PROPERTY matters workshop

1. District Superintendent Conference December 2-4, 2009 Nashville, TN Rick Rettberg, GCFA General Counsel Dan Gary, GCFA Administrative Counsel PROPERTY matters workshop

2. THE TRUST CLAUSE

3. Who owns the properties of our local churches? • The local church? • The annual conference? • The denomination? • The answer: • All of the above, and none of the above. • ¶ 2501.1: • “All properties of United Methodist local churches . . . are held, in trust, for the benefit of the entire denomination.” The big question:

4. Because we have a connectional system • “The United Methodist Church” doesn’t have legal capacities/attributes and cannot hold title to property - ¶ 140 • What about the annual conference? • We’ll get there in a moment But why?

5. What is a trust? • Divides “ownership” into two components: • “legal title” • “beneficial interest” • 3 kinds of parties involved in a trust • Settlor/trustor – creates the trust • Trustee – holds the legal title • Beneficiary – holds the beneficial interest • The property (“corpus”) can be land, buildings, stocks, bonds, cash, sculptures, trademarks, patents, music royalties, etc. First: a quick primer on trusts

6. The trustee: • Must be a person or entity (corporations can be trustees) who are trust-worthy • Trustee merely holds “bare legal title” to the property and is obligated to maintain the trust assets for the benefit of the beneficiaries • The law requires trustees to obey the instructions specified by the settlor when the trust is created—fiduciary duties • Trustee can be held personally liable for misuse or misappropriation of the property held in trust • Trustee can be removed if fails to perform his/her/its fiduciary duties. First: a quick primer on trusts

7. The beneficiaries: • Entitled to the beneficial use and enjoyment of the trust property • Subject to the terms of the trust • Cannot sell or dispose of the trust assets Creation: • Wills (testamentary trust) • Contract between settlor and the trustee (inter vivos trust) • Court decree (appointment of guardian of the estate of a minor) • Trusts can be “express” (written) or “implied” First: a quick primer on trusts

8. “is an essential element of the historic polity of The United Methodist Church” “a fundamental expression of United Methodism” “is and always has been irrevocable” Must be included in the deed Our trust clause – ¶ 2501

9. The language (for “places of divine worship”): In trust, that said premises shall be used, kept, and maintained as a place of divine worship of the United Methodist ministry and members of The United Methodist Church; subject to the Discipline, usage, and ministerial appointments of said Church as from time to time authorized and declared by the General Conference and by the annual conference within whose bounds the said premises are situated. This provision is solely for the benefit of the grantee, and the grantor reserves no right or interest in said premises. (¶ 2503.1) • ¶ 2503 also has deed language for: • Parsonages (¶ 2503.2) • Properties held for use as both a house of worship and a parsonage (¶ 2503.3) • Property not to be used exclusively as a place of worship or a parsonage, or both (¶ 2503.4) • Property acquired from another UMC entity or organization (¶ 2503.5) Our trust clause

10. Q: Some of my local churches don’t have the clause in their deeds. Does that mean that it doesn’t apply to that property? • A: No. The trust clause still applies. • ¶ 2503.6: However, the absence of a trust clause . . . in deeds and conveyances executed previously or in the future. Nor shall it absolve a local church . . . or the board of trustees . . shall in no way exclude a local church or church agency, or the board of trustees of either, from or relieve it of its connectional responsibilities to The United Methodist Church . thereof of its responsibility and accountability . . . to hold all of its property in trust for The United Methodist Church; provided that the intent of the founders and/or a later local church or church agency or the board of trustees of either, is shown by any or all of the following: Our trust clause

11. ¶ 2503.6 (continued): • the conveyance of the property to a local church or church agency . . . of The United Methodist Church or any predecessor to The United Methodist Church; • the use of the name, customs, and polity of The United Methodist Church in such a way as to be thus known to the community as a part of such denomination; or • the acceptance of the pastorate or ordained ministers appointed by a bishop or employed by the superintendent of the district or annual conference of The United Methodist Church or any predecessor of The United Methodist Church. Our trust clause

12. If one of your local churches is buying, remodeling, mortgaging, etc., its property, use that as an opportunity to review the deed for the presence of the trust clause It’s also a good idea to review the local churches’ deeds The trust clause and you

13. The trust clause in action

14. This is where the annual conference comes in • Before doing anything, have an attorney check for the existence of a reversion, possibility of reverter, or other restrictions • These restrictions could mean that the property will go to someone else if it is no longer used as a church • These are two different processes for two different situations • Discontinuation – e.g., decreasing attendance, merging two churches into one • Annual Conference approval required • Abandonment – e.g., no longer used as a place of divine worship, no longer serves the purpose for which it was organized (the breakaway church) • No Annual Conference approval required • These provisions apply to ALL local church property, not just the land and the building • Bank accounts, furniture, computers, etc. Discontinuation & abandonment - ¶ 2548

15. First work with the congregation to assess its potential - ¶ 213 • Recommendation to discontinue shall include determination of what will be done with the property • If the AC discontinues a church without direction as to the property, it reverts to the annual conference trustees • Need the consent of: • The bishop • Majority of the district superintendents • District board of church location and building • Annual conference then must declare the local church to be discontinued • What if all of these steps aren’t followed? • ¶ 2548.2c: the discontinuance is still effective Discontinuation – ¶ 2548.2

16. Need consent of: • Bishop • Majority of district superintendents • District board of church location and building • Annual conference trustees may then assume control of the property • Can then sell or lease the property • Must remove “all Christian and church insignia and symbols” Abandonment - ¶ 2548.3

17. Q: Can the property be “abandoned” if a congregation is still using it? • A: Yes. A congregation may start holding non-United Methodist services on the property. • If this happens, the “local church no longer serves the purpose for which it was organized” – i.e., to be a United Methodist church • This is the “breakaway church” scenario Abandonment - ¶ 2548.3

18. Most important thing to remember in dealing with these situations • The law will almost always be on your side • With few exceptions, courts will enforce the trust clause, and our right to reclaim the property, if a congregation leaves the denomination • BUT, litigation is: • Slow • Expensive • Divisive • Resorting to the court system should only be the last option, not the first one The breakaway church

19. Things to consider: • Be aware of what’s going on in your local churches • Early involvement by the DS can lead to a more amicable (and less expensive) solution • How much of the congregation wants to leave? • If it’s just a (powerful) minority, can the dissidents be removed without losing the entire congregation? • Don’t abandon those who want to remain in the Church • Is the pastor leading the breakaway, or the reason behind the unrest? • Does the annual conference still want to have a local church at that location? The breakaway church

20. Problem: A local church is selling its property (or taking out a mortgage) and the potential buyer (or lender) objects to the trust clause being in the deed. • Solution: ¶ 2541 [T]he written acknowledged consent of the proper district superintendent representing The United Methodist Church to the action taken shall constitute a release and discharge of the real property so sold and conveyed from the trust clause or clauses; or in the event of the execution of a mortgage, such consent of the district superintendent shall constitute a formal recognition of the priority of such mortgage lien and the subordination of the [trust clause to it]. • Remember, your written consent is required when a local church wants to sell or mortgage property and it must be “affixed to” the sale or mortgage instrument • Thus, it is your signature that protects the buyer or lender Releasing the trust clause

21. Other property issues

22. If a local church wants to: • Build, • Buy, or • Remodel (if the remodeling costs more than 25% of the value of the structure or will require mortgage financing) • A church, educational building, or parsonage, • Then the requirements of ¶ 2543 must be followed • You must give your written consent to the project ¶ 2543

23. These paragraphs set forth requirements for the sale, transfer, mortgage, lease (of 30 days or more), or purchase of (incorporated and unincorporated) local church property Your written consent is required before any and all of these transactions can occur ¶¶ 2535 to 2541

24. Compatible with the mission and ministry of the church and with the Social Principles (¶ 2532.3)? • Liability and insurance • Zoning laws, building codes, accessibility requirements, etc. • UBIT • Possible loss of property tax exemption, especially when renting parsonages • Shouldn’t automatically be a deal breaker, but if not factored into the equation, loss of the exemption could ultimately mean the lease costs the church money • Make sure the local church has had a legal advisor draft an appropriate lease agreement • For more guidance: • http://www.gcfa.org/PDFs/LeasingThirdPartyCProp.pdf Specific concerns with leases

25. ¶ 2542 • Most likely will come up when a church sells its parsonage • Mortgage or sale proceeds cannot be used for the current budget or operating expenses of the church • May be used for capital improvements – if current and future congregational missional needs and pastoral housing needs are provided for – with your consent Restrictions on mortgage/sale proceeds

26. Do a needs assessment FIRST • Can the local church afford to pay for its dreams? • Is it being realistic? • If you build it, will they come? • Be wary of professional fundraisers • What happens if the structure isn’t built? Must the money be given back? • Maybe • Disclaimers in promotional materials Capital campaigns

27. The Americans with Disabilities Act (ADA) requires buildings to be accessible to the disabled • The ADA specifically exempts places of worship from those requirements • 42 U.S.C. § 12187 • BUT, see ¶ 2532.6: • Requires the local church’s board of trustees to conduct an “annual accessibility audit” • Must identify any barriers that “impede the full participation of people with disabilities” and work to eliminate those barriers accessibility

28. GCFA Legal Manual, Property Section: • http://www.gcfa.org/ls_legalmanual.html • GCFA’s Real Property Issues documents: • http://www.gcfa.org/realPropertyIssues.html • The Trust Clause Brochure: • In your materials Other resources

29. District Superintendent Conference December 2-4, 2009 Nashville, TN Rick Rettberg, GCFA General Counsel Dan Gary, GCFA Administrative Counsel PROPERTY matters workshop