Ben and Pen are long-time, members of ABC Church (All ‘Bout Church), a hypothetical church located on the outskirts of a large town with just over 100 members. Ben and Pen have decided to donate to ABC Church two acres of land they own near the center of town. ABC is excited and accepts the gift of land. Within one month, Ben and Pen transfer title of the property to ABC Church.

Following the title transfer, ABC Church leadership engages in several months of serious discussion regarding the use of the donated property. Should the church be moved to this new site? Would the town support a second ABC Church location? What if they constructed a building and then rented it out? Or should the donated property be sold? Finally, it is decided the most feasible option is to sell the land and invest the proceeds in an endowment created for ABC Church.

It appears simple and direct. What could go wrong with turning around and selling this two-acre land donation? The first concern is that the donated gift is real estate, always a subject to approach with caution. ABC Church should determine whether the land is currently zoned as residential or commercial. How will zoning affect ABC’s approach to selling it? Does ABC Church have a clear title to the property?

Perhaps the most impactful, but least considered question is, “What was the previous use of the donated property?”

The process of listing the property for sale with a real estate agent begins. Three months later Jim agrees to buy the property for $250,000. Jim plans to build a couple of small storefronts and add some apartments above. Jim advises ABC Church that it will take about 90 days to transfer the title, as he needs to obtain a mortgage on the property for a building loan.

About a week later Jim is notified by his bank that the title company has discovered a roadblock … the donated property used to be occupied by a small paint manufacturing plant. The bank is very concerned that the property could have some soil contamination. The bank requests a preliminary land usage history report, which indicates that some 70 years ago a paint manufacturing business occupied the land. Next, ABC Church is notified that soil samples, tests, and lab analyses are required to determine if the soil is contaminated. Jim and ABC Church soon agree to split the cost of soil testing/investigation.

Here is where the thought of giving deviates wildly from the gift itself. Unfortunately, the ground soil tests positive for oils and lead. Since ABC Church owns the property, it is responsible for the proper removal, disposal, and clean-up of the contaminated site. ABC Church calls its insurance agent to discuss the situation. The insurance agent advises ABC Church there is no coverage for pollution liability under their insurance policy. Pollution liability is also a standard exclusion in insurance contracts.

The new reality is that ABC Church has a huge liability in the form of owning contaminated property. The cost to properly clean up the contamination is ABC Church’s responsibility. In the meantime, Jim obtains a preliminary ground remediation estimate of $150,000. Not surprisingly, Jim advises ABC Church he will not advance with the purchase of the property until it is certified as contamination free.

THREE BIG LESSONS:

1) Buyer beware. Giftee beware.

2) What’s in a gift may be a lot more (in this case, expense) than anyone ever realized.

3) Do your due diligence BEFORE accepting. (The church CAN REFUSE a gift.)