as the landlord instead).
Who will be the occupier/tenant?
If the occupier is the pastor or an employee of the church where the use of the property will be part of a remuneration package, then you would be most likely to use a service occupancy agreement to grant them a right to occupy the property as part of their role/employment.
In all other cases (i.e. where a third party becomes tenant), we would recommend an Assured Shorthold Tenancy (AST). This is because we assume that most churches would not want to let a property indefinitely, and an AST enables the church to give the tenant 2 months’ notice to quit where it wishes to obtain possession of the property for its own use once the specified term of the AST has come to an end.
What else do we need to consider?
There are some circumstances that will require additional thought. If the prospective tenant is a church member, managing trustee, or related either by blood or marriage to a member or managing trustee,
then you may need to obtain Charity Commission consent. If this is the case, please contact us for further advice.
You must check the immigration status of prospective tenants, in what is known as “right to rent” checks. A breach of this could lead to a substantial fine and may also be a criminal offence.
You should also check if the property is subject to the terms of a trust deed that set out what the property may be used for. It may be the case that there are restrictions on the property being let.
As all churches are charities (even if not registered with the charity commission) then you will need to comply with sections 117 and 120 of the Charities Act 2011- these require the church/property charity trustees to be satisfied that they are obtaining the best terms they can reasonably obtain. This usually means getting a written valuation from a reputable estate agent and then deciding to let the property for that value or higher. If you intend to let the property to people who are in full-time gospel ministry at less than market rent, then please contact us for further advice.
We have available a model document pack (including guidance notes) for an AST to be granted by a CIO and a separate model document pack (incl. notes) for an AST to be granted by individual church members acting as property holding trustees. These are £200 plus VAT for non-FIEC churches or £150 plus VAT for FIEC churches. We also have a model Service Occupancy Agreement for £100 plus VAT or £75 plus VAT (at FIEC discount).
If you would be interested in purchasing any of these documents, or if you would like to discuss the best option for your church, please contact us on 01858 411 569 or firstname.lastname@example.org.