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May board president purchase property for center?

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May board president purchase property for center?

A 501(c)(3) wildlife center wishes to buy the land on which it sits. It is currently owned by a private individual. The president of the center’s board wishes to purchase the property personally and needs to know what would happen to the property if the center dissolves. Would the land be considered an asset of the center that would be distributed to another nonprofit, or could he keep the property and have the center distribute the remaining assets?  If it is an asset of the center, can the president purchase it on dissolution?

The legal issue here is relatively simple.  If the board president purchases the property and holds title personally, it will be his asset and would not be distributed to another organization if the center dissolves. 

But the owner-tenant relationship while the center operates could be very disadvantageous for the center.  For starters, if the property is owned by a private citizen, in most states it will be subject to real estate tax which might be avoided if owned by the charity. Presumably the center would have to pay that tax one way or another, perhaps in addition to paying rent to the owner. If the center does not have a really long term lease (at no more than fair market value), it may be less willing to improve the property to its optimum capacity.  If it doesn’t have a right to purchase the property, it could ultimately lose its reason for existence if there is a falling out with the president or if his heirs want to subdivide the property for development.

It would be far better for the center to own the property.  If the center can’t afford it currently, perhaps the president could lend the money and take back a mortgage.  In that case, if the center can’t make payments or otherwise fails, the president could reclaim the property, or at least the unpaid amount he had advanced.  The charity could also give the president a right to purchase the property (at fair market value) if the center ever dissolves.  But for a charity that is location–based, not having control of its location is a very precarious way to exist.

Tuesday, January 24, 2017

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