BEWARE OF COMMON COSTLY MISTAKES NONPROFITS MAKE DURING CAPITAL BUILDING PROJECTS

By Laura Fowler, inspired by her Charitable Friends!

The need for new or more space can be an exhilarating time for nonprofits. It typically means their impact is strong and there is demand in their community for them to grow. Funding the acquisition, renovation or building of a new facility will require a nonprofit to launch a Capital Campaign. This, in and of itself is a complex process that requires serious consideration by the leadership and board of directors of any nonprofit. Charitable organizations who are considering construction also need to be adept in the federal, state and local law governing construction and financing – these laws often apply in a similar way to both for profit and nonprofit organizations.

The following are some common areas many nonprofits find challenging and can often lead to costly mistakes if not carefully considered before fundraising and construction begins.

Clearly Defined Goals:

The first step should always be to convene a special committee of stake holders in the organization to discuss a capital project and how it fits into the long-term goals of the organization. A key factor in the decision to move forward should be the risk it might present in detracting from the organization’s mission. Set a clear mission for the project and do your best to ensure it is sustainable once complete.

This step should also involve a thorough review of the organization’s bylaws and approved procedures for fundraising and borrowing money. Bylaws are not uniform and members amend them. Commercial third-party financing agreements are not uniform in the way residential mortgage agreements are; many have harsh consequences for highly technical breaches. Many loans are sold and managed by servicing agents who have no relationship to the local bank that originated the loan. Nonprofit organization assets are not exempt from the creditor collection action.

Read the current bylaws and third-party financing agreements carefully before the board signs them and consider the proper procedure for how to amend these documents to safeguard the organization from disaster.

Financial Stability & Fundraising Promises:

Before your organization commits, confirm that you have sufficient operating funds in reserve that can be spent on the building program and that you’re bylaws and nonprofit assets give you the ability to borrow sufficient to cover all the contingencies of your building program. Most construction programs have unanticipated costs and delays.

If fundraising will be involved, promotional statements, fundraising brochures, flyers, speakers at fundraising events, websites and emails, can limit your authority in ways you did not intend. Think very carefully about what is said, before it is said or published. Exuberant volunteers who make statements that are not true are worse than a wrecker ball for your building program. Train all volunteers; create a script for volunteers; give volunteers a chance to rehearse. Most will be grateful you did this and it will protect them from potential legal trouble down the road.

The more detailed the description of the proposed use of the funds, the more you limit your ability to deal with unanticipated changes at the construction site. This is true whether the funds are donated or borrowed.  If a donor makes a gift to your nonprofit organization and dedicates it to a specific purpose, often that gift cannot be redirected, ever! Don’t accept restricted gifts without a legal review that tells you what you can do with it. Don’t rely solely on the donor’s lawyers.

Beware of Predators:

Combing the internet, looking with special appetite for smaller, less sophisticated nonprofit organizations who announce an intent to build, predators lurk.  Small charitable organizations are a particular target. Use all your restraint and investigative skill to find out who and what these agents are, where they came from and what they may have done to others. How did they find you? Are they registered with a secretary of state and the IRS?  What did they appear to already know when they reached out to you? Who are their other clients that have proceeded with them through an entire fund-raising project and emerged successfully on the other side? What uses can they make of the donor information you give them?

Those who reach out to a nonprofit organization with such proposals may be nothing more than independent contractor sales agent who makes a living from hunting, then hands off the nonprofit client to other organizations whose primary purpose is to mine data or broker services of questionable value like software.  Be wary!

In addition to the council of their governing board, organizations should always seek advice from outside experts on complex matters. Responsible individuals who hold such positions should not find offense in having their opinions or advice cross referenced by an outside agent.

A new and larger space for a nonprofit should be an exciting thing, not a legal nightmare. A responsible attorney will ask thoughtful questions to learn the specifics on these and other matters when working with a nonprofit organization who is considering the legal implications of a capital campaign for acquiring, renovating or building a new space.

The Fowler Law Firm PC will host a Non-Profit Organization Lunch & Learn Seminar in September for nonprofit organization board members and senior administrators. Contact Laura Fowler at lfowler@thefowlerlawfirm.com for more details.

About Laura Fowler: Managing Shareholder of The Fowler Law Firm PC, frequent guest speaker on topics to do with avoiding legal mistakes, Laura Fowler has spent most of her forty (40) licensed lawyer years helping and defending her friends at the courthouse. She much prefers to design strategies to assist her friends to never seeing the inside of a courtroom…except for a tour of a historic building of course!  

About The Fowler Law Firm PC: Attorneys with The Fowler Law Firm PC proudly donate their talents and resources to many area charities and teach courses in Continuing Education Click HERE for more information. Follow our charitable adventures on our Facebook page. For a printer-friendly version of this electronic alert, click HERE.          

Receipt of this Electronic Alert or printer-friendly version does not establish or constitute an attorney-client relationship.  This information is not intended as a substitute for careful review by legal counsel of your own choosing.  As with any legal issue, please consult your attorney with questions.