Best Practices for Agreement Terms for Capital Grants

Does anyone have language they are willing to share with respect to any limitations in your grant agreement when making a grant for an investment in real estate or other assets? Do you place a restriction on the grantee's ability to sell the asset purchased or invested in? If so, is there a time limit on that restriction, or a process for making an exception where it would be best for all involved for the grantee to sell the asset and reinvest the funds in their mission or the underlying purpose for which the grant was given? Any other insights into this issue?

We fund $100,000 grants that are often for capital projects - and we recently had a grantee ask us (while the performance of the grant was in process - we have up to a 2-year performance window) if they were permitted to convey title to some of the assets purchased with our grant to a third party. To my knowledge this is either the first time something like this has happened (or maybe just the first time someone has asked permission). Our contract form doesn't currently have any language addressing this (either permitting or not permitting it).

We are a public charity (giving circle), not a private foundation, and there doesn't seem to be any IRS concern that we have to ensure that assets purchased with our grant funding remain in non-profit hands. And from what I can tell, even private foundations don't have any increased IRS requirements so long as their donations are to public charities (all our grants are). I'd also like to know if that is the same understanding others have. I think we still want to consider putting some restrictions in our agreement, but it is good to know that we don't also have to abide by a set of IRS requirements on the issue - so we can tailor the solution to our specific organizational concerns.

Thanks in advance for any thoughts, input or guidance anyone has.

Jen Bligh - Impact San Antonio


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    TomWickershamTomWickersham Posts: 82 ✭✭✭
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    Good question, @JenniferBligh

    Not sure this is what you're looking for, but maybe it might help...

    We place as few restrictions as possible on our grants. Better for us and better for the grantees. We issue the check to them, and from there, we rely on our trust-based approach that they will use the funds in their best interest. If the grant was to purchase something, and they purchased it, then great. Terms met. If they want to turn around and sell it, that's their choice, not ours. It shouldn't be our business to tell them how long they must own that asset.

    I wish you the best in dealing with this. Happy holidays too!


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    JenniferBlighJenniferBligh Posts: 3 ✭✭
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    Tom - this is a very helpful perspective and makes a lot of sense. I especially wanted to make sure we didn't have any IRS-related obligations - there is nothing I could tell from my research, and your response helps confirm my assessment.

    I will say that our organization may be in a slightly different situation than yours is in. We aren't exactly a "trust-based" grantor - our grant funds come from between 700-800 women each year, and part of our model is that our board has certain fiduciary duties to those "investors" - we only fund clearly defined projects (though we do provide 10% of the overall $100K grants we give as non-restricted for indirect expenses and don't require any documentation) and our board oversight team has promised those women that we will be good stewards of the funds they entrust to us. So we are trying to navigate where we should set the line between two separate and possibly conflicting goals (not unreasonably tying the hands of the agencies receiving project funding from us versus the accountability we owe to our member donors).

    I very much appreciate time you've taken to respond (especially during this season).


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    TomWickershamTomWickersham Posts: 82 ✭✭✭
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    I'm glad my comments were helpful!

    And I fully understand that you are represent a different type of organization. However, you have funding and that puts you in a position of power. And with that, comes the responsibility to use that power in a way that doesn't perpetuate inequality. There are numerous articles and white papers that show how many of our funding practices reinforce privilege, in particular, being risk-adverse (the opposite of trust-based). Power Moves, created by the National Committee for Responsive Philanthropy and Philamplify, encourages those of us (foundations or giving circles) to be "responsible for taking risks to make communities more just and equitable and are in a more advantaged position to do so." Vu Le sums up some of this work in his special way by saying that funders need "to stop treating nonprofits the way society treats poor people." In his blog he writes that is the lack of trust that makes us want to monitor poor people's/nonprofit's spending: "Society thinks poor people don’t know how to spend the money we give them. That’s why we have to monitor how they do it. Let’s restrict their ability to spend their food stamps on junk food; left to their own devices, they’ll probably just guzzle beer while feeding their kids tons of Hot Cheetos. Same with nonprofits. We need to monitor every penny they spend; otherwise, they’d probably waste money on fancy chairs and blinged-out business cards. And if we can’t protect these irresponsible organizations from themselves, then at least let’s make sure our own money is not being used to fund these things."

    There is no right answer for the balancing game you mention. However, it's important to understand that our quest for "accountability" might also be driving inequality. It is up to us to take deep, continuous looks at our practices to ensure we aren't part of the problem and that we are using our power in the best possible way.

    Keep up the good work!


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