Conservation Easements

RIGHTS

Land ownership carries with it a bundle of rights—the right to occupy, lease, sell, develop, construct buildings, farm, restrict access or harvest timber, among others. A landowner can give up one or more of those rights for a purpose such as conservation while retaining ownership of the remainder of the rights. In ceding a right, the landowner "eases" it to another entity, such as a land trust. For example, a landowner may give up the right to build additional structures while retaining the right to grow crops. The rights conveyed in a conservation easement, such as the right to subdivide, have been established over two decades of case law as having real value.

PRIVATE LAND

Private property subject to a conservation easement remains in private ownership. Many types of private land use, such as farming, ranching and timber harvesting, can continue under the terms of a conservation easement, and owners can continue to live on the property. The agreement may require the landowner to take certain actions to protect land and water resources, such as fencing a stream to keep livestock out or harvesting trees in certain way; or to refrain from certain actions, such as developing or subdividing the land. Conservation easements do not mean properties are automatically opened up to public access unless so specified in an easement.

FLEXIBILITY

There is no one-size-fits-all conservation easement. Each one is individually tailored to meet conservation objectives and the needs of the landowner. A conservation easement can be designed to accomplish specific objectives, such as to protect water quality or the habitat of grizzly bears; or it can be designed more broadly, to protect farmland, open space, views or land that buffers more sensitive core conservation areas, all of which can offer significant biodiversity conservation benefits. Easements are also tailored to meet a landowner's needs, such as the need to build a house in the future for a daughter's family or the need to continue to derive income from the land through ranching.

IN PERPETUITY

Most easements "run with the land," remaining with the property even if it is sold or passed on to heirs, thus binding in perpetuity the original owner and all subsequent owners to the easement's restrictions. The organization or agency that holds the conservation easement is responsible for making sure the easement's terms are followed into the future. They must be willing to monitor and defend the easement legally in the event it is ever violated.

Often landowners have no intention of subdividing their properties for development. But a conservation easement is still attractive to them because it reaches beyond their own lifetimes to ensure the conservation purposes are met forever. An easement binds heirs and other future landowners to comply with the easement's terms, such as prohibiting the building of roads or multiple housing units. It can give peace-of-mind to current landowners worried about the future of a beloved property, whether forest or ranch, stretch of river or family farm.

DONATED VS. PURCHASED EASEMENTS

Usually conservation easements are donated, although some are sold to a private organization or public agency. An easement might be bought from a landowner strapped for cash, such as one who is trying to keep the family ranch together but who is faced with rising property taxes. Either way, there can be significant tax savings for the landowner. In either situation, the conservation organization or public agency retains the right to enforce the easement promises.

Most easements transactions are donated easements. Occasionally, The a conservancy, governmental organization or land trust will purchase easements in high-priority sites where circumstances are such that a landowner cannot use the tax benefits of a donated easement and where funds can be identified and secured for the purchase. Purchasing easements costs less than purchasing the land itself.

Increasingly, states and communities are buying conservation easements by turning to purchase-of-development rights (PDRs) programs as a way of keeping farms and ranches intact and sprawl off the land. In a PDR program, public funds are used to purchase the land's development rights, in effect creating a conservation easement on the land while the land remains in private ownership. PDRs are voluntary and share widespread support, with many more applicants than available funds. The most common financing mechanisms at the state level for PDR programs have been annual appropriations, dedicated lottery revenues, and bonds authorized by the legislature or a voter referendum.¹ 

TAX CONSEQUENCES

When a landowner conveys a gift of a conservation easement to a non-profit or public agency qualified to hold such interests, the transfer may entitle the landowner to a number of tax benefits. The landowner may qualify for a federal charitable income tax deduction under IRC section 170(h) if he or she donates or "bargain sells" the conservation easement, which requires that the easement 1) comply with state law requirements for easements in land; 2) be conveyed to a qualifying organization to hold the easement; and 3) be conveyed "exclusively for conservation purposes" and in perpetuity.

Assuming that those requirements are met, the amount of the charitable contribution for a gift of bargain sale by the landowner is based on the appraised fair market value of the easement. This is determined by calculating the difference between the value of the property today without (or "before") the imposition of the easement and the value of the property today subject to (or "after") the imposition of the easement. This latter value is determined by the nature of the restrictions and their impact on present and future land use. The resulting amount is the value of the easement for tax purposes. Generally, a property's value is based on its "highest and best use," which often means development. Conservation easements in which development rights are given up can often qualify the property for a substantial value for tax deduction purposes, as the parcel's development potential no longer exists.Under IRS rules, the donor of the easement is responsible for obtaining an independent appraisal to substantiate the value of the easement for tax purposes, and the IRS has published rules as to what constitutes a "qualified appraisal" and a "qualified appraiser" for such purposes.

The federal income tax benefits of donating a properly structured conservation easement are similar to other gifts of land, but were recently enhanced by Congress in 2015 to encourage more landowners to use this effective land protection tool.²  The new law allows the landowner to take a deduction for the value of the donated easement up to 50% of the donor's adjusted gross income for the year of the donation.  For qualifying farmers or ranchers who receive more than 50% of their gross income from the trade or business of farming, the deduction limit is increased to 100% of adjusted gross income.  If the deduction amount exceeds these limits, the donor may carry over the balance of the deduction for up to 15 succeeding years.

In addition to the income tax deduction, under IRC 2031(c), the gift of the easement can also entitle a landowner to qualify for an estate tax exclusion for a portion of the value of the underlying land that is subject to a conservation easement, thereby reducing the estate tax on the value of the landowner's assets that pass to the heirs.

In 12 states across the country, landowners who make gifts of conservation easements or who sell conservation easements are eligible for state-level tax benefits. In some states, easement donations qualify for dollar-for-dollar credit against the landowner's state income tax liability for a portion of the value of the conservation easement. In other states, if an easement is sold, the income realized by a landowner on the sale of the conservation easement will be exempt from state income tax. Generally, the easements that qualify for such benefits must conform to the federal tax law rules for qualifying conservation easements.

In many states, there are local real property tax benefits for landowners who convey conservation easements on their lands. Because property is generally assessed at its fair market value based on its highest economic use and because the easement removes some of the most valuable development rights so that the property's highest and best use is severely limited, local assessors may reduce the assessed value of the property for property tax purposes, thereby lowering the property tax bill on lands encumbered by easements.

EASEMENT TERMS

The terms of a conservation easement are set jointly by the landowner and the entity that will hold the easement. They are designed to meet the needs of both parties by targeting only those rights (e.g., commercial development) necessary to accomplish specific conservation objectives.

Before setting the terms of an easement, the potential easement holder conducts a scientific assessment of the land and its natural resources to determine the conservation objectives for the land in the context of the larger landscape and prepares a baseline report documenting the condition of the land. The potential easement holder also often considers community values, opinions and land uses in setting the terms of an easement. Easement terms also should include a plan for monitoring the property to ensure that the conservation goals will be met in the future and the easement terms will be enforced.

MONITORING AND ENFORCING EASEMENTS

To accept a conservation easement encumbers the easement holder with a large responsibility. The private organizations and public agencies who hold conservation easements in trust must commit staff and resources to monitor the land and ensure easement terms are followed now and into the future. They also must be prepared to legally defend an easement in the event it is ever violated.

Most easement holders require that all easements accepted and held by the entity include a baseline report that documents the condition of the property at the time of the signing of the conservation easement. Any future changes in the condition of the property can be measured against the information in this report.  Most easement holders require funds be set aside for the perpetual monitoring of the easement. 

WHY LANDOWNERS USE CONSERVATION EASEMENTS

Landowners donate or sell conservation easements primarily because they want to protect their lands and waters from inappropriate development beyond their lifetimes. Land subject to a conservation easement might also qualify for income, estate and property tax savings. Landowners often can more easily afford to pass on land to their children and grandchildren, because by removing the land's development potential, an easement may lower the property's market value, which in turn can lower estate taxes. Such a tax reduction can make a critical difference in the ability of heirs to keep the land intact; the alternative has often been subdividing the land to pay heavy estate taxes.

The option to place conservation easements on private land is an important private property right that comes with land ownership in the United States. It is a voluntary tool that landowners have at their disposal—one that can help them fulfill their vision for the future of their land.

PUBLIC BENEFITS OF CONSERVATION EASEMENTS

Even though easements are placed on private land, significant public benefits can accrue. Conservation easements can contribute to improved water quality and are often designed to protect aquifers and watersheds. They can protect a community's scenic beauty, vistas and open space by keeping landscapes free of sprawl. They can help keep landscapes in traditional uses, such as farming and ranching, and can keep small family farmers and ranchers on the land in tough economic times. They are used to buffer national parks and other public lands, keeping development away from boundaries, preserving scenic entrances and giving wildlife habitat an "overflow" outlet onto private land. Increasingly, as development approaches sensitive military installations, easements are also being used to buffer military bases around the country. Recently, easements for the first time have been used on a Native American Indian reservation to help prevent fragmentation of tribal lands by non-Indians on private inholdings.

Another significant but often overlooked public benefit is that privately owned lands that have been protected through conservation easements limiting their uses to farming, ranching, forestry and other open-space uses often generate more in local revenues than they require in community services. As shown in several studies conducted nationwide, undeveloped lands cost communities much less in public services than do developed lands.³

EASEMENTS AS A COST-EFFECTIVE CONSERVATION TOOL

Conservation easements are an important, cost-effective tool for land trusts, conservancies and other conservation interests. Easements extend limited conservation dollars by helping protect ecologically important private lands, reserving other funds for targeted outright purchase. In some areas of the United States and other countries, the capital and management costs and the economic and social impacts of large-scale land acquisition limit outright conservation purchases. Easements provide a strong conservation option in such locations. In many places, they have been used in tandem with outright purchases to protect whole landscapes while sustaining appropriate and traditional rural land uses. 

THE GROWTH OF EASEMENTS

 

More than 1,650 land trusts around the country rely on conservation easements as an effective, efficient way to protect open space, farmland and natural areas. As of early 2018, the National Conservation Easement Database estimates that approximately 300,000 conservation easements have been donated in the United States and have been responsible for the conservation of over 50 MILLION acres of land.

 

¹ "Purchase of Development Rights: Conserving Lands, Preserving Western Livelihoods," Trust for Public Land, Western Governors Association, and National Cattlemen's Beef Association, 2001.

² "Using the Conservation Tax Incentive," Land Trust Alliance, www.lta.org/tax-incentives, 2016.

³ "Fact Sheet: Why Save Farmland?" American Farmland Trust Farmland Information Center, May 2002.

4National Land Trust Census, Land Trust Alliance, September 12, 2001.

© 2018 by Abington Partners, LLC. Website design by Apertus Interactive / John Cuck.

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