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May/June 2007
Volume I; Issue 2
Special Report:
Conservation Easements

Conservation Servitudes
An Overview

By Dan Byfield

Conservation easements are not easements in the ordinary sense. They are not the kind that allows your neighbor to cross your property or the utility company to lay a pipeline.

Today, when conservation easements are discussed, think restrictions and obligations because that is what is placed on a piece of property entitling somebody else the ability to enforce against the owner.

The term “conservation easement” is more accurately a conservation servitude, but are also known as a conservation restriction, preservation restriction, preservation right, or land use easement.

The actual users of these instruments were extremely clever. Only a government entity or a non-governmental organization (land trust) can hold conservation servitudes. The Uniform Conservation Easement Act defines conservation easements as:

A nonpossessory interest of a holder in real property imposing limitations or affirmative obligation the purposes of which include retaining or protecting natural, scenic, or open-space values of real property, assuring its availability for agricultural, forest, recreational, or open-space use, protecting natural resources, maintaining or enhancing water quality, or preserving the historical, architectural, archeological, or cultural aspects of real property.”

Some will say a conservation easement is simply another stick in the bundle of rights enjoyed by the owner of the land. That is a clever twist on the overused phrase.

Landowners do have, in their bundle of rights, the right to possess, use, modify, develop, lease, encumber, divide, use as collateral, sell, dozens of other uses, or has the option of choosing none of the above. Placing a conservation easement on your land is simply a right that any landowner has should he choose that option.

However, conservation easements are the newest and the only perpetual tool being used to entice landowners into giving up their most valuable asset in that bundle of sticks – their development rights. In so doing, landowners agree to allow a government entity or a government-sanctioned land trust the power to manage and control their land and, in essence, becoming their partner.

That alone removes the most important stick in their bundle of rights. When you sign a conservation servitude, you’ve given someone else control and management of your land and once you allow someone else control of your land they, in essence, own your land. According to Wayne Hage; “either you have the right to own property or you are property.”

Advocates of CEs continuously claim they are voluntary. Yet, with all the pressures through regulations, rules and statutes being placed on landowners these days under the guise of endangered species, wetlands, urban sprawl, farmland preservation, or sustainable development, to name just a few, it becomes a choice among the lesser of the evils.

Landowners are being forced to make decisions today of what to do with their land for the rest of eternity and conservation servitudes are the tool the government is trying to convince them to use. Why? Because it is cheaper than offering fair market value to purchase the land outright or having to go through the condemnation process.
Conservation easements are being used today to convince landowners not to subdivide or develop their land. Instead of fixing the problems like repealing the Endangered Species Act, Congress, with the help of land trusts, has come up with what they call a “win-win” situation using conservation easements as their solution.

There are specific issues every landowner should know before signing on the dotted line.

Conservation Easement or Purchase of Development Rights

To begin, conservation servitudes (or easements) and Purchase of Development Rights (PDR) are sometimes used interchangeably. They are the same instrument with one main difference. A PDR does exactly what it says – it purchases the development rights from the landowner and severs them forever from the landowner. It can never be developed (except in certain circumstances to be discussed below). With this type of document, the landowner is responsible for paying taxes on the gain realized from the sale of a PDR.

A Conservation Easement, on the other hand, is “donated” by the landowner to a government agency or land trust for the same purpose – to prevent development. However, a donated CE allows the landowner to deduct the full fair market value, but only if it is a perpetually conveyed CE. The deduction has changed (see related story), but if you are a qualified farmer or rancher, you can now deduct 100 percent of your adjusted gross income and if the value of the gift exceeds that amount, the excess may be carried forward up to 16 years. There is a real push to get landowners to sign up.
Both a PDR and a CE transfer specific property rights (mainly development rights) to a qualified organization and, to be graced by the Internal Revenue Service, they both must be perpetual. This creates what is known as a split estate, which will be dealt with later.

To Qualify

In order to realize the full tax benefit described, conservation easements (CE) and PDRs must be put in place for one of four specific conservation purposes: public outdoor recreation and education; protection of habitats or ecosystems; preservation of “historically important land areas;” or preservation of open space that will clearly yield a “public” benefit.

The owner must convey specific rights to a land trust, otherwise know as a non-governmental organization (NGO) or a federal, state or local government entity, and it must be in perpetuity. Both PDRs and CEs will be referred to in this article as a CE.

A CE is conveyed by the owner of the land, known as the Grantor, to a non-governmental organization known as a land trust or a government entity, who becomes the Grantee. The landowner or Grantor becomes the subservient (lesser) owner while the Grantee becomes the controlling (dominant) owner.

Therefore, the Grantee becomes the managing partner of your operation and your land. Jim Burling with Pacific Legal Foundation calls it “serfship.”

A management plan is created and applied to your land, in perpetuity, placing the Grantee in full control. While the Grantor cannot alter or modify the management plan, the Grantee can, using the catchall phrase, “any methods not consistent with the terms of the easement.” Read story on “Big Meadows” in this edition.

Restrictions, Rights, Obligations and Requirements

1. Management Plan and Baseline. The holder of the easement will have to inspect the land to be placed in a CE to create what is called a “baseline” report. This report describes the original condition of the property and becomes the benchmark from which all future decisions, alterations, or additions are made. Any future changes from the baseline must be “consistent with the terms of the CE,” which means the landowner is normally prevented from making any changes. This baseline report is the basis for the management plan that must be created under a CE in order for the IRS to allow any deduction.
2. Perpetuity. The grantor of the CE, nor his heirs or assigns, can alter the agreement. The grant in perpetuity is what creates the tax benefit. Anything less than perpetuity does not achieve the IRS standard and is not deductible.
3. Rule Against Perpetuity. A CE is the only real estate transaction that does not violate the Rule Against Perpetuities (RAP). RAP was originally created to prevent property from being controlled by the “dead hand” of past owners. RAP does not apply to CEs because they have been specifically exempted in the law, mainly through efforts of land trusts like The Nature Conservancy.
4. Negative Easement. CEs create negative easements by restricting the original landowner from performing specific acts. Other easements like roads or power lines do not restrict the use or stop the landowner from using his land, constructing buildings, subdividing, putting up fences, or any other activity. The purpose of a CE is to prevent specific things, mainly development, from occurring.
5. Purpose Clause. The linchpin to the entire agreement is the Purpose Clause. It ensures the land will remain forever in its natural and scenic condition staying as closely as possible to the baseline description. The Grantor promises never to perform any act “inconsistent with the purposes of the conservation easement” giving the Grantee sole discretion regarding what is required of the landowner and the landowner is bound to abide by any changes made to the purpose or the management obligations under the CE.
6. Property Uses. Specific uses of the land under a CE must be negotiated up front. Otherwise, there are virtually none left to the landowner. Remember the above Purpose Clause stating, “Any activity on or use of the property inconsistent with the purposes of this CE is prohibited.” An “activity” is defined in the list below. Landowners who understand these aspects of a CE can negotiate any of the following items (all these items were taken directly from The Nature Conservancy’s standard CE form):
a. No subdivisions that allow multiple families to build homes;
b. No construction of new structures or improvements of the old, except those negotiated and agreed upon at the time the CE is signed;
c. Normal repair and maintenance is allowed, but will be closely monitored;
d. Mineral extraction will be minimized, if not halted all together. Most surface mining is never allowed and if it is, it must have limited and localized impact on the land and must not interfere with purposes of easement;
e. Grazing is allowed, but only on “existing fields” at the time the agreement is signed. This is one of those important negotiated clauses that falls under the “baseline” report. Set-aside acreage might be considered on an “existing field.” Under most CEs, a landowner cannot establish or maintain a commercial feedlot on the property;
f. Unless negotiated, no timber harvesting for commercial purposes will be allowed, except to provide firewood for residences on the property and for maintaining structures like residences, barns, corrals, fences, etc;
g. Buffer areas along rivers and creeks will be required and no grazing will be allowed within a specified distance from the water. This provision is normally updated periodically to ensure soil stability, water quality and “other conservation values” are protected;
h. Home business allowed as long as the business is located within the home;
i. Hunting is allowed with limited or no form of motorized transportation;
j. No “ditching, draining, damming, filling, excavating, dredging, removal of topsoil, sand, gravel, rock, minerals, or other materials, mining, drilling, or removal of minerals, nor any building of roads or change in the topography of the property or disturbance in the soil in any manner” will be allowed;
k. Grantor can cut and remove diseased or exotic trees, shrubs, or plants, but only with prior approval and only if they are activities permitted under the easement. Firebreaks can be cut without prior approval, but only in emergencies. No planting of any non-native trees, shrubs, or plants will be allowed;
l. No use of fertilizers, plowing, introduction of non-native animals, or disturbance or change in the natural habitat in any manner will be allowed, except to accommodate expressly permitted activities of the easement (existing fields or farming);
m. Surface or ground water – Other than wells to serve the activities of the easement, there can be no alteration, depletion, or extraction of surface water, natural watercourses, lakes, ponds, marshes, subsurface water, or any other water bodies on the property;
n. No dams, impoundment structures or low water crossings are allowed.
o. No pesticides or biocides, including but not limited to insecticides, fungicides, rodenticides, and herbicides can be used, except as approved;
p. No dumping of trash, garbage or other offensive material, hazardous substance, or toxic waste, or any placement of underground storage tanks, no landfill or dredging spoils and no activity that causes erosion is allowed. Don’t forget to address septic tanks;
q. Predator control allowed, but normally no broadcast method, such as poisoning, is allowed and only on an “as-needed” basis;
r. No commercial or industrial use of or activity on the property, other than those related to agriculture, recreational, home businesses or mineral extraction is allowed.

Rights Retained by Landowner

1. Right to pay taxes on remainder of property;
2. Right to continue any “existing activity” or use at the time the easement is signed;
3. Right to transfer, sell, give, mortgage, lease, or otherwise convey the remaining interest in the land. However, those transactions will remain subject to the terms of the conservation easement;
4. Sole right to upkeep and maintain property as required and monitored by the land trust.

Rights Retained by Government Agency or Land Trust

1. Right to Enforce – the right to protect and preserve the conservation values of the property and enforce the terms of the CE will be retained by the government agency or the land trust. At any time, a third party, including another NGO nonprofit organization, can bring a legal action or lawsuit to enforce the terms of the agreement if they think the landowner is not living up to their responsibilities under the original CE;
2. Right of Entry – Any designated staff, contractors and associated natural resource management professionals can enter at a minimum of once a year, but in many cases up to four times a year, for the purpose of inspecting the property to make sure landowner is complying with the covenants and purposes of the CE;
3. Right to Transfer. Unless specified, the Grantee shall have the right to transfer or assign the CE to any private NGO, land trust, or a land-use government entity, which then would become the managing partner under your agreement controlling all the above aspects of your private land.
4. The government retains the right to manage, control, or destroy exotic non-native species or invasive species of plants and animals that threaten CE;
5. Legal Action to enforce the CE. Grantee shall give written notice of a violation and within 60 days, Grantor must begin good faith efforts to correct any violation. Grantee or third party has the right to go to court to obtain an injunction to force the Grantor to abide by the conditions of the CE. The Court can order the Grantor to restore the property to its original condition;

Termination of the Easement occurs when:

1. If conditions on or surrounding the property have changed so much that it is impossible to fulfill the purposes of the CE, a court may, at the joint request of the grantor and grantee, terminate the CE. But, both must request this;
2. Condemnation of part or all of the property by a public authority terminates the CE. Condemnation of a conservation easement is a real concern when government entities are searching for mitigation property to replace habitat destroyed by the building of a road or other “public” needs. Replacement factors are normally three or four acres for every one acre destroyed. Conservation easements are recorded or stored in government databanks and can be used to locate desirable land for mitigation purposes.

Merger of Estates

An alarming aspect of conservation easements is something called “merger of estates.” When a CE is given, the land trust or the government entity is conveyed a real property interest. It becomes a “split estate” where the grantor becomes the subservient owner of his own property, while the land trust becomes the dominant owner with management powers.

Should the government agency or the land trust later purchase the remaining interest in the land and buy out the landowner’s interest, the two estates merge back into one and is owned by the land trust or government entity outright. That action will negate or extinguish the conservation easement as if it never existed.
That then gives the new owners the right to develop land that was “voluntarily” set aside and supposedly preserved in perpetuity. Surprise!

It is no surprise to this writer that clever people in our government and large land trusts who know the laws and understand that populations are going to grow and people will need homes, also know that whoever owns the land in the future will be holding the purse strings.

Perhaps conservation easements are more than just a tool to preserve open spaces.

Perhaps they are tools to control future growth giving unbridled power to those who today know their true purpose and meaning.

Note: It is imperative that landowners fully research and understand the long-term consequences of signing a conservation easement of any kind under any circumstances. Seek competent legal and accounting advice before signing any agreement.

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