April 2006     

Review of a Conservation Easement

By Dan Byfield

Make no mistake, conservation easements (CE) and Purchase of Development Rights (PDRs), as defined in the IRS Code, are perpetual and virtually "non-negotiable."

In order to realize the full tax benefit described, CEs and PDRs must be put in place for one of four specific conservation purposes, including 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.

Facts about Conservation Easements (all numbers rounded) 5.1 million acres protected by local and regional land trusts in the U.S. through conservation easements. - Land Trust Alliance, 2003 census 3.2 million acres currently held under conservation easement by the Conservancy 1.6 million acres of U.S. lands subject to conservation easements in which the Conservancy assisted government agencies, conservation organizations or land trusts. 32,000 acres protected internationally by conservation easements granted to the Conservancy. 34,000 acres of non-U.S. lands subject to conservation easements in which the Conservancy assisted government agencies or conservation organizations. Between 1992 and 1997, more than 11 million acres of rural land in the United States were converted to developed use - an area five times the size of Yellowstone National Park. - American Farmland Trust Farmland Information Center, May 2002 The Conservancy received its first conservation easement in 1961, on six acres at Gallup Salt Marsh in Connecticut. The conservation easement was a gift, valued at $300 at the time. The Conservancy still holds the conservation easement. The smallest Conservancy-held conservation easement is 0.08 acres at Montauk Peninsula in New York. The largest Conservancy-held conservation easement is 201,560 acres on the Gray Ranch in New Mexico. The Growth of Easements More than 1,260 land trusts around the country rely on conservation easements as an effective, efficient way to protect open space, farmland and natural areas. The National Land Trust Census in 2000 found that local and regional land trusts have protected more than 6.2 million acres of open space, an area twice the size of Connecticut. Of this, nearly 2.6 million acres have been protected by conservation easements, almost a fivefold increase since 1990. The Nature Conservancy has similarly experienced an increased growth in the use of conservation easements. In January 1997, the Conservancy had protected 645,000 acres through conservation easement acquisitions in the United States. By June 30, 2003, that figure had swelled to more than 2 million acres protected through conservation easement acquisitions, out of a total of 15.3 million acres of land protected by the Conservancy in the United States. Easements Beyond the United States Conservation easements were pioneered in the United States using existing laws and enabling legislation, but over the past decade, their use has been expanding into Latin America, Canada and the Caribbean. Recently, they have reached into Australia and the Pacific island Republic of Palau, places with little or no tradition of private lands conservation. In Latin America, for instance, most conservation work has been centered on national and regional parks and reserves; yet, for example, in Mexico and Brazil, more than 80 percent of the land inside federally decreed protected areas is private. The long-term protection of these places is in jeopardy without private lands conservation. The Conservancy has been granted easements on approximately 30,000 acres in Latin America, the Caribbean and Canada, and has assisted other conservation groups or government agencies with easements on approximately 13,000 acres. The organization has helped structure or is currently helping establish easements in 12 countries, including helping with the legal reviews necessary to enable easements. Many other in-country private conservation organizations also are currently negotiating easements. Source: The Nature Conservancy

The owner must convey specific rights to a non-governmental organization (NGO) or a government entity, and it must be in perpetuity. The ultimate purpose of a CE and a PDR is to control the use of the land, and, some say, the eventual transfer of ownership of the land, in part or whole, to a third party. Both PDRs and CEs will be referred to in this paper as a CE.

A conservation easement is conveyed by the owner of the land, known as the "Grantor" to a non-governmental organization or a government entity (federal, state, local), who becomes the "Grantee." The landowner, or Grantor, becomes the subservient (lesser) owner, while the Grantee becomes the controlling 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 catch-all phrase, "any methods not consistent with the terms of the easement."

The following restrictions, rights, obligations, and requirements come directly from a "model" conservation easement form supplied by The Nature Conservancy:

1. A "baseline" report is created to describe the original condition of the property, to assure any future changes in the use of the property are consistent with the terms of the CE.
2. The CE is granted in perpetuity. [Neither] You, nor your heirs or assigns, can alter the agreement. The grant in perpetuity is what creates the tax benefit. It is the only real estate transaction that does not violate the Rule Against Perpetuities (RAP). RAP is an interest in real property that, when transferred, must vest (be conveyed) within a specified time - twenty-one years being a common length of time in which an interest in land must vest. If it does not vest in the required length of time, the transaction is void, and a court can strike it down. RAP does not apply to CEs, because they have been specifically exempted in the law, through efforts of groups like The Nature Conservancy.
3. CEs create negative easements, by restricting the original landowner from performing specific acts. Normal easements for roads, power lines, etc., are positive easements, and don't restrict the use or stop the landowner from using his land, constructing buildings, subdividing, putting up fences, etc.
4. Purpose Clause - to ensure the land will remain, forever in its natural and scenic condition. The purpose clause is the most important paragraph in the entire agreement. Here, the Grantor promises never to perform any act "inconsistent with the purposes of the conservation easement." In other words, the Grantee has the 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 CE.
5. Property Uses - Virtually none. "Any activity on or use of the property inconsistent with the purposes of this CE is prohibited."

• Property may not be subdivided.

• No construction of structures or improvements is allowed, except those negotiated and agreed upon when the CE is signed.

• Normal repair and maintenance is allowed, but is closely monitored.

• Limited mineral extraction allowed. No surface mining allowed. Must have limited, and localized, impact on land, and must not interfere with purposes of easement. All extraction facilities must be concealed.

• Grazing is allowed, but only on "existing fields" at the time the agreement is signed. Set-aside acreage might be considered an "existing field." You can not establish or maintain a commercial feedlot on the property.

• No timber harvest, except to provide firewood for residences on the property, and for maintaining structures like residences, barns, corrals, fences, etc. No other timber harvesting for commercial purposes allowed.

• Buffer areas along rivers and creeks will be required, and no grazing will be allowed within a specified distance from the water. This provision will be updated periodically to ensure that soil stability, water quality, and "other conservation values" are protected.

• Home business allowed as long as the business is located within the home.

• Hunting is allowed, but no form of motorized transportation can be used.

• No "ditching, draining, diking, 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. Those activities will not be allowed in river or creek beds, either.

• 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.

• 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.

• Surface water: Other than wells to serve the activities of the easement, there can be no alteration, depletion, or extraction of surface water, natural water courses, lakes, ponds, marshes, subsurface water, or any other water bodies on the property.

• No dams, impoundment structures, or low water crossings are allowed.

• No pesticides or biocides, including, but not limited to, insecticides, fungicides, rodenticides, and herbicides can be used, except as approved.

• No dumping of trash, garbage, or other offensive material, hazardous substance, or toxic waste, nor any placement of underground storage tanks, no land fill or dredging spoils, and no activity that causes erosion is allowed.

• Predator control allowed, but no broadcast method, such as poisoning, is allowed, and only on an "as-needed" basis.

• 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, Obligations Retained by the Landowner

1. Right to continue any existing activity or use at the time the easement is signed.
2. Right to transfer, sell, give, mortgage, lease, or otherwise convey the remaining interest in the land. However, those rights will remain subject to the terms of the conservation easement. Remember, the CE is forever.

3. Right to pay taxes on remainder of property.
4. Sole right to upkeep and maintain property.

Rights Retained by an NGO

1. Right to Enforce: The right to protect and preserve the conservation values of the property, and enforce the terms of the CE. Any other person, or NGO, can bring a third party action/lawsuit, to enforce the terms of the agreement, if they determine the original grantee is not adhering to the original agreement.
2. Right of Entry: Right of staff, contractors, and associated natural resource management professionals to enter, at least 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. Monitor and research plant and wildlife populations.
4. Right to manage, control, or destroy exotic non-native species, or invasive species of plants and animals that threaten the 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.
6. Right to Transfer: The Grantee shall have the right to transfer, or assign, the CE to any private NGO, or a land use government entity, which means another NGO or government entity, like the U.S. Fish and Wildlife Service, would be the managing partner on your land.

Termination of the Easement occurs when:

1. 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.
2. Condemnation of part, or all, of the property by a public authority terminates the CE. Interestingly, this action would then allow the government, or its assigns, to develop the land previously restricted from development under the CE, because once terminated, the restrictions of the CE are lifted, and whoever has title to the land can develop, subdivide, or perform any action they desire. The original landowner has been paid a third of the value of the land, and has given up the opportunity to develop it in the future, which now resides with the government or their assigns.

Grantee has immediate vested real property rights. A split estate is automatically created where the Grantor becomes the subservient owner of his own property, while the Grantee becomes the dominant owner with management powers. If the property is sold, or taken for public use (condemned), the Grantee shall be entitled to a percentage of the gross sale proceeds or condemnation award, equal to the ratio of the appraised value of the easement to the unrestricted fair market value of the property, as determined on the date the CE is executed.

It is imperative that landowners fully research, and understand, the long term consequences of signing a Conservation Easement, of any kind.

Note, seek competent legal and accounting advice before signing any agreement.

This report was prepared by the American Land Foundation. Dan Byfield can be contacted by calling, 800-452-6380.