Britannia Radio

Conservation Easements (CEs)*:Read the fine print before you sign

December 18, 2010 by ppjg

by W.R. McAfee, Sr. (c)copyright 2010 All Rights Reserved

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”A normal easement by a landowner usually grants a right to someone to do something on the landowner’s property; but a conservation easement gives away the landowner’s rights to do something on his or her own property.

Land trusts and environmental groups regularly use conservation easements to take control of private property.”

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Read the fine print before you sign

A basic Constitutional tenet of private property ownership in America is the landowner’s right to determine the use and disposition of his or her land. This ownership gives the property owner the right to occupy, use, lease, sell, develop, and deny public access to his or her land.

Today, landowners can lose these rights simply by signing a ‘standard’ or ‘model’ conservation easement (CE) offered by ‘nonprofit-environmental-friendly’ land trusts, NGO environmental organizations, or government agencies unless the easement has been worded to protect the landowner’s rights.

The growing number of land trusts

In the early 1950s, there were some 50 land trusts in the U.S. Today, there are more than 1,700. Among the largest are the:

• Nature Conservancy (TNC),
• American Farmland Trust (AFT),
• Conservation Fund, and
• Trust for Public Land.

Land trusts exist to remove private property from production

They do this by acquiring ranch, farm, forest, or other private land either through donation, purchase, or by acquiring CEs to property as well as water. They act as unofficial arms of government agencies—third party intermediaries or ‘land agents’—and routinely flip (sell) donated as well as purchased land and CEs to these government agencies. When they do, they’re paid with tax dollars which, in turn, are used to purchase more private property.

In 1994, the Government Accounting Office reported approximately 61 percent of the Trust for Public Land’s operating revenue was gained from the sale ofdonated land.

In 2001, the U.S. Forest Service and TNC signed a five-year ‘memorandum of understanding’ to ‘protect the land’ from things like ‘invasive species’ which, according to some eastern congressmen, includes cattle that graze federal land even though their owners pay the government a per unit (head) fee to graze it.

That same year, government officials at Fort Huachuca, Arizona, made available to the TNC several million dollars to acquire water rights from private property owners around the base through the use of conservation easements.

Primary recipients of land trust acquisitions are the Fish and Wildlife Service, the National Park Service, and the U.S. Forest Service.

Government already owns almost half the land in America.

Why land trusts are used to acquire land for the government

Government agencies are prohibited by the Constitution from buying land within a state unless the sale is approved by that state’s legislature—a pesky, time-consuming process that usually has to withstand legislative scrutiny and public debate as the Founders intended. Article I, §8, 01.07 of the Constitution states that:

[Congress is authorized] “…To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of Particular States (emphasis added), and the Acceptance of Congress, become the Seat of Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be (emphasis added), for the Erection of Forts, Magazines, Arsenals, dock-Yards and other needful Buildings…”

Once fed agencies gain control of private property, they have difficulty maintaining it. The reason being the money to purchase the land comes to them unearned in the form of tax dollars. In April 2002, the Department of the Interior’s Inspector General estimated the agency had an $8-11 billion dollar maintenance backlog affecting land and facilities it already owned.

Lester Thurow gave a good explanation why this happens in 1986 when he wrote:

“… government ownership of production fails because it cannot answer the question: Who should stay up all night with a sick cow?

“In America, it’s the owner. In a socialist country, the answer isn’t clear and is often—no one.”

Land trusts operate with few restrictions

Land trusts are under few restrictions when it comes to landowner transactions. They:

• Buy targeted land (a ranch, farm, or private property location) for federal agencies when it becomes available; then hold the land until the agency that wants it has the tax dollars to buy it.
• Provide what appears to sellers an alternative to having to deal directly with government agencies.
• Are not required to buy a real estate license or provide full disclosure of their transactions.
• Can be less than forthcoming about their agenda when signing up ‘willing sellers’; often conducting their ‘real estate transactions’ in a manner that best suits their causes and goals.
• Are generally accountable only to their boards.
• Mostly are immune from civil and criminal litigation due to hold harmless clauses in their ‘standard’ or ‘model’ CE agreements.

Congress won’t check these land trusts.

Conservation Easements take private property rights away from landowners

A normal easement by a landowner usually grants a right to someone to do something on the landowner’s property; but a conservation easement gives away the landowner’s rights to do something on his or her own property.

Land trusts and environmental groups regularly use conservation easements to take control of private property.

Read the fine print before you sign a CE

If a landowner is seeking a CE to reduce taxes on a part of his or her property,then he or she must make sure the easement agreement meets the required IRS codes.

To meet IRS requirements for a tax deduction, the CE must include the following:

• Be granted in perpetuity (forever) to a government agency or ‘nonprofit’ land trust or organization,
• Prohibit all surface mining on the easement, including oil and gas exploration, and
• Allow public access onto the easement if the leaseholder—the party with whom the landowner signs the easement agreement—so specifies.

Beware the ‘standard’ or ‘model’ CE

‘Standard’ or ‘model’ CEs offered by government agencies, land trusts, and environmental organizations to landowners as a means to reduce taxes can later lead to problems if landowners sign the agreement without fully understanding its contents. For example:

• Their children and their heirs are bound forever by what’s written into the CE.
• They can’t build, drill, or put a road on the CE without the leaseholder’s permission.
• They can’t lease or sell the CE to another party.
• They can’t develop the CE.
• They’re still responsible for taxes on the CE.
• They’re still responsible for the upkeep, maintenance, improvement, and financial support for the CE.

Leaseholders can enforce CE requirements

Many landowners don’t realize the recipient of their CE—their leaseholder—becomes the fulltime landlord and dominant partner over their easement land after a ‘standard’ or ‘model’ CE is signed. Plus, the leaseholder can enforce the requirements of the CE on the landowner and has the authority to:

• Review and approve the landowner’s activities on the CE,
• Monitor the landowner’s ongoing use of the CE and visit the property any time to ensure all CE restrictions are being met, and
• Legally enforce the CE’s restrictions on the landowner if the leaseholder feels they aren’t being met.

CEs affect the value of private land

• The value of CE land—other than that realized through a reduced tax rate on the CE property—drops dramatically once the CE is signed.
• It becomes difficult—if not impossible—to borrow against CE land because avenues for foreclosure are extremely limited for the lender if there’s a default on the loan.
• Title insurance on CE land becomes difficult to obtain.
• Developers are hesitant to buy land attached or adjacent to a CE

A landowner’s CE can be conveyed

• The easement holder—the party or organization with whom a ‘standard’ or ‘model’ CE is signed—can convey a landowner’s easement to a third party without the landowner’s permission.
• The landowner has no control over the boards that govern either the actions of his or her easement holder, or the third party group to whom the CE is conveyed by the assignee.

Vague terms in a CE can be costly

Lease holder boards can and often do interpret vague, general terms and wording in ‘standard’ or ‘model’ CE agreements in ways that help their (environmental) organizations meet goals and agendas; thus putting the landowner at the mercy of the officials who govern his or her CE.

An example of a vague, general term is the phrase “…no use inconsistent with the conservation purpose of this easement…”

This harmless-sounding statement purposely leaves the door open for leaseholder boards to change the interpretation of what’s allowable on a landowner’s CE, and can put his or her heirs in court with the leaseholder.

Litigation can be expensive

Litigation resulting from ‘standard’ or ‘model’ CEs can be costly for landowners in face-offs with organizations like the Trust for Public Land or TNC who stay flush with tax dollars from:

• Land sold to government agencies,

• Tax deductible donations from multi-national and Fortune 500 corporations, and

• Donations from wealthy individuals and endowed charitable trusts friendly to environmentalists.

Extensive litigation usually follows, but if the CE wasn’t worded to protect the landowner to begin with—and it has been signed—then he or she usually is out of luck.

Other situations can arise after a ‘standard’ or ‘model’ CE is signed.

For example, a state highway department may want to condemn a portion of the CE for a new road right-of-way. When they do, they normally pay the lower value of the land that resulted after the CE was signed.

Then, once the road is in, the landowner cannot—unless it’s written into his or her CE—put in a business, franchise, or gas station alongside the new road because the standard easement rules will still apply to the remaining land.

Advice for landowners considering CEs

• Get good, solid legal advice from an experienced real estate transaction lawyer.
• Draft the CE in specific, limited terms that will protect your rights.
• List the terms and length of the easement.
• Draft the easement so that you are the dominant estate partner in the agreement.
• Write into your CE a no assignment provision. In other words, the organization with which you’re signing the CE must have yourpermission before they assign your easement to a third party.
• Strike any hold harmless language or clauses in the CE that the organization wanting the CE seeks. For example, The Nature Conservancy and other land trusts often want you to indemnify them in the CE with language or clauses.

Don’t

Get good accounting advice as well.

If a landowner feels it is in his or her best interest to sign land over to an organization, then the landowner should:

• Get good accounting advice and make sure the CE meets the required IRS codes and regulations for a tax deduction before the agreement is signed. The landowner—not the recipient of the CE—is responsible for this.
• Pick a good organization with whom to sign a CE. Environmental groups and land trusts are not landowner friendly.

There are other ways to reduce your property and estate taxes. Find a good, experienced, estate tax attorney, sit down with him or her, and explore your alternatives.

Finally, a landowner needs to look at two layers within his or her CE.

1. Will your CE partner accept your terms for the easement?
2. Will the IRS accept your CE and allow you the deductions if reduced taxes on your property is one of your goals?

If the answer to either of these questions is no, then a landowner needs to re-examine the CE he or she is about to sign.

References

* Information compiled from notes taken at a 2004 presentation on Conservation Easements by attorney Paul M. Terrill, III, of Hazen & Terrill, P.C., Austin, Texas, at the Stewards of the Range annual conference and meeting, Reno, Nevada, and from GAO reports.

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