Can You Lease a Kitchen From a Non-Profit for Catering?

Lease agreements between nonprofits and individuals, or even between non-profits and for-profit companies, are not uncommon; however, the agreements must be structured in a way that protects both parties. When entered into under the correct circumstances, you can lease a kitchen from a nonprofit for catering. To understand how this works it is important to know a few basic rules about nonprofit operations. It is also important to know that many localities have further restrictions on running a catering business that must be accommodated.

A nonprofit organization is a corporation like any other. The only difference is that its revenue is not taxed by the federal government and, in some states, there is forgiveness on sales, use and even real estate taxes. With the exception of a few restrictions, a nonprofit can engage in financial transactions in the same way a for-profit corporation can. In many cases, this can include leasing out facilities such as a kitchen.

Most nonprofits, like churches or community organizations that have kitchens, are 501(c)3 organizations. This designation requires the organization to fulfill a particular mission in the community. One of the restrictions placed on 501(c)3 organizations is there revenue must come primarily from pursuing the mission. For larger organizations, leasing out a kitchen will generate some revenue, but not enough that it might conflict with its mission. Smaller nonprofits, however, might be in danger of getting most of their revenue from the lease. If a nonprofit generates most of its income from leasing its kitchen, its tax exempt status might be endangered.

In most states a person cannot lease a kitchen from a nonprofit for catering unless he has a business license. The business license allows a caterer to collect and pay taxes, Whether you incorporate your business using a lawyer and a tax structure or operate it as a sole proprietorship, you must be a licensed business. As a catering business, many localities will require some kind of insurance. Given that you are leasing the non-profit's facilities, the nonprofit might also require you to carry business insurance.

You can lease a nonprofit kitchen for catering only if it conforms to local zoning and use standards. Just because a nonprofit has a commercial kitchen does not mean it can be used to run a commercial business. In many cases, there are local rules about what sections of a town or county can be used to open small catering businesses. Moreover, the health department might have different standards for catering kitchens than it has for kitchens used by private nonprofits.