You walk up to the building, and the new set of keys feel unfamiliar in your hand. As you select the one marked “main entrance,” you feel both anticipation and relief. Months of negotiation, due diligence, document review, phone calls, attorneys’ fees—all culminating in this moment when you step into your nonprofit’s new space to call home. As you take in the blank walls, empty floors, and hushed stillness of the building’s dim interior, you can almost see your organization’s mission printed in bold letters across the entry wall, almost hear the chatter of dedicated staff and volunteers busy at work—bringing the building to life and purpose.
Purchasing a new property can be one of the great milestones of a nonprofit’s story, opening up exciting possibilities for expanded missional impact. It is a process often fraught with unforeseen challenges but – now at the finish line – the reward is (usually) worth the pain. Given the time, cost, and legal ramifications of a real property purchase —regardless of the nonprofit’s size or mission—it is an undertaking that demands careful consideration, hard work, and capable counsel. This article addresses both broad-stroke considerations and more intricate details for a nonprofit’s real property purchase, or sale. Nonprofit leaders looking to pick up that new set of keys will certainly benefit from a glance ahead into the anatomy of their upcoming real estate transaction.
Preliminary Evaluation
Missional alignment. Evaluate the first and most fundamental question of whether the proposed transaction aligns with your nonprofit’s purpose, mission, values, and goals. Will a move or expansion further your mission? Is the prospective site zoned for your intended use? If aligned, the transaction may propel your organization forward. If misaligned, the demands of a property can require operational adjustments, divert attention, or hinder your long‑term effectiveness.
For a potential sale, a nonprofit’s leaders should consider too whether it furthers the nonprofit’s mission to sell the property. They may also need to evaluate whether to find other property for the nonprofit’s operations, either through purchase or lease.
The financial factor. Assess whether the property transaction is financially responsible. Property ownership involves more than a mortgage payment. Consider utilities, insurance, maintenance staff, and unexpected repairs, along with a plan for building capital improvement reserves. Renovations and unforeseen issues can be costly and should be factored into overall feasibility.
Corporate structure and standing. Review your organization’s bylaws: What board action is required to buy or sell property? May the board appoint a representative to sign on the organization’s behalf? Some organizations, including churches within denominational structures, may require authorization from a national or parent body. Also ensure the organization is in good standing with the secretary of state in its jurisdiction of formation, as lapsed annual reports may delay or prevent a valid property transaction.
Property tax exemption. Even if your nonprofit qualifies for property tax exemption, the organization typically must apply through the appropriate county or state authority. Processing can take months, during which time taxes may need to be paid and later refunded. Exemption typically depends on property use, not your organization’s Section 501(c)(3) status alone. Ensure all activities at the new site meet the applicable statutory criteria. See our blog article on applying for property tax exemption.
Landlord, lease, and third-party concerns. If acquiring a larger facility, you may choose to lease unused space to other organizations. This requires new administrative capacity, legal agreements, and operational systems. Third-party usage can raise issues involving religious liberty, unrelated business tax liability, and property tax exemption. See our blog article on third-party agreements.
A Word on Donations
It is rather unusual but possible for a nonprofit to receive real estate through a donation, or conversely, to donate property to another nonprofit. If a nonprofit is so fortunate as to receive property ownership this way, similar considerations as noted throughout this article still apply—such as the advisability of a preliminary evaluation, getting the right team members in place, getting the arrangement memorialized in writing, and proceeding through and beyond closing.
A written contract can foster a clear understanding between the parties about key dates and related timing, property conditions, potential termination, and allocation of accompanying financial aspects including any closing costs or expense proration.
The Team: All for One
Once you find the property you want to purchase, you’ll need to gather your team for the transaction. A real estate purchase involves a wide cast of supporting players, and a successful transaction depends on assembling the right professionals:
• Board Leadership: Provides decisions, signatory authority, incumbency documents, resolutions, and—if needed—power of attorney.
• Realtor/Broker: Guides property identification, pricing, and communication among decision-makers.
• Attorney: Reviews contracts, ensures legal compliance, and prepares required closing documents and affidavits.
• Title Company: Researches ownership history, identified title defects, issues the title commitment, and provides title insurance.
• Licensed Building Inspector: Identifies structural or system defects for purchase price adjustments or perhaps deal termination.
• Licensed Surveyor: Defines legal boundaries of the property.
• Lender: Verifies loan qualifications or payoff amounts required before closing.
The Contract: Let’s Make a Deal
Letter of Intent. At the option of the parties, the first step in negotiating the property purchase (or a sale) may be a letter of intent, or LOI. An LOI is a simple document that outlines essential terms and timelines but is typically not legally binding except with respect to confidentiality and exclusivity for a defined period. It allows negotiations to proceed efficiently, identifying key points for clarification and bringing areas of nonalignment to the surface early—before the parties incur too much cost. See our article on LOIs.
Purchase Agreement. The purchase agreement itself binds the parties to the deal and defines the terms of the purchase with sufficient detail to stand alone and guide the parties through closing. It specifies requirements regarding survey, title, warranties, property diligence, financing contingencies, and more. A defined inspection period allows the buyer to verify the condition of the property. Purchase price, earnest money, escrow arrangements, and other payment terms are clearly stated, along with responsibility for closing costs, any broker commissions, and arrangements for property tax payments. As with all contracts, terms are negotiable, and you should discuss with your attorney, giving due consideration to any proposed changes before you sign.
Commonly, the seller’s attorney prepares the agreement, but a broker for the seller or purchaser may do so instead. It is also somewhat common for a form agreement to be signed, with an “attorney review” period to follow. As part of such attorney review period, a contract addendum may be proposed such as to provide for additional representations and warranties (of either or both parties), to address repair issues that may warrant attention, or to allow for extended time periods (e.g., for property inspection).
Due Diligence: Now for the Heavy Lift
Once the contract is executed, the real work begins! The next phase is all about due diligence—making sure the property is exactly what you expect and that there are no hidden surprises. That process typically includes the following elements:
• Title and Ownership: The title company will need to confirm that the seller truly owns the property and that there are no liens, unpaid taxes, or legal disputes—no claims that could pop up later. The title company will search public records for any claims to the title which must be satisfied and removed. Following its search, the title company will provide you with a commitment to insure your title to the property once closing conditions are met and title defects are removed. Typically, the title search costs are borne by the seller as part of its contractual obligation to deliver clean title at the closing.
• Survey: If the seller has not provided one already, you will need to obtain a property survey to verify boundaries, easements, and encroachments. This ensures your organization will truly own what you think it will.
• Inspections: The physical building and property will also need a thorough checkup. Look at the structure, roof, plumbing, electrical systems, and any environmental concerns. It’s about knowing what your organization is buying to avoid the potentially heavy cost of unexpected repairs.
• Financial Review: If the property is currently producing income, you will need to go over leases, rent rolls, and operating costs. Make sure the numbers match reality and that the property will support your nonprofit’s budget. You will also need to review any service agreements or other contracts tied to the property to make sure you know what obligations your nonprofit will be taking on. Watch out for any lease agreements carrying over into the nonprofit’s ownership of the property, since they could involve significant impact such as for anticipated space usage, tenant issues, and property tax exemption eligibility.
• Compliance: It is also important to check local zoning rules, permits, and building code compliance, especially if your nonprofit has a specific mission-driven use for the space.
The goals here are simple: to gain further confidence that the property is a good fit and to minimize potentially nasty surprises waiting after you close. Think of this as your “checklist phase”—the time to ask questions, gather documents, and get expert advice from attorneys, accountants, and inspectors. Once due diligence is done, you can move to closing confident that your nonprofit is making a solid investment. (On the seller’s side, the nonprofit owner will need to remain attentive to these steps particularly to foster a smooth progression toward closing.)
The Closing: Reaching the Finish Line
At closing, the property officially changes hands. These days, closings are often handled remotely, with all parties arranging overnight delivery of their signed documents and never meeting in person. The property transaction is said to be “closed” when the buyer and seller have signed all necessary documents and the purchase price—less prorations and costs—has been distributed to the seller. Here is a summary of the main documents you will need for closing:
• Transfer documents. The deed and bill of sale describe exactly what property is being transferred and convey that property from seller to buyer. The deed and legal description delineate the exact boundaries of the property and take precedence over any map, survey drawing, or street address. The bill of same similarly describes any personal property being transferred with the underlying land and buildings. Additionally, properties may have leases, service contracts, or other arrangements in place that need to be assigned to the new owner through assignment and assumption agreements.
• Loan documents. If your organization is funding the purchase by means of a loan, then finalized and executed loan documents will be required at closing including the loan agreement (setting out the terms of the loan), promissory note (memorializing your organization’s promise to repay), mortgage (memorializing the lender’s interest in the property), security agreement and UCC statements (recording the lender’s interest in personal property on site), and related guaranties and indemnities. If the transferred property is already subject to financing, then the loan must typically be paid off at closing, and the seller’s lender will provide a pay-off letter specifying the amount to be paid on the closing date.
• Corporate authority documents. The parties will have to provide documentation showing their legal authority to enter to the transaction and their authorization of representatives to act on their behalf. Copies of articles of incorporation with any amendments and the corporate bylaws must be provided, along with an affidavit attesting to the corporate documents. A determination letter and FEIN may be required to give proof of the nonprofit’s federal tax-exempt status. A resolution of the board to approve the transfer must be accompanied by a certificate of incumbency that verifies the current board members and their terms. The resolution will state who may sign the deal documents on behalf of the organization and may also give power of attorney to the organization’s legal counsel to sign the necessary papers. A certificate of good standing from the state authority in which the nonprofit is formed will also be required for the transaction.
• Statutory affidavits. Some states require affidavits from the grantor and grantee stating that they are legal entities and permitted to hold property title. A FIRPTA certification in compliance with the Foreign Investment in Real Property Tax Act will be required, confirming that the seller is not a “foreign person” for federal tax purposes. Many municipalities have specific requirements to be satisfied before a transaction is permitted, including obtaining a certificate stating that water, sewer, garbage collection, or other services have been fully paid, or that property improvements or current usage comply with local zoning laws.
• Title company requirements. The title company will require an ALTA (American Land Title Association) statement be signed verifying that the seller knows of no encumbrances not mentioned in the title commitment, and other seller affidavits affirming that seller has good title, that there are no property managers, and that no new improvements have been made to the property following property diligence. Additionally, the title company will require a GAP (Guaranteed Asset Protection) undertaking, requiring the seller to satisfy any undisclosed or unrecorded claims that arise in the “gap” of time between the title commitment date and deed recordation. If the seller held an exemption from real estate taxes on the property, then the title company will likely request an affidavit of exempt use. Finally, if there are no brokers and no resulting broker commissions to pay, the title company may require affidavits to that effect.
• Settlement statement. One of the most important documents at the closing is the settlement statement. This document specifies how the closing funds, which your organization will be to pay into escrow on the closing date, are to be allocated and disbursed, taking into account any deposits, credits, prorations, closing costs, and payoffs. For example, property taxes and utilities will need to be split between buyer and seller based on the date of transfer. If there are brokers, their commissions will be reflected on the closing statement, and they will be required to provide waivers from the brokers, which relinquish their rights to sale proceeds upon receipt of their commission from the closing disbursement. The seller will also provide escrow instructions to ensure that seller’s proceeds are delivered into the proper bank account.
Post-Closing: Living the Mission
Once the above documents are signed, the purchase price funded, and the proceeds disbursed in accordance with the settlement statement, the deal is closed. Post-closing, the title company will arrange for the deed to be recorded as legal evidence of the change of ownership, as well as any mortgages and other legal filings. The title company will also issue the final title insurance policy reflecting any closing updates. Once you close as purchaser, you are legally entitled to receive the keys from the seller’s representative and get to work on any needed renovations or repurposing. If the property was exempt from property taxes, this exempt status usually does not transfer with ownership. Therefore, once nonprofit programs and usage begin, you should consider applying for real estate tax exemption as soon as possible. Our firm’s blog article on exemption applications provides a roadmap for that next journey.
Summing up, a nonprofit’s property acquisition can indeed provide exciting possibilities for expanded missional impact, following the leadership’s carefully executed path through the evaluation, due diligence, closing, and post-closing phases for successful real estate ownership. Correspondingly, a real estate sale can substantially lighten a nonprofit’s responsibilities, provide cash for other operational needs, and allow for new opportunities ahead.
