Many faith groups in Canada are faced with a similar issue: dwindling congregations and financial resources coupled with aging real estate assets which are often subject to designation under the Ontario Heritage Act. Those tasked with the stewardship of places of worship must be increasingly resourceful in finding ways and dollars to maintain aging places of worship due to increasing costs of upkeep and diminishing donations and fundraising opportunities.
In the past many smaller faith groups have addressed the issue by simply selling their property, often for redevelopment or conversion to bespoke residential condominium developers, and applying the proceeds to the other charitable missions of that particular faith group. More recently, however, faith groups are partnering with developers to renovate and upgrade their place of worship and related improvements as part of a larger site redevelopment. Partnerships with developers can take many forms depending on the objectives of faith group leadership and available resources, and can incorporate the addition of office space, commercial or community uses, condominiums, and affordable rental housing.
Rather than selling an older place of worship property, many of which occupy prime urban locations, and relocating to a more affordable area, with the associated displacement for the faith group and its members, many faith groups are electing to leverage the value of their real estate through development partnerships. Few faith groups, particularly congregations with aging members, have the sophistication or resources to undertake and fund their own major redevelopment and construction project. This can be overcome by way of an agreement with a developer.
When a faith group enters into a development agreement or agreements with a developer the group can retain all or part of its property and at the same time secure renovations, additional community spaces and the cash reserves needed to continue to fund its ministry and operations in exchange for granting development rights over other parts of the place of worship property. The developer has the expertise and resources to undertake, at its cost, the planning, design and development approvals required for such a project to proceed.
There are many such redevelopments currently being undertaken in Toronto. One example is the historic Bloor Street United Church[1]. As part of this redevelopment, the Bloor Street United Church is having the heritage designated façade of the church maintained and restored, and the sanctuary completely rebuilt along with additional community use space and added office space. The developer, in return, will receive the right to build a residential condominium adjacent to the reconstructed church.
Partnerships with developers can be structured in a number of ways, and a number of factors must be carefully considered before embarking on any faith group property redevelopment, as the requirements of each such property and its congregation or parishioners will differ.
One of the most important considerations for faith groups interested in redeveloping their assets in partnership with a developer is protecting title to the place of worship or other existing improvement throughout the development. A faith group may simply sell the entire property to a developer outright, with a contractual obligation on the developer to redevelop or restore a place of worship that is located thereon and to re-convey the place of worship portion of the site to the faith group upon completion of the project. While that approach may be straightforward, it can carry significant risks to the faith group.
The typical approach to redeveloping a place of worship property could involve the faith group conveying the entire property to a developer. The developer would then construct its condominium or commercial space, reconstruct the place of worship, and then convey the portion of the property on which the new place of worship is located back to the faith group. The issue with this approach is that during the period of construction, the faith group has given up its ownership interest in the property. The faith group may partially secure its position by taking a mortgage over the property or other security, but in the event that the developer is unable to fulfill its obligations for any reason, for example due to insolvency, it may have difficulty recovering title to its land. That is, while the faith group will have legal remedies as would any creditor, it would be at risk of finding itself, at the end of a legal battle, with cash proceeds but unable to regain title to the property. In this situation, faith group leadership would be required to find new space for its congregation, and in most urban areas applicable zoning restrictions make sites for new places of worship both limited and expensive.
To avoid this scenario, a preferable structure to implement is to obtain in advance of commencement of the project a Planning Act R.S.O 1990, consent to permit the faith group to sever and convey to the developer only that portion of the property intended for residential or mixed use development, and to retain ownership throughout the project of the part of the site on which the new place of worship is to be constructed. Depending on how integrated the proposed residential or mixed use building will be with the new place of worship, great care will need be taken in preparing a stratified plan for the specific lands to be conveyed and retained. In this approach, in the event of unforeseen events, the faith group is at least not at risk of being dispossessed of its place of worship site. The faith group would typically enter a design build construction contract with the developer for construction of the place of worship portion of the project and use the proceeds of sale from the severed portion of the property to pay for the cost of construction. Alternatively, the faith group might secure the developer’s construction obligations by taking a mortgage over the portion of the property which was conveyed to the developer. This is a more complicated structure, which requires care in the documentation, but ultimately mitigates the development risk for the faith group.
This is just one of many considerations that a faith group must make when considering what to do with an aging place of worship it can no longer afford to maintain. If redevelopment, rather than a sale, is an option, a properly structured redevelopment agreement or agreements can allow a faith group to unlock a property’s potential. It will also enable a faith group to obtain new, more flexible worship space, additional amenities, more efficient and less costly operating systems, and perhaps an opportunity to expand its mission by including new community use facilities or an affordable housing component in an age of shrinking financial resources.
That said, careful consideration is required to ensure that the interests of the faith group are adequately protected through the redevelopment process. To learn more about how Miller Thomson’s Transactions & Leasing group, Municipal, Planning & Land Development group, and Charities and Not-for-Profit group can assist in providing practical, tailored, and timely advice for your project, please not hesitate to reach out to a member of our team. We look forward to working with you.
[1] https://www.kpmb.com/project/bloor-street-united-church-cielo-condos/
