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Commercial Leasing Law & StrategyFeaturesLandlord Tenant LawTax

The Tax-Exempt Entity's Property and a Lessee's Private Purpose

By Janice G. Inman
June 01, 2018

State and local governments grant tax-exempt status to properties that are used for certain activities, including religious and charitable purposes. Properties owned by government and educational institutions are tax-exempt as well, and these exemptions can extend to lessees of such property under certain circumstances, such as when the property continues to be used for a public purpose and such use is related to the function of the lessor entity.

Questions arise, however, when a tax-exempt property's use by a lessee involves an element of private profit. Is the tax-exempt status lost? Does that answer change if only a portion of the property is used to generate income for a privately-held entity? And if an agreement between a tax-exempt entity and a private party is not termed a “lease” by them, is the private party a lessee of property or something else altogether?

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