Church Property – Part 1

Church Law and Tax 1989-09-01 Recent Developments Church Property Richard R. Hammar, J.D., LL.M., CPA

Richard R. Hammar, Attorney, CPA

Bio

State: Georgia
Categories: Church Property

Church Law and Tax 1989-09-01 Recent Developments

Church Property

Richard R. Hammar, J.D., LL.M., CPA

• What recourse does a church have if the low bidder on a church construction project attempts to withdraw its bid on the basis of an alleged computational error? That was the issue before a Georgia state appeals court in a recent case. The church invited bids for the construction of a new facility, and warned bidders (in the bidding instructions) that “negligence on the part of a bidder in preparing the bid confers no right for the withdrawal of the bid.” The contractor that made the lowest bid was awarded the contract. However, a few days later it informed the church that it was withdrawing its bid on the basis of “an error in adding certain estimated costs.” The church sued, arguing that the contractor had agreed that negligence on its part would not excuse an erroneous bid. A trial court rejected the church’s motion for a summary judgment, and the church appealed. A state appeals court ruled that the contractor did have a legal right to withdraw its bid. It observed that a contractor may withdraw an erroneous bid if (1) the other party knew (or should have known) of the mistake and attempts to “snap up the offer and profit thereby,” or if (2) the following conditions are satisfied: (a) the mistake is of such a nature that enforcement of the contract, under the circumstances, would be “unconscionable” (i.e., shocking to the conscience); (b) the mistake relates directly to the obligation assumed by the mistaken party; (c) the other party would not be prejudiced or harmed by the withdrawal of the mistaken bid. The court acknowledged that the church was not aware that the lowest bid was mistaken (it was only 7% lower than the next lowest bid), but it did conclude that the other factors necessary to justify the withdrawal of a bid were present. Specifically, the mistake related to the nature of the contractor’s obligation under the contract, the church was not prejudiced by the withdrawal of the bid (“it lost only what it sought to gain by taking advantage of the contractor’s mistake”), and allowing the church to take advantage of the mistake “would not be just.” With regard to the warning in the bidding instructions that negligence in the preparation of a bid would not enable a contractor to withdraw a bid, the court simply observed that “provisions such as these have … never been held effective when equitable considerations dictate otherwise.” First Baptist Church v. Barber Contracting Co., 377 S.E.2d 717 (Ga. App. 1989).

© Copyright 1989, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m21 m35 c0589

Legal Developments

Church Property

Church Law and Tax 1989-07-01 Recent Developments Church Property Richard R. Hammar, J.D., LL.M., CPA

Richard R. Hammar, Attorney, CPA

Bio

Church Law and Tax 1989-07-01 Recent Developments

Church Property

Richard R. Hammar, J.D., LL.M., CPA

• New federal regulations will affect the rental activities of some churches. Many churches have purchased neighboring properties to accommodate future expansion. Such properties typically are rented out prior to their destruction or utilization for church purposes. Title VIII of the Civil Rights Act of 1968, which took effect on March 12, 1989, prohibits discrimination in the sale or rental of dwellings because of handicap or the existence of one or more children under the age of 18. The law contains a number of exemptions, including the following: (1) a religious organization (or any nonprofit organization operated or controlled by a religious organization) may limit the sale, rental, or occupancy of dwellings which it owns or operates for non-commercial purposes to persons of the same religion, unless membership in the religion is restricted because of race, color, or national origin; (2) the sale or rental of any single family house by an owner if the owner does not own more than three single family houses and the house is sold or rented without the use of a real estate broker; (3) the sale or rental of rooms or units in dwellings containing living quarters occupied (or intended to be occupied) by no more than four families, if the owner actually maintains and occupies one of the units as his or her residence. In some cases, housing designed to be occupied by older persons (age 62, and in some cases 55) is exempt from the ban on discrimination against families with children under the age of 18. If your church owns residential or rental property that is not covered by any of the exemptions, the church cannot discriminate in the sale or rental of the property on the basis of handicap or the existence of one or more children under the age of 18. Pregnant women are protected by the law. “Handicap” is defined broadly to include “a physical or mental impairment which substantially limits … major life activities.” This definition includes (according to the regulations interpreting the law) alcoholism and AIDS. The new law also makes it illegal for a property owner to refuse to permit a handicapped tenant from making “reasonable modifications” at his or her own expense of the rental premises if such modifications are necessary to enable the tenant to fully enjoy the property. The owner may, when it is “reasonable to do so,” condition permission for a modification on the tenant agreeing to restore the interior of the premises to the condition that existed before the modification. Churches that own non-exempt residential or rental properties should be familiar with these new rules, and should understand that a variety of legal remedies are available to persons and organizations that violate the law.

Legal Developments

Zoning

Church Law and Tax 1989-07-01 Recent Developments Zoning Richard R. Hammar, J.D., LL.M., CPA •

Richard R. Hammar, Attorney, CPA

Bio

State: Ohio
Categories: Church Property, Zoning

Church Law and Tax 1989-07-01 Recent Developments

Zoning

Richard R. Hammar, J.D., LL.M., CPA

• What recourse does a church have if a city encourages it to purchase property for the construction of a new facility and then denies the church’s application for a building permit and site approval? None, concluded the Ohio Supreme Court in an unfortunate decision. Church representatives initially met with city officials to explain their plans for the construction of a three-stage religious complex (the third stage involved the construction of a chapel). City officials, by letter, encouraged the church to purchase the property. Accordingly, the church sold its former sanctuary, spent nearly $1.5 million to purchase the new property, began conducting services in a local public high school auditorium, and submitted a site plan to the local building commissioner. To the church’s surprise, the building commissioner rejected the site plan for the following reasons: (1) increased traffic congestion; (2) auxiliary buildings (e.g., a gymnasium, administrative facility, classroom, library) planned by the church were to be constructed prior to the chapel, and accordingly were not permitted uses since they were not “accessory” to a pre-existing church building; and (3) soil erosion and water runoff. Nevertheless, the church applied for a building permit, which was rejected by the city. The church then sued the city, seeking a court order compelling the city to approve the site plan and building permit. A state appeals court granted the city’s motion to dismiss, and the church appealed to the state supreme court which also ruled in the city’s favor. The supreme court observed that “a church is a permitted use in the zoning district in which the property is located. However, absent construction of the church … the accessory buildings, which are to be built first, are not allowed uses. In addition, [the church] did not attempt to resolve problems with soil erosion, drainage and traffic enumerated by the planning commission.” The court conceded that “given a resolution of the problems concerning land use and the sequence of construction, plan approval and a building permit could issue.” A dissenting justice stressed that: (1) under Ohio law it was not proper to deny a site plan or building permit because of fears of increased traffic congestion; (2) the church had agreed, before it submitted its site plan for approval, to construct the chapel prior to the “accessory buildings”; and (3) the soil erosion and water runoff problems were adequately dealt with in the church’s site plan. The dissenter concluded that “the planning commission’s disapproval of the site plan simply because it prefers that the land not be used as it is zoned constituted unlawful rezoning without legislative action and is an abuse of discretion.” The Chapel v. City of Solon, 530 N.E.2d 1321 (Ohio 1988).

Legal Developments

Church Property

Court rules that the property of a dissident church belonged to a national church body

Richard R. Hammar, Attorney, CPA

Bio

State: Kentucky
Categories: Church Property

A Missouri court ruled that the property of a dissident church belonged to a national church body with which it was affiliated.

The local church opposed a 1984 resolution of the national church which permitted the ordination of women into the priesthood. After efforts to work out their differences failed, the national church attempted in install a new minister. When the congregation overwhelmingly voted to retain their original minister, the national church had the locks to the church property changed, barricades erected, and notices posted to keep people off the property. The congregation proceeded to have keys made to the new locks, removed the barricades, and held services on the premises.

The national church then sought and obtained a court order banning the minister "and those acting in concert with him" from entering onto church property and from in any way disrupting the worship services conducted on the property.

The congregation appealed this order, and a Missouri appeals court ruled in favor of the national church. With regard to the ownership of the church property, the court observed that "Missouri courts have adopted the neutral principles approach as the exclusive method for the resolution of church property disputes. Under this approach, the court must refrain from resolving the dispute on the basis of religious doctrine and must rely instead on general principles of state property and trust law to resolve a church property dispute.

The court may consider who holds record title, the language of deeds, any relevant state statutes, and both local and general church documents that provide guidance or instruction on the ownership of church property. The court must, however, in scrutinizing religious documents do so in secular terms, rather than relying on religious precepts or concepts."

Under this test, the court concluded that the national church owned the property, since the deed to the property created an express trust in favor of the national church, as did relevant documents of the national church. Further, such provisions did not require any inquiries into religious doctrine.

The congregation also claimed that the national church could not obtain judicial relief since it had failed to "exhaust" or pursue available ecclesiastical remedies. The court rejected this argument, since "questions of whether or not the [national church] had exhausted its remedies within the church and whether or not church procedures were followed are ecclesiastical in nature and require interpretation of authority within the church as well as interpretation of church practice and policy. Under the neutral principles approach such matters were irrelevant toward resolving the underlying property dispute."

For similar reasons, the court rejected the congregation's argument that the national church had deviated from established ecclesiastical procedures. Finally, the court rejected the congregation's arguments that it was entitled to the property in question on the basis of a "constructive trust" or "purchase money resulting trust."

Generally, when one pays the purchase price for land and has legal title vested in another, a presumption arises that the latter holds the property under a "resulting trust" in favor of the other party. Since the local congregation paid for its property, but had title vested in the national church, it argued that the national church held the title subject to a resulting trust in favor of the local congregation.

In rejecting this argument, the court emphasized that "the burden of proof to establish a resulting trust is an extraordinary one" that the local congregation failed to satisfy. The court concluded that the local church originally had intended to make a gift of the property to the national church. The court also upheld the trial court's injunction barring the minister and his supporters from entering onto church property, or from interfering in anyway with church services. Reorganized Church of Jesus Christ of Latter Day Saints v. Thomas, 758 S.W.2d 726 (Mo. App. 1988).

Legal Developments

Church Property – Part 3

Church Law and Tax 1989-05-01 Recent Developments Church Property Richard R. Hammar, J.D., LL.M., CPA

Richard R. Hammar, Attorney, CPA

Bio

State: Alabama
Categories: Church Property

Church Law and Tax 1989-05-01 Recent Developments

Church Property

Richard R. Hammar, J.D., LL.M., CPA

• The Kentucky Supreme Court rejected the claim of the Protestant Episcopal Church in the United States (PECUSA) to the property of a local church that voted unanimously to disaffiliate from the parent body. The church voted to disaffiliate from the PECUSA because of disagreement with certain denominational policies, and a dispute arose between the church and PECUSA regarding ownership of the church’s property. A trial court found that the local congregation was the rightful owner of its property, but a state appeals court reversed this decision. The congregation appealed the case to the state supreme court, which ruled in favor of the local church. The court emphasized that: (1) the congregation’s withdrawal from the PECUSA “was unequivocal, and there was no dissenting faction”; (2) the “church property was acquired exclusively by the efforts of the local congregation”; (3) through the years title to the property was held by the church trustees and later by the church when it incorporated; and (4) the church “freely engaged in transactions such as purchase, encumbrance, and sale of its real property without any involvement by PECUSA”. Such evidence, observed the court, created an “appearance of absolute ownership” in the local church. However, the PECUSA maintained that certain denominational documents imposed a trust on the local church’s property in favor the national church, and that in any event the civil courts were required to defer to the conclusions of a hierarchical denomination such as the PECUSA (under the so-called “compulsory deference rule”). Both of these contentions were rejected by the court. As to the documents, the court concluded that (1) they were ambiguous, and accordingly could not create a trust in the absence of a “reversionary clause” in favor of the PECUSA, and (2) the PECUSA had never previously regarded the documents as having any legal effect. The court refused to adopt the “compulsory deference rule,” choosing instead the “neutral principles of law” approach to resolving church property disputes. Under the neutral principles approach, a court resolves church property disputes on the basis of nondoctrinal language in deeds, charters, and the bylaws of both the local church and parent denomination. Under this approach, the court concluded that the local church and not the PECUSA was the rightful owner of the property in question since nondoctrinal language in the church’s charter and deed clearly vested title in the local church. The court concluded: “It should be remembered that [the church] acquired the property with no assistance from PECUSA; that the property was managed and maintained exclusively by the church; that the church improved and added to its property; and that PECUSA deliberately avoided acquisition of title or entanglement with the property to ensure that it would not be subject to civil liability. The record is clear that PECUSA’s relationship with the church was exclusively ecclesiastical and the church was at all times in control of its temporal affairs.” Two dissenting justices argued that a document executed by the church 81 years earlier did create a trust in favor of the PECUSA. They observed that the church “enjoyed the benefits of membership in PECUSA for many long years—its members were confirmed by the bishop … its clergy participated in a PECUSA pension plan, PECUSA insured the church, and the church regularly asked for and received help and advice from the bishop …. Because of disagreement with national church policy, the church cannot now repudiate a legal document executed 81 years ago.” Bjorkman v. Protestant Episcopal Church in the United States of America, 759 S.W.2d 583 (Ky. 1988).

Legal Developments

Church Property

The sale of a Georgia church’s property triggered an unfortunate legal dispute.

Richard R. Hammar, Attorney, CPA

Bio

State: Missouri
Categories: Church Property

The sale of a Georgia church's property triggered an unfortunate legal dispute. In April of 1985, the church had signed an exclusive listing agreement with a realty company to sell certain church property. This listing expired in September of the same year, but the broker continued to assist the church with the sale of its property.

A few months later, the broker started his own agency, and presented the church with another exclusive listing contract. In December of 1985 the pastor signed the new contract without reading it. He assumed, based on discussions with the broker, that the contract called for a three-month exclusive listing.

In June of 1986, the broker called the pastor with an offer on the property, congratulated him, and reminded him that he expected 10% of the $200,000 sales price as his commission under the terms of the contract. The pastor, thinking that the new contract had only been for a three-month term, notified the broker that the listing agreement had expired in March, and accordingly that no commission was due. In fact, the new listing contract was not limited to three months.

The broker sued the church for his commission, and a trial court ruled in favor of the church. The broker appealed, and a state appeals court reversed the trial court's determination and ruled in favor of the broker. The court rejected the pastor's argument that he had been misled into assuming that the new contract contained a three-month term. "Where one signs a contract without reading it," observed the court, "he is bound by its terms unless he can show that an emergency existed at the time that he signed it that would excuse his failure to read it, or the other party misled him … or a confidential relationship existed upon which he relied in not reading the contract."

No emergency existed in the present case, noted the court, and the pastor could not argue that he had been misled "where he had the capacity and opportunity to read the contract …. He is not entitled to relief where, by exercising slight diligence, he could have prevented the fraud which he alleges to have been perpetrated upon him." This ruling illustrates the risks that a minister or church representative assumes in signing legal documents without a careful review. Never assume that you are familiar with the terms of any legal document that you have not read, no matter how logical or reasonable your assumptions or understandings may be. Stacey Realty Company v. Calvary Baptist Church, Inc., 374 S.E.2d 537 (Ga. App. 1988).

Legal Developments

Taxation

Church Property

Richard R. Hammar, Attorney, CPA

Bio

State: Nebraska
Categories: Church Property

Church Law and Tax 1989-05-01 Recent Developments

Taxation – Church Property

Richard R. Hammar, J.D., LL.M., CPA

• Is a 31-unit apartment complex operated in conjunction with a nursing home exempt from property taxes? No, concluded the Nebraska Supreme Court. The apartments were located at St. Luke’s Good Samaritan Village, which was operated by the Evangelical Lutheran Good Samaritan Society. Apartment residents were required to be at least 55 years of age, and physically capable of living in an apartment without supervised medical care. They were assessed a monthly rent of $220. The court concluded that the apartments did not qualify for exemption as a charitable use. While acknowledging that a nursing home operated on a nonprofit basis “is exempt from taxation as a charitable institution,” the court concluded that apartment units operated in conjunction with a nursing home were not exempt since they constituted “low-rent housing” which was not a charitable use under Nebraska law. Evangelical Lutheran Good Samaritan Society v. Board of Equalization, 430 N.W.2d 502 (Nebr. 1988).

Legal Developments

Church Property – Part 1

Church Law and Tax 1989-05-01 Recent Developments Church Property Richard R. Hammar, J.D., LL.M., CPA

Richard R. Hammar, Attorney, CPA

Bio

State: Alabama
Categories: Church Property

Church Law and Tax 1989-05-01 Recent Developments

Church Property

Richard R. Hammar, J.D., LL.M., CPA

• The Alabama Supreme Court was asked to decide whether a local church or a parent denomination owned the church’s property following its disaffiliation from the denomination. Here are the facts. A local church had been affiliated with the African Methodist Episcopal Zion Church in America since 1908. In 1985, a majority of the church’s membership voted to disaffiliate with the parent denomination. The denomination wrote the church a letter acknowledging the disaffiliation, and requesting all dissident members to vacate the premises. Dissident members refused to vacate the property, and the denomination filed a lawsuit seeking to have itself declared the owner of the church’s property. In support of its claim, the denomination quoted a provision contained (since 1884) in its Book of Discipline that pertained to local church property: “In trust, that said premises shall be used, kept, maintained, and disposed of as a place of divine worship for the use of the ministry and membership of the African Methodist Episcopal Zion Church in America, subject to the discipline, usage and ministerial appointments of said church as from time to time authorized and declared by the General Conference of said church.” A trial court awarded the church property to the local church, finding that the church was not in a hierarchical relationship with the denomination with respect to property matters. The denomination appealed to the state supreme court, which found the trial court’s determination to be “reversible error” and ruled in favor of the denomination. The court began its opinion by acknowledging that “the civil courts cannot adjudicate disputes concerning spiritual or ecclesiastical matters, but, nevertheless, can resolve disputes concerning property rights.” In resolving church property disputes, the courts of Alabama apply “neutral principles of law”—meaning nondoctrinal language in deeds, charters, and the constitutions and bylaws of both the local church and the parent denomination. The court surveyed the close ties that had existed between the local church and parent denomination in the 77 years of affiliation, and noted that since 1884 every prospective member of a church affiliated with the denomination had agreed to be “cheerfully governed” by the denomination’s Book of Discipline. In light of such evidence, the supreme court concluded: “[The church] has been a member of [the denomination] for three-quarters of a century, by an association that both the national denomination and the local church acknowledge. For the entire time, the Book of Discipline provided that the church’s property be held for the denomination by the local church. Individuals who have been members of the church the longest acknowledge that, for as long as they can remember, everyone who became a member of the church promised to abide by the rules and regulations of the denomination. The church cannot now sever the relationship between the denomination and itself and unilaterally declare that obligations incumbent upon itself because of three-quarters of a century of association do not exist. The church’s choice to join the denomination means it is obligated to obey all the rules and regulations its members promised to uphold, not just the rules and regulations they prefer. At least in regard to property disputes, the Book of Discipline binds the local church.” African Methodist Episcopal Zion Church in America, Inc. v. Zion Hill Methodist Church, Inc., 534 So.2d 224 (Ala. 1988).

Legal Developments

Can a city acquire a seminary’s property through eminent domain?

A federal appeals court in New York addressed this controversial question.

Richard R. Hammar, Attorney, CPA

Bio

State: New York
Categories: Church Property

Can a city acquire a seminary's property through eminent domain? This controversial question was addressed recently by a federal appeals court in New York.

Here are the facts. A federal trial court judge ruled that the City of Yonkers, New York, had engaged in a longstanding practice of restricting public housing to a minority section of the city. Under pressure from the court, the city agreed to acquire a 2-acre portion of a Catholic seminary's 44-acre property through its power of eminent domain (or condemnation), and to construct 200 units of public housing on this property which was located in a nonminority area of the city.

The seminary contended that the city's proposed action would violate its constitutional guaranty of religious freedom, since the 2-acre tract was necessary to the "atmosphere of quiet reflection essential to the academic, spiritual, psychological and pastoral preparation of young men for the priesthood" at the only seminary in the archdiocese. The trial court assumed the validity of the seminary's religious objections, but concluded that they were outweighed by the government's "compelling interest" in eliminating racial discrimination.

On appeal, the federal appeals court observed that "it is well settled that a limitation by the government on the free exercise of religion is permitted only when the state can demonstrate that a compelling interest justifies the restriction and that no alternate means of accomplishing the state's compelling interest are available."

The court rejected the city's claim that the lack of any "politically acceptable alternatives" to acquiring the seminary's property constituted a compelling state interest, noting that "political expediency is far from a compelling reason to force the seminary to give up its property in derogation of a constitutional right."

The court concluded that the city would not have a compelling interest in obtaining the seminary's property against its will if alternative building sites in nonminority areas of the city were available, and it remanded the case back to the trial court for a full hearing on "the availability of alternative building sites … and whether the public interest in remedying discrimination can be reasonably accomplished without the taking of the seminary's property." Yonkers Racing Corporation and St. Joseph's Seminary v. City of Yonkers, 858 F.2d 855 (2nd Cir. 1988).

Legal Developments

Zoning

Church Law and Tax 1989-03-01 Recent Developments Zoning Richard R. Hammar, J.D., LL.M., CPA •

Richard R. Hammar, Attorney, CPA

Bio

Church Law and Tax 1989-03-01 Recent Developments

Zoning

Richard R. Hammar, J.D., LL.M., CPA

• A federal appeals court ruled that a church’s constitutional right to religious freedom was not violated by a county’s refusal to permit the church to construct a sanctuary on land not specifically zoned for church uses. The church owned an 80-acre tract of vacant land in an area zoned for agricultural uses. Its application for a special permit to construct a sanctuary was rejected by the county planning commission because of a number of concerns, including access problems, erosion hazards, and inadequate fire protection at the site. The appeals court rejected the church’s claim that its right to freely exercise its religion had been violated by the county’s action. It found that the county’s action did “not in any way regulate the religious beliefs of the church,” and did not regulate “any religious conduct of the church or its members.” The court concluded that “a church has no constitutional right to be free from reasonable zoning regulations nor does a church have a constitutional right to build its house of worship where it pleases.” Of far greater significance than the court’s ruling is the dissenting opinion of one of the court’s three judges. The dissenter insisted that the court had improperly viewed the church’s interest as “merely a secular building activity.” On the contrary, “places of worship have in almost all religions been as integral to their religion as have Sunday School, preaching, hymn singing, prayer, and other forms of worship …. Churches are the situs for the most sacred, traditional exercise of religion: baptisms, confirmations, marriages, funerals, sacramental services, ordinations, and rites of passage of all kinds.” Indeed, “if first amendment free exercise rights are not triggered by the impingement on places of worship, the right of free exercise of religion is for practical purposes subject to broad infringement in all of its aspects except perhaps belief.” The dissenter further noted that when government agencies seek to encumber the use of buildings for religious worship, they are, in fact, impinging on … three different interests recognized by the first amendment itself—speech, assembly, and religious exercise.” Because of this significant impact on constitutionally protected rights, the court had erred in too quickly dismissing the church’s interest as “merely a secular building activity” that required little judicial deference. Messiah Baptist Church v. County of Jefferson, 859 F.2d 820 (10th Cir. 1988).

Legal Developments

Taxation

Church Property

Richard R. Hammar, Attorney, CPA

Bio

State: Colorado
Categories: Church Property

Church Law and Tax 1989-03-01 Recent Developments

Taxation – Church Property

Richard R. Hammar, J.D., LL.M., CPA

• Does property used exclusively for religious worship automatically remain exempt from property taxation when it is sold from one church to another? No, concluded a Colorado state appeals court. In 1984, a Coptic Orthodox church (“St. Mark”) purchased property from a Nazarene church that was exempt from property taxation as of the date of sale. The Nazarene church notified local authorities of the sale, and the property was removed from the listing of exempt properties. When St. Mark received a tax bill for 1984, it immediately applied for an exemption. Local authorities denied the exemption on the basis of a Colorado law that specifies “in no event shall [an] exemption apply to any year prior to the year in which application is made.” Since St. Mark did not apply for an exemption during 1984, it was denied an exemption for that year. On appeal, the state appeals court upheld the denial of an exemption for 1984: “Contrary to St. Mark’s argument, the exemption is not perpetual; it is dependent upon the use to which the property is put. It does not run with the land. Thus, St. Mark had no automatic right to the exemption and was required to comply with statutory prerequisites to so qualify …. [Under state law], St. Mark was required to file an application for exemption when it purchased the property to enable the property tax administrator to determine whether the property was being used for religious worship. There is a presumption against exemption, and the burden is on the taxpayer who claims an exemption to establish the right to it by showing that it has met the necessary criteria.” And, since “St. Mark, as the property owner, did not apply for an exemption for the 1984 tax year,” the tax administrator correctly denied the exemption for that year. The court also ruled that the tax administrator’s failure to notify St. Mark’s of the need to file an exemption application upon the purchase of the property did not deny the church any legally protected right. St. Mark Coptic Orthodox Church v. Colorado State Board of Assessment Appeals, 762 P.2d 775 (Colo. App. 1988).

Legal Developments

Church Property

A federal court in Michigan resolved a dispute between a local church and a religious

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Church Property

A federal court in Michigan resolved a dispute between a local church and a religious denomination regarding ownership of the church's property.

The church was established in 1967, and it purchased a church building and adjacent property in 1971 in its own name (the deed made no reference to the denomination). In 1976, the denomination formally adopted a new constitution which, among other things, declared that all properties owned by local churches belonged to the denomination, and that no one other than the denomination had the authority to sell property of local churches.

A schism arose within the local church, and one faction challenged the denomination's ownership and control of the church's property. The court concluded that the church was part of a hierarchical denomination, and that Michigan courts may apply either the "compulsory deference rule" or "neutral principles of law" in resolving property disputes within such denominations.

Under either approach, observed the court, the denomination won. Under the compulsory deference rule, the courts follow the decision of the highest body within the national church to which the dispute has been taken. Such an approach favored the national church since it had asserted jurisdiction over the local church's property under the authority conferred upon it by its constitution. Under the "neutral principles of law" approach, church property disputes are resolved on the basis of nondoctrinal language in relevant documents (e.g., national church charter and bylaws, local church charter or bylaws, deeds, and state statutes).

The court concluded that this approach also favored the national church because of the provision in its constitution declaring that title to all local church property was vested in the national church. Contrary provisions in the local church's bylaws were "nullified by this superior authority."

The court acknowledged that the deed to the property vested title in the local church. However, it concluded that "it is immaterial in whom the legal title stands" since "there is a strong presumption that where there is a hierarchical polity and the governing constitution [of the national church] provides that all property ultimately resides with the national church, a `neutral principles' analysis will result in the property being held in trust by the local for the national church."

This is so even though the local church property was "initially bought by local parishioners." The court defined a "hierarchical" denomination as one in which a local church "is but a subordinate member of some general church organization in which there are superior ecclesiastical tribunals with a general and ultimate power of control more or less complete, in some supreme judicatory over the whole membership of the general organization."

Finally, the court rejected the local church's argument that it was independent of the national church: "A local church cannot prosper by the benefits afforded by the parent, participate in the functioning of that body, yet successfully disclaim affiliation when the parent acts to the apparent disadvantage of the local [church] …."

The court's decision is significant for a number of reasons, including the following: (1) it indicates that Michigan courts may choose either of two approaches to the settlement of church property disputes involving hierarchical churches; (2) it indicates that national church bylaws vesting title to local church property in the national church take priority over a deed vesting title in the local church; and (3) it suggests that national churches can assert a claim to local church property after a local church has acquired title in its own name (the national church's constitution, under which it declared itself owner of all local church property, was adopted after the local church had purchased its property in its own name). Kendysh v. Holy Spirit Byelorussian Autocephalic Orthodox Church, 683 F. Supp. 1501 (D. Md. 1988).

Legal Developments

Officers, Directors, and Trustees

Church Law and Tax 1989-01-01 Recent Developments Officers, Directors, and Trustees Richard R. Hammar, J.D.,

Richard R. Hammar, Attorney, CPA

Bio

State: Texas
Categories: Church Property, Criminal Liability, Fiduciary Duty, Officers, Directors, and Trustees

Church Law and Tax 1989-01-01 Recent Developments

Officers, Directors, and Trustees

Richard R. Hammar, J.D., LL.M., CPA

• A Texas appeals court decision addressed the issue of a church trustee’s alleged criminal liability for misapplication of church funds. Here are the facts. In 1973, a donor conveyed a tract of land to a church by delivering to three church trustees a deed to the property. A sanctuary was constructed on the property. By 1978, church attendance had declined significantly and weekly services had been cancelled. The three trustees discussed selling the property, and agreed that the property and building were “not theirs personally” but rather “were the Lord’s and they should be the work of the Lord’s.” However, no action was taken. In 1981, one of the trustees sold the property for $100,000 to a third party by signing his own name and forging one of the other trustee’s signatures on a deed. The trustee placed the sales proceeds in a church account, and within two months spent almost the entire balance on personal purchases. He was prosecuted for violating a Texas law prohibiting trustees from knowingly “misapplying” property held in a “fiduciary” capacity. A jury convicted the trustee of misapplication of funds and felony theft, but the appeals court overturned the convictions. The court reasoned that the trustee could not be guilty of either misapplication of funds or theft since “at the time of the misapplication the church had ceased all of its regular functions of work and worship for approximately three years … and was not in existence as a matter of law.” Since the church did not exist, the trustee could not be convicted for misapplication or theft of its assets. A dissenting judge denounced the court’s handling of the case, noting that under Texas law (1) a trustee has “a solid duty of loyalty and fidelity,” and “must make a strict accounting of the properties of the trust”; (2) a trustee cannot by himself sell any property held in trust for his own benefit; and (3) the attorney general must be notified if trust property is distributed contrary to the purposes of a trust. The dissenter also challenged the court’s conclusion that the church had ceased to exist, since the trustee’s own actions “prove the contrary.” Specifically, the trustee executed the forged deed in the name of the church, deposited the proceeds in a church account, and paid for all of his personal purchases with church checks. Another important consideration missed by both the majority and the dissenter is the fact that section 501(c)(3) of the Internal Revenue Code requires that the assets of churches and other exempt organizations be distributed upon dissolution (i.e., termination) to another organization exempt from federal income taxation under section 501(c)(3) of the Code. Section 501(c)(3) specifies that a church’s charter must contain a dissolution clause that satisfies this requirement. Had the church in the Texas case complied with this requirement, the unfortunate and unjust result may well have been avoided. Martinez v. State, 753 S.W.2d 165 (Tex. App. 1988).

Legal Developments

Personal Injuries – Part 3

On Church Property or During Church Activities

Richard R. Hammar, Attorney, CPA

Bio

State: New Jersey
Categories: Church Property, Schools

Church Law and Tax 1989-01-01 Recent Developments

Personal Injuries – On Church Property or During Church Activities

Richard R. Hammar, J.D., LL.M., CPA

• The New Jersey Supreme Court ruled that a church-operated school located on church property could be sued by a pedestrian who suffered permanent injuries when she slipped on a sidewalk abutting the school that had not been cleared of snow and ice. Such a result, concluded the court, was “less harsh than imposing the entire loss on a pedestrian injured by the negligent maintenance of a sidewalk,” and “would in no way interfere with the exercise of religion” by the church. Further, requiring church schools to clear abutting sidewalks of snow and ice “would not greatly add to the type of maintenance tasks [such schools] routinely undertake.” Finally, the court rejected the church’s claim that the state “charitable immunity law” (which prevents charitable and religious organizations from being sued in some cases by their “beneficiaries”) prevented it from being sued—since the injured pedestrian was not a beneficiary of the church. While acknowledging “the good works performed by religious and charitable organizations,” the court concluded that “religious institutions do not enjoy an absolute immunity from worldly burdens.” Brown v. St. Venantius School, 544 A.2d 842 (N.J. 1988).

Legal Developments

Taxation – Part 1

Church Property

Richard R. Hammar, Attorney, CPA

Bio

State: Indiana
Categories: Church Property

Church Law and Tax 1989-01-01 Recent Developments

Taxation – Church Property

Richard R. Hammar, J.D., LL.M., CPA

• An Indiana court ruled that an apartment building owned by a religious broadcasting organization was exempt from state property taxes if it was reasonably necessary for the exercise of the organization’s religious purposes. The apartments were used to house ordained ministers connected with the broadcasting ministry, engineers assisting with the broadcasts, carpenters and electricians engaged in building sets at the television studios, and persons who assisted in fund-raising telethons. The court concluded that such a facility was exempt from property taxation under a state law exempting “all or part of a building … owned, occupied and used by a person for … religious purposes.” The court concluded that “the evidence indicates that the apartments are used exclusively by persons working to fulfill [the organization’s] corporate purposes of religious broadcasting, the employees perform various important functions, and the hours of [the organization’s] telethons require that employees and speakers be readily available.” LeSea Broadcasting Corp. v. Board of Tax Commissioners, 525 N.E.2d 637 (Ind. T.C. 1988).

Legal Developments

Court Ruled Church’s Property Belonged to the Parent Denomination Because of Nondoctrinal, Controlling Language in Both the Local Church’s Deed and in the Denomination’s Bylaws

A Texas state appeals court resolved a church property dispute in which a denomination and

Richard R. Hammar, Attorney, CPA

Bio

State: Texas
Categories: Charters, Constitutions, and Bylaws, Church Property

A Texas state appeals court resolved a church property dispute in which a denomination and a local church both claimed title to the church's property.

The church was established in 1970, and in the same year was affiliated with the Evangelical Assemblies denomination. Pursuant to the Evangelical Assemblies' constitution, the church paid for its property but title was vested in the name of the denomination. In 1983, a majority of the church's members voted to disassociate the church from the denomination, whereupon a lawsuit was commenced to determine legal ownership of church property. The appeals court held that the result in such a case depends upon whether the church and denomination are "hierarchical" or "congregational" in polity.

The court noted that Texas decisions had established the following factors which indicate that a particular church is "hierarchical" in nature: (1) affiliation with a parent church; (2) an ascending order of ecclesiastical judicatories in which the government of the local church is subject to review and control by higher authorities; (3) subjugation of the local church to the jurisdiction of a parent church or to a constitution promulgated by a parent church; (4) a charter from the parent church governing the ownership of local church property and specifying ownership of local church property; (5) the repository of legal title; and (6) the licensing or ordination of local ministers by the parent church.

Application of these factors led to the conclusion that the Evangelical Assemblies was "in every respect" a hierarchical church organization, and accordingly, "as the parent church, Evangelical Assemblies owns and is entitled to possession of the property under the mutually binding constitution." The Texas court reached the correct result, but for the wrong reason.

A determination of whether a church or denomination is congregational or hierarchical in nature is not required unless the court chooses to apply the "compulsory deference" rule, under which the courts are compelled to defer to the rulings of denominational agencies within a hierarchical denomination. Texas, like most states, has rejected the compulsory deference rule in church property disputes in favor of the "neutral principles of law" approach under which the civil courts determine the ownership of contested church property through nondoctrinal language in controlling legal documents (e.g., the local church's deed, or the bylaws of either the local church or parent denomination).

Obviously, under a proper application of the neutral principles approach, title to the church's property belonged to the Evangelical Assemblies—because of nondoctrinal, controlling language in both the local church's deed and in the denomination's bylaws. Templo Ebenezer, Inc. v. Evangelical Assemblies, Inc., 752 S.W.2d 197 (Tex. App. 1988).

Legal Developments

Court Ruled That an Apartment Building Operated by a Lutheran Agency Was Exempt From Property Taxation

A Pennsylania state appeals court ruled that a 96-unit apartment building located on a 40-acre

Richard R. Hammar, Attorney, CPA

Bio

State: Pennsylvania
Categories: Church Property, Tax Exemption, Taxation - Church Property

A Pennsylania state appeals court ruled that a 96-unit apartment building located on a 40-acre retirement community operated by an agency of the Lutheran Church in America was exempt from property taxation.

The court concluded that the apartments qualified for exemption under a state law exempting "institutions of benevolence or charity … founded, endowed, and maintained by public or private charity," since the facility "charges monthly apartment fees that are by no means exorbitant and that are below actual operating cost; it does not request or receive financial information from apartment applicants before admission, and it routinely grants exonerations from payment of a portion of the monthly fee to residents who later demonstrate financial need."

However, the court ruled that 81 cottage units located on the same property were not exempt since the cottage operation consistently realized a substantial profit, and only a few residents were receiving a subsidy on the payment of fees. Appeal of Lutheran Social Services, 539 A.2d 895 (Pa. Common. 1988)

Legal Developments

Court ruled a Bank Account Established by a Religious Leader to Assist the Poor Belonged to the Organization He Founded

Years ago, $3 million was placed in a bank account entitled "The Honorable Elijah Muhammad's

Richard R. Hammar, Attorney, CPA

Bio

State: Illinois
Categories: Charitable Contributions, Church Property

Years ago, $3 million was placed in a bank account entitled "The Honorable Elijah Muhammad's Poor Fund Account." Elijah Muhammad was the leader of a religious organization known as the Nation of Islam. Following his death in 1975, the bank transferred the funds to a new account in the name of the Nation of Islam, thinking that the poor fund account belonged to the religious organization rather than to Elijah Muhammad personally.

Several years later, the estate of Elijah Muhammad sought to recover the funds from the bank on the theory that the account had been the personal property of Elijah Muhammad rather than of the religious organization. The court concluded that the account belonged to the religious organization rather than to Elijah Muhammad personally, since (1) donations from members of the Nation of Islam constituted an overwhelming portion of the money deposited in the poor fund account, and (2) donors to the poor fund account were informed that their donations would be used primarily to "see to it that the poor and needy of our nation are looked after." Donors were also advised that contributions to the poor fund account were "income tax deductible."

Under these facts, the court concluded that "the funds in the poor fund account were solicited upon the representations that the money would be used to benefit the [religious organization] and that the believers, in making donations, intended their money to be used for that purpose." Under these circumstances, Elijah Muhammad could not be deemed "the equitable owner of the poor fund account."

The court further observed that "where funds are solicited to benefit a religious organization, we believe that basic principles of equity and fair dealing should preclude the use of those funds to benefit the personal estate of the religious leader." This is so even if some donors made contributions to benefit Elijah Muhammad personally, since "contributions to religious leaders for their support are considered contributions for the benefit of the religious organization and may qualify for a charitable deduction." In re Estate of Muhammad, 520 N.E.2d 795 (Ill. App. 1987)

Legal Developments

Court Upheld State’s Position, Rejecting Church’s Contention That Each Exempt Building Was Entitled to an Exemption of 50 Acres of Land

An Indiana court addressed the issue of the exemption of church camps from real estate

Richard R. Hammar, Attorney, CPA

Bio

State: Indiana
Categories: Church Property, Tax Exemption, Taxation - Church Property

An Indiana court addressed the issue of the exemption of church camps from real estate taxes. The camp in question, which is owned and operated by the Indiana Association of Seventh Day Adventists, consists of 175 acres containing a staff lodge, 14 sleeping cabins, a dining hall, an assembly hall, a craft building, and a caretaker's house. It is used primarily as a summer church camp, a retreat, and a weekend meeting place for teachers, ministers, and other church personnel.

Prior to 1983, all of the camp's real estate and improvements were exempt from taxation. In 1983, however, the state denied the exemption for the caretaker's house and all land in excess of 50 acres, relying in part on the wording of the exemption statute which exempts a tract of land if a building situated on the property is exempt and if "the tract does not exceed 50 acres."

The court upheld the state's position, rejecting the church's contention that each exempt building was entitled to an exemption of 50 acres of land. It defined a "tract" as "any area of land that is under common ownership and is contained within a continuous border." Finally, the court rejected the church's claim that the exemption statute unconstitutionally exempted the property of certain organizations (e.g., YMCA, YWCA, Salvation Army, Boy Scouts, Girl Scouts) from property taxation without any acreage limitation, while imposing the acreage limitation on other organizations. Indiana Association of Seventh Day Adventists v. State Board of Tax Commissioners, 519 N.E.2d 772 (Ind. Tax Court 1988)

Legal Developments

Church Property Ownership Dispute Between a Church and the National Denomination

a West Virginia appeals court awarded the assets of a schismatic congregation to a national denomination.

Richard R. Hammar, Attorney, CPA

Bio

State: West Virginia
Categories: Charters, Constitutions, and Bylaws, Church Property

A local congregation that had been affiliated with the Original Glorious Church of God in Christ (the "national church") seceded from the national church, and established a new church. The church's trustees attempted to convey the church's assets to the new organization. This conveyance was challenged by the national church, which asserted that the church's assets belonged to it.

It cited a provision in the national church's constitution dictating that "no church group desiring to leave this body shall have any legal claim on church property if the property in question was purchased and paid for with general funds or if general funds were in any way used in the purchase thereof."

Since the national church produced a copy of a check in the amount of $300 that it had issued to the local church in 1964 to assist with church construction, the court concluded that the church's assets belonged to the national church and that the attempted conveyance by the local trustees was void.

This conclusion was reinforced by a state law specifying that "when an individual church has become extinct, or has dissolved, a suit may be instituted by the religious body that by the laws of the denomination to which such individual church belongs, has the charge or custody of the property, or in which it may be vested by the laws of the church."

The court further noted that with respect to hierarchical churches (such as the Original Glorious Church of God in Christ), the civil courts "should respect, and where appropriate enforce, the final adjudications of the highest church tribunals, provided that such adjudications are not procured by fraud or collusion. If a church has a hierarchical structure and its leaders have addressed a doctrinal or administrative dispute, the civil courts do not intervene, absent fraud or collusion."

Since the national church had addressed the issue of property disputes in its constitution (quoted above), the civil courts were bound to defer to that document and award the local congregation's assets to the national church. Finally, the court noted that title must be vested in the trustees of the national church, since under West Virginia law churches and religious denominations cannot incorporate or hold title to property in the name of the organization. The court's decision indicates that West Virginia has adopted the "compulsory deference" rule for resolving church property disputes.

This rule requires the civil courts to defer to the determinations of hierarchical church denominations in church property disputes. An alternative approach, approved by the United States Supreme Court, is the "neutral principles of law" approach, under which church property disputes are resolved on the basis of nondoctrinal language in deeds, state statutes, and the constitutions and bylaws of local congregations and national churches with which they are affiliated.

While most courts have adopted the neutral principles of law approach, the "compulsory deference" approach (adopted by the West Virginia court) has some appeal, since it avoids the prospect of a civil court resolving a church dispute on the basis of "neutral principles of law" despite a determination of a national church to the contrary. Original Glorious Church of God in Christ v. Myers, 367 S.E.2d 30 (W. Va. App. 1988).