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Litigation Issues for Church Property Ownership

By Daniel J. Hebda, Esq.

 

Among the many amazing assets and tools with which Churches are equipped, the real property on which they worship, train, minister, and serve has to rank near the top of the list.  Owning a piece of land brings invaluable security and stability to a ministry and those church properties are often handed down from one congregation to the next over decades and even centuries.  It is no surprise, then, that disputes about title ownership of this land are some of the hardest fought and more expensive litigation cases in the church community.  The goal of this article is to give a brief overview of how Virginia courts generally approach this type of case, and what your church can do to steward its property well and hopefully prevent what invariably will turn into a very messy day in court.

In Virginia, there are generally two options for church property ownership: by its trustees, or by the incorporated entity.  Historically, prior to church incorporation, all property was owned through trustees of the church, for the benefit of the church.  As a result of the Falwell decision in the early 2000’s[1], more churches have been deciding to incorporate and transfer ownership from the trustees to the church corporate entity.   Corporate ownership is preferable for a number of reasons:  (1) By transferring ownership of the property to the corporation, the trustees are released from further fiduciary obligations in regards to the property.  (2) Corporate ownership of real property also allows property transactions to happen without court approval; whereas trustees must obtain a circuit court order approving any and all transfers or encumbering of the property (except to the successor incorporated church), which can be a time-consuming process. (3) To boot, there is a lengthy section of code (Va. Code 57-7 through 57-17) that addresses everything from how trustees can transfer property, to trustee ownership of personal property, to a church split, to lawsuits against trustees.  While property ownership by a church corporation does not avoid all of these statutes, it does simplify the number of rules imposed by Virginia law and the process of resolving disputes.

When church property ownership—either by a corporation or by trustees—is challenged, Virginia courts are restricted to using neutral principles of law to decide only the part of the dispute that has to do with property ownership.  While that restriction may sound fairly simple, it inevitably becomes muddied.  This is because Virginia courts may not delve into any matter that is an “ecclesiastical dispute,” which is a fancy way of saying the court may not rule on matters of doctrine or church governance.  Unfortunately, for most churches, it is often nearly impossible to determine with any level of certainty what is a doctrine/governance issue and what is simply a “property” issue.  Since the two are often closely intertwined, long and drawn-out court battles on whether the court is even allowed to make a ruling have often taken place.  The recent dispute involving several Episcopal churches in Northern Virginia, and particularly Falls Church, is a classic example; that case went from 2008 to 2013 and involved multiple decisions from multiple courts, many of them discussing whether the courts should be involved at all.

In the church property lawsuits and disputes that we have seen, complications arise from a few common problems.  Often, there are no records that clearly state who owns the property.  Trustees who are listed on the deed are often no longer church members or possibly deceased.  This is further complicated when the governing documents of the church—their constitution, bylaws, or articles of incorporation (if incorporated)—are unclear on how property is to be owned, who can vote on a property transfer, and what restrictions are imposed.  When a higher denomination is involved, the complication can increase exponentially.  The local church may think they own the property, but in reality the parent denomination is listed on the deed as a party, or has put into either its own governing documents or the local church’s governing documents that the local church property must be held in trust for the denomination.

There are several practical scenarios that your church should think about and be prepared to answer or address:

  1. Your church has a doctrinal conflict and wants to leave its parent denomination, but wants keep its property and stay where it has been for a century: Do the governing documents give the local denomination the right to keep the property, or do they say it is held in trust for the denomination?  Is your local church listed on the actual deed?
  1. You are a member of a church where you (and many of your fellow members) think the pastor is abusing his role and needs to be confronted and taken out of authority: Do you know whether the property is owned by the church corporation, or simply by the pastor, as a trustee?  Do the members have any standing as corporation members, or as part of the member covenant, to bring some kind of lawsuit?  Do the governing documents outline any procedure to legally resolve this dispute outside of secular civil court?
  1. Your church is part of a larger denomination, but has gotten smaller and smaller and wants to merge with another church outside of the denomination, and have them take over the property: Is the property owned by the local church, or by the denomination? Do the governing documents say that the property has to return to the denomination when the church ceases to exist?  Do you as the local church have any rights to the property under the governance structure of the denomination?

While these hypotheticals and the probing questions posed here may seem like overkill, most of our church clients who find themselves in these situations did not plan to be there.  Church disputes often arise without warning and the time to prepare has often already passed.  As stated at the beginning of this article, your real property is one of your greatest assets and ministry tools and you should steward it well for the kingdom.  The best first step for any church is to confirm who has title ownership of the church’s property and clarify how property decisions are made within your church.

If you are anticipating a potential dispute within your church over property ownership or your church is considering a situation like those mentioned in our above hypotheticals, be prepared to invest a significant amount of resources in attorneys’ fees and lots of time fighting both outside and potentially inside a courtroom.  These disputes are often long and drawn-out and can involve large amounts of real estate equity.

If you have questions or concerns about a possible church dispute or about taking steps to avoid one, please give our firm a call.  We have worked with a number of churches and members on both sides of these issues and would love to help you work through your situation before it reaches a stage where litigation is the only remaining option.

Legal Disclaimer:  This Article and related material have been prepared specifically for non-profits and churches seeking general information.  It is not meant to provide legal advice or substitute for competent legal counsel that can address specifics of each non-profit or church.  Any reader is encouraged to seek appropriately trained and experienced professional legal counsel specializing in corporate, tax-exempt, and church law for questions on or related to these issues, and you can contact us at hrs@simmsshowerslaw.com or djh@simmsshowerslaw.com.

[1] Falwell v. The City of Lynchburg, 198 F.Supp.2d 765 (2002).

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