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Facilities Rentals: Risks and Rewards

By Net Assets posted 02-26-2018 11:51 AM


Facilities |

Is the risk of renting your school's facilities worthwhile? And what should independent schools include in and exclude from facilities rentals agreements?

This information is provided for general educational purposes only. It should not be relied upon as, or in place of, legal, financial or other professional advice. Readers are encouraged to work with their legal and financial advisors when addressing specific issues.

Independent schools may want to rent their facilities for a number of reasons: extra income, improved visibility in the community and goodwill inside and outside the school. However, the risks involved are not worth it for every school. Whitney Walter-Sachs, chief administrative officer and general counsel at the Pine Crest School; Heather Dublanc, partner at Liebert Cassidy Whitmore; and John Watson and John Darryl of Arthur J. Gallagher and Co. outlined risks and possible protections in the webinar, “Facilities Rentals: Risk Management and the Bottom Line” earlier this month.

Before renting facilities, business officers should ask, “What is your institution’s tolerance for risk?” explained Walter-Sachs. If a school does decide to rent, it should have a clear agreement in place. “If something goes wrong, the judge, jury, mediator or arbitrator is going to look at the writing [in the contract] to determine the rights and obligations of the parties, as well as any entitlement to potential damages,” said Dublanc. A template contract is a good place to start, but special provisions and circumstances should be considered with each rental, she added.

Walter-Sachs and Dublanc recommend schools consider including the following in their rental contracts:

  • Exact premises of the rental, not just the general school address
  • Particular use for the rental
  • Recognition that the renting party has examined the premises and believes the facility is suitable for its purposes
  • Compliance with the school’s codes of conduct, policies and procedures
  • Expectations for the use of services such as bathrooms and food preparation
  • Involvement of minors and appropriate background checks

Along with these basics, schools are advised to consider a number of legal considerations. Dublanc recommends including a termination for convenience clause, which “basically means you can terminate the contract whenever you want for any reason,” she said. Without the clause, the only way a school can get out of an agreement is if the other party is in material breach.

Payment provisions are also important. “Generally, you want to have the details of payment. Who’s receiving payment? What amount? Where to send it? Is there a security deposit that gets wrapped into the ultimate payment?” said Dublanc. Don’t forget unrelated business income tax, which may apply if a nonprofit rents to a commercial entity and may make charging for rentals not worthwhile.

Never agree to indemnify (protect and pay out any claims) for the renter; rather have the renter indemnify the school, Dublanc stipulated. In an indemnification clause “I always say, ‘to the fullest extent provided by law,’ because there are statutes that try to limit certain indemnity obligations, and you don’t want the whole entire provision to be found void,” she further explained. Also important is to acknowledge that the school will pay for damage caused by its gross negligence or intentional misconduct because case law often does not allow indemnification under those circumstances.  

Never accept a limitation of liability, said Dublanc, as renters “can control what’s happening on the property.” She also recommends including a waiver of subrogation, which prevents insurance companies that pay for damage from turning around and suing the school.

Darryl said to fully protect themselves, schools should obtain from renters an original certificate of insurance, not just a photocopy or a certificate of liability insurance – the latter states: “This certificate is issued as a matter of information only, and confers no rights upon the certificate holder.”

For further details about athletic, accident and medical coverage, blanket additional insurance, workers compensation, security, outside vendors and other aspects of facilities rentals, see the webinar, slides and transcript.

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