Working With a Developer: How Churches Can Protect Themselves Before, During, and After Redevelopment

In our previous articles, we discussed the legal and planning issues churches in British Columbia should consider before redeveloping their property, including questions of ownership, governance, and zoning. Once those threshold issues have been addressed, church leaders must decide how to structure the church's relationship with a developer, builder, or other project partners.

For many congregations, the church property is its most valuable asset. Redevelopment can create significant opportunities, but it also involves long-term commitments, complex negotiations, and substantial financial risk. Before entering into any arrangement, church leaders should understand what rights the church is giving up, what control it is retaining, how project revenues and costs will be allocated, and whether the arrangement supports the congregation's long-term mission.

This article examines some of the key legal and practical considerations churches should address before, during, and after working with a developer.

1. What Is the Church Potentially Giving Up?

Before selecting a redevelopment structure, church leaders should begin with four fundamental questions.

First, what is happening to the land? Is the church selling all or part of the property? Is it retaining ownership and granting a long-term lease to a developer? Or is it contributing the land to a project in exchange for cash, replacement facilities, revenue sharing, or another form of benefit? The answer will determine the church's long-term ownership rights and future flexibility.

Second, what control will the church retain? Church leaders should consider whether the church will continue to own part of the completed development, control its worship and community space, or have approval rights over key matters such as design, construction schedules, parking, signage, access, and future uses of the property.

Third, how will financial risk and reward be allocated? Redevelopment projects often involve significant uncertainty. Who bears the risk if construction costs increase or the project is delayed? How and when will the church be paid? What happens if the developer cannot secure financing, becomes insolvent, or fails to complete the project?

Finally, what are the long-term implications? A redevelopment agreement may remain in place for decades. Church leaders should look beyond the immediate financial return and consider whether the proposed arrangement will continue to support the congregation's mission over the long term.

Ultimately, the structure of the transaction will determine how ownership, control, risk, and financial return are allocated between the church and the developer. The following sections discuss common redevelopment structures and some of the practical protections churches should consider before moving forward.

2. Partnering With a Developer

One common redevelopment model involves the church partnering with a developer to help plan, finance, and construct the project. In these arrangements, the church may contribute the land, while the developer contributes development expertise, financing relationships, construction management, and experience navigating the approvals process.

This approach can be attractive because the church may participate in the long-term value of the project rather than simply selling the land. Depending on the structure, the church may receive new worship or community space, rental income, a share of project revenues or profits, or other long-term benefits. It may also allow the church to remain actively involved in shaping the future of the property and ensuring that the redevelopment aligns with its mission and values.

However, redevelopment projects are inherently complex. Construction costs may increase, financing conditions may change, municipal requirements may evolve, and project timelines may be delayed. For that reason, the relationship between the church and the developer should be carefully documented through a written development agreement, sometimes referred to as a Development Management Agreement ("DMA").

A well-drafted DMA should clearly identify who is responsible for managing the project and making key decisions. Church leaders should consider which decisions require church approval, including matters such as project design, budget changes, financing arrangements, construction schedules, modifications to church facilities, and significant changes to the development plan.

The agreement should also address practical questions such as:

• Who pays for unexpected costs or cost overruns?
• How and when will the church receive compensation or other benefits?
• What happens if the project is delayed or approvals cannot be obtained?
• What remedies does the church have if the developer fails to perform?
• Can the developer assign its rights to another party, and if so, does the church have any approval rights?

Partnering with a developer can provide the church with greater involvement in the project and the potential for greater long-term returns. However, those benefits depend on having a clear and comprehensive DMA that properly allocates responsibility, risk, and decision-making authority. Church leaders should not rely on informal understandings or assumptions when their congregation's most valuable asset is at stake.

3. Letting a Developer Use the Land Long-Term

Another option is for the church to retain ownership of its land while granting a developer or operator the right to use it for an extended period. This arrangement is commonly known as a ground lease or land lease.

Under a ground lease, the church does not sell the land. Instead, it leases the property to another party, often for several decades. The developer may then construct and operate a building on the site while paying rent or providing other agreed-upon benefits to the church.

A ground lease can be attractive where the church wishes to preserve long-term ownership of its property. For many congregations, their land is more than a financial asset. It may hold religious, historical, community, or sentimental significance. A ground lease can allow a church to generate income, obtain new facilities, or support redevelopment while retaining ownership of the underlying land.

That said, a ground lease should not be viewed as a temporary arrangement. A tenant under a ground lease receives a legal right to occupy and use the property for the lease term, subject to the terms of the agreement. Where the lease runs for 50, 60, or 99 years, the church's flexibility may be significantly constrained for the duration of the lease. Although the church remains the owner, it may have limited day-to-day control over the property during the lease term.

Before entering into a ground lease, church leaders should carefully consider:

• The length of the lease and any renewal rights.
• How rent will be calculated and adjusted over time.
• What uses and types of development will be permitted.
• Whether the church will receive worship, community, or office space within the completed project.
• Responsibility for maintenance, repairs, insurance, and property taxes.
• What happens to the buildings and improvements when the lease expires.

The lease should also address what happens if things go wrong. For example, what remedies are available if the developer fails to pay rent, maintain the property, complete construction, obtain financing, or becomes insolvent? The church should understand whether it has the right to terminate the lease, step in to address problems, or require another party to assume the developer's obligations.

A ground lease can help a church preserve ownership of its land while unlocking development opportunities. It is therefore critical that the lease clearly address the church's rights, obligations, and expected use of the property.

4. Dividing the Building Into Different Legal Pieces

In some redevelopment projects, the completed development is divided into separate legal components. For example, the church may own or control the worship and community space, while residential, commercial, office, or parking components are owned by other parties.

One common way of achieving this is through the creation of an air space parcel. Although the term sounds technical, the concept is straightforward. An air space parcel legally divides a property into separate ownership areas that can be developed and owned independently.

This structure is often attractive in mixed-use developments. A church may wish to remain on the site and retain ownership of its worship and community facilities, while allowing a developer or third party to own and operate residential or commercial portions of the project. Separate ownership can simplify financing, management, and future decision-making by allocating responsibility for different parts of the development.

However, separate ownership does not mean complete independence. Even where ownership is divided, the various components of the building frequently depend on one another. They may share entrances, elevators, hallways, parking facilities, loading areas, utility connections, heating and cooling systems, roofs, foundations, and emergency access routes.

For that reason, the legal documents must clearly address how these shared facilities will be used, maintained, repaired, insured, and funded over time. This is often accomplished through a Reciprocal Operating and Easement Agreement ("ROEA") registered on title. An ROEA grants rights and imposes obligations on the various owners so that each component of the development can function properly despite being separately owned.

For example, the parties should consider:

• Who is responsible for maintaining and replacing shared building systems?
• How are operating costs allocated among the different owners?
• Who controls major repair and replacement decisions?
• How are shared parking facilities allocated and managed?
• What rights does the church have to access its worship and community space?
• How are disputes between the owners resolved?

These questions may seem straightforward when everyone is working cooperatively. However, ownership and management of the project may change over time. Well-drafted air space parcel documents and reciprocal easement and operating agreements help ensure that future owners understand their obligations and that the church's interests remain protected.

Dividing a development into separate legal components can be an effective way for a church to retain ownership and control of its facilities while participating in a larger redevelopment project. However, the structure succeeds only if the governing agreements clearly allocate rights, responsibilities, costs, and decision-making authority from the outset.

5. Owning a Unit in a Strata Building

In some redevelopment projects, the church may end up owning a portion of a larger strata development. For example, the church may own its worship and community space as one or more strata lots, while residential or commercial strata lots are owned by others.

This structure can provide the church with a clearly defined legal interest in the completed project. However, it also means the church will be part of a strata corporation and subject to the rules that govern the building as a whole. The strata corporation is responsible for managing common property, setting budgets, collecting strata fees, and making decisions that affect all owners.

Before agreeing to a strata arrangement, church leaders should consider whether the proposed strata structure will support the church's activities over the long term. For example:

• Will the church's worship, ministry, and community programming be permitted under the strata bylaws?
• Can the church continue to host services, weddings, funerals, children's programs, community events, and other gatherings?
• Will there be adequate parking, loading, storage, and accessible access?
• Will the church be permitted to install signage or other features that identify its presence on the site?
• Could noise, traffic, or security concerns create future conflicts with other owners?

Church leaders should also consider what level of influence the church will have within the strata corporation. As the ownership mix changes over time, the church may find itself at odds with new owners on decisions that affect the operation and use of its space. Legal protections may therefore be necessary to ensure that future strata decisions do not adversely affect the church's ministry.

Another important consideration is the ownership and management of shared facilities. A church may rely on common areas such as lobbies, elevators, courtyards, meeting rooms, storage areas, or parking facilities. Before committing to a strata structure, the church should understand who owns these spaces, who controls them, and how maintenance and repair costs will be allocated.

Finally, church leaders should consider the possibility of future bylaw amendments and changes in ownership within the building. Appropriate legal protections can help ensure that the church's ability to carry out its mission is preserved.

Owning a strata lot can be an effective way for a church to remain on its property as part of a larger mixed-use development. However, before proceeding, church leaders should carefully evaluate whether the strata structure, bylaws, and governance framework will support the church's present and future needs.

6. Protections Churches Should Consider

Regardless of the redevelopment structure chosen, the following protections should be addressed in the governing agreements.

Control and Decision-Making

The agreement should clearly identify which decisions require church approval. Depending on the project, this may include matters such as project design, worship and community space requirements, budget changes, financing arrangements, construction schedules, signage, naming rights, and any significant changes to the approved development plan.

Construction Risk

Redevelopment projects rarely proceed exactly as planned. The agreement should address who bears responsibility if construction is delayed, costs increase, damage occurs, liens are filed, or the builder fails to complete the work. It should also allocate responsibility for insurance, workplace safety, and temporary accommodation if church activities must be relocated during construction.

Protection of Church Uses

A redevelopment project should support, not hinder, the church's ministry. Church leaders should ensure the agreement protects the congregation's ability to conduct worship services, meetings, weddings, funerals, children's programs, community events, and other ministry activities. The church should also have clear rights relating to entrances, parking, loading areas, elevators, storage facilities, signage, and accessible access.

Financial Protections

The church should clearly understand how it will be compensated and how financial risks will be allocated. Any rent, profit-sharing arrangement, construction contribution, cost-sharing obligation, or ongoing expense should be expressly addressed in the governing agreements. Where appropriate, the church may also wish to negotiate financial reporting requirements, audit rights, or other mechanisms to verify project revenues and expenses.

Long-Term Operating and Maintenance Costs

The agreements should clearly allocate responsibility for repairs, insurance, utilities, building systems, reserve funds, and major capital replacements. These obligations can become significant in mixed-use projects and should be understood before commitments are made.

Default and Contingency Planning

Finally, church leaders should consider what happens if the project does not proceed as expected. The agreements should address situations such as missed deadlines, financing failures, cost overruns, changes to the project, failure to obtain approvals, insolvency, or other breaches of the developer's obligations. Understanding the church's remedies before problems arise can significantly reduce risk and uncertainty.

No redevelopment structure is entirely risk-free. However, careful planning and clear agreements can help protect the church's property, finances, and ministry while providing a framework for resolving issues if they arise.

Conclusion

Redeveloping church property can create significant opportunities. A successful project may provide renewed worship space, community facilities, housing, long-term revenue, or other resources that help support the church's mission. At the same time, redevelopment often involves legal relationships and obligations that can last for decades.

As discussed throughout this series, church leaders should first confirm that they have the authority to proceed, understand the zoning and planning framework that applies to the property, and then carefully consider how the redevelopment relationship will be structured. Whether the church chooses to partner with a developer, enter into a ground lease, retain ownership through an air space parcel arrangement, or own space within a strata development, each option involves a different allocation of ownership, control, risk, and reward.

The best arrangement is not necessarily the one that offers the highest immediate financial return. Rather, it is the one that protects the church's property, supports its ministry, preserves its flexibility, and aligns with the congregation's long-term objectives.

Ultimately, church property redevelopment is not simply a real estate transaction. For many congregations, it is an opportunity to steward a valuable asset in a way that supports worship, ministry, and community service for decades to come.