Landowner Guide to the Conservation Easement Process
A Conservation Easement is a voluntary legal agreement between a landowner and a Land Trust (or government entity) that permanently restricts certain aspects of land use in order to protect the conservation values of the property. Landowners may either donate or sell a Conservation Easement. When a landowner places a Conservation Easement on his or her land, he or she maintains ownership and use of the property and can sell it or pass it on to heirs. The land is subject to certain restrictions agreed upon by the landowner and the Land Trust. For example, a landowner might agree to limit development on his or her property to one residence of a particular size.
Future landowners are bound by these restrictions as well, and the Land Trust is responsible for monitoring the property and upholding the terms of the easement. Conservation Easements have become one of the most commonly used land conservation tools in the country.
Protecting land through a donation of a Conservation Easement does truly represent a partnership in perpetuity between the landowner and the Land Trust. It is a partnership premised upon the mutual goal of preserving the conservation values of the property. The time and resources invested in creating a Conservation Easement are rewarded through the permanent preservation and sound stewardship of the land.
DONATING A CONSERVATION EASEMENT
Landowners considering donating a Conservation Easement should anticipate these steps:
Step 1: Learn about Conservation Easements and discuss the merits of donating a Conservation Easement on your land with your family or other relevant persons.
Step 2: A Conservation Easement represents a partnership between the landowner and the Land Trust holding the Conservation Easement. Take time to identify a suitable Land Trust to hold the Conservation Easement. Be sure that the organization’s mission and Conservation Easement acceptance criteria fit with your own objectives for the future of the property. It is important that you are comfortable with the organization you select.
Step 3: Advise your attorney and accountant of your plans, and seek their assistance in structuring the transaction in a manner that best suits your particular legal and tax needs.
Step 4: Once you have agreed with a Land Trust to work together towards creation of a Conservation Easement, several things must be accomplished:
- Identify with the Land Trust the purposes of the Conservation Easement and the features of the property to be conserved. Discuss any specific uses you intend for the property.
- Property documentation, called a baseline report, should be prepared.
- Title to the property should be reviewed to insure there are no impediments to creating the Conservation Easement. Mortgagees must agree to subordinate any existing mortgages to the Conservation Easement.
- Contract with a certified general appraiser to value the Conservation Easement.
- Work with the Land Trust staff to draft the Conservation Easement.
Step 5: When the necessary reports and documents have been prepared, the Conservation Easement is signed and recorded in the County records.
Step 6: Stewardship of the Conservation Easement requires annual monitoring of the property by the Land Trust. The monitoring is done to record natural or man-made changes to the property, to document the land use and management and to note possible violations of the terms of the Conservation Easement. Annual monitoring visits are an opportunity for the parties to discuss the land, the Conservation Easement and any needs, concerns or difficulties the landowner may have. Land Trusts request a one-time contribution to place in a Stewardship Fund to help with the perpetual monitoring and legal defense of the property.
GENERAL QUESTIONS A LANDOWNER SHOULD ASK
Land Trust Organizational Questions:
- Is the Land Trust certified by the State of Colorado?
- Does the Land Trust meet the definition of a “Qualified entity” according to the Internal Revenue Service Code?
- Has the Land Trust been in existence at least two years (required by Colorado statutes) if you want it to hold your Conservation Easement?
- What is the Land Trust’s mission? Is that mission compatible with your objectives? What is its geographical or resource focus?
- Has the Land Trust adopted the “Standards and Practices” of the national Land Trust Alliance?
- Does the Land Trust have a recent financial statement (990 or audit)?
- Does the Land Trust staff have the capability and capacity to accomplish the proposed project?
Project Specific Questions to Ask:
- How does the Land Trust prioritize which land to conserve?
- How long will this process realistically take?
- What are itemized costs I should expect if I proceed with the Land Trust?
- Does the Land Trust recommend professionals that are available to assist in the Conservation Easement process?
Long-term Stewardship Questions to Ask:
- How many Conservation Easements does the Land Trust hold?
- Does the Land Trust monitor them annually? If not, how often do they monitor?
- Does the Land Trust have a stewardship fund for monitoring activities?
- How does the Land Trust handle violations of the Conservation Easement?
CONSERVATION EASEMENT TERMINOLOGY
Appraisal: A report prepared by a professional appraiser that provides an estimate of the fair market value of the property or Conservation Easement. A “qualified appraisal” is one prepared to substantiate the value of a donated property or Conservation Easement and meets Internal Revenue Service (IRS) requirements.
Backup holder: A holder, named in the Conservation Easement, that is empowered to enforce or hold a Conservation Easement if the original holder is not able to do so.
Bargain Sale: The Land Trust may also purchase the land at a reduced or bargain price, and the seller may be eligible to receive a tax benefit based on the value of the land that was donated. This part sale/part gift provides some income to the landowner in combination with a potential charitable donation for the value of the interest conveyed but not purchased.
Co-holder: A holder that jointly holds title to a Conservation Easement with another holder.
Conservation Easement: A legal agreement between a landowner and a qualified organization that restricts future activities on the land to protect its conservation values. A Conservation Easement may be known as a conservation servitude or conservation restriction, depending on State law.
Conservation Easement defense: The holder’s legal defense of the Conservation Easement if the landowner legally challenges the Conservation Easement. The term “defense” is sometimes used interchangeably with “enforcement”.
Conservation Easement stewardship: All aspects of a holder’s management of a Conservation Easement after its acquisition, including: monitoring; landowner relations; recordkeeping; processing landowner notices, requests for approval and amendments; managing stewardship funds; and enforcement and defense.
Covenant: A written promise contained in a contract, deed and other form of agreement.
Deed: A legal document by ownership to land and interests in land are transferred.
Deed restriction: A restriction in a deed that limits future uses of the property. A deed restriction may be enforced only by the individuals who imposed the restriction (usually the prior owner) or if appurtenant to other land, by all future owners of the land, unless previously terminated by mutual written agreement of all owners.
Development right: The right to develop a property in accordance with local land use regulations. A development right can be extinguished or relinquished through a Conservation Easement or transferred to another property through a statutory transfer of development rights program.
Funding sources: Conservation organizations do not typically have their own project funding source and must go outside the organization to raise money for each project. Sources include Local, County or State government agencies, local or national private foundations, corporate foundations or private individuals. Most funding sources require matching funding, so a single project typically has multiple funders.
Endowment: A permanent fund established to support a specific purpose. Generally, the beneficiary can only access income from investment of the fund, and there are restrictions on withdrawing from the endowment’s principal.
Environmental assessment: The process by which a buyer or donee evaluates whether hazardous substances are present on a property in order to qualify for the “innocent buyer” defense in hazardous waste clean-up law.
Fair market value: In real estate, the price that a willing buyer would pay a willing seller for a property offered for sale on the open market, when both have reasonable knowledge of all relevant facts and are not under undue pressure to buy or sell.
Fee simple: Full and unconditional ownership of land, with the right to use and sell during the owner’s lifetime and then to pass on to one’s heirs.
Fee Simple Purchase or Donation: This is the simplest form of protection where the Land Trust purchases the land in full or receives a donation of the full title to the land.
Grantee: In real estate deeds, a person or organization that receives a conveyance of property (the buyer, donee or new holder or owner).
Grantor: In real estate deeds, a person or organization that makes a conveyance of property (the seller or donor or previous owner).
Historic preservation easement: A Conservation Easement used to preserve the façade, interior or surroundings of a historic structure. These easements require preservation of the essential character of the building while permitting changes that are necessary to ensure that the building is maintained and remains economically viable over time.
Holder: A qualified Conservation Easement recipient (also called a grantee), such as a Land Trust, government agency or historic preservation organization.
Internal Revenue Code §170(h): The section of Federal law that sets forth the requirements a Conservation Easement must meet to qualify for Federal income tax deductions. The term for Conservation Easement gifts that meet these standards is “qualified conservation contributions”.
Internal Revenue Code §2031(c): The section of federal law that sets forth certain estate tax rules for land subject to a qualified Conservation Easement.
IRS Form 8282: The form a donee must file if it resells donated property, including a Conservation Easement, within two years of its acquisition.
IRS Form 8283: The form attached to the Conservation Easement donor’s income tax return when an income tax deduction is claimed for a Conservation Easement donation valued over $500.
Land Trust: A nonprofit organization that, as all or part of its mission, actively works to conserve land by undertaking or assisting in land or conservation easement acquisitions or by engaging in the stewardship of such land or conservation easement.
Land Trust Standards and Practices: The ethical and technical guidelines for land trusts, issued by the Land Trust Alliance.
Leases, Management Agreements and Mutual Covenants: In some cases, a conservation organization or a government agency may wish to lease a property or enter into a management agreement with a landowner to assure that the property’s conservation values will be protected. Several landowners, concerned about protecting the open space they collectively own, or a view they all share, can exchange mutual covenants to protect those features. While leases and management agreements are temporary, they can give the landowner sufficient time to choose a permanent solution.
Legal description: A written description of the property boundaries or easement boundaries that is part of the deed.
Minerals remoteness assessment: If mineral rights to a potential Conservation Easement are owned by a third party the Land Trust will require a geologist to determine how remote of a chance that these rights might be exercised by the third party.
Open Space: Here in Colorado “open space” has come to describe the iconic wide open spaces of the undeveloped landscape. Once a sparsely populated state, Colorado is now home to over 5.3 million people and was visited by more than 80 million tourists in 2015. Development of all kinds – resorts, new homes, energy infrastructure, highways, shopping centers and more is rapidly diminishing the wide open spaces that once characterized this beautiful state. MALT works to help protect Colorado's unique open spaces, those natural scenic landscapes, river corridors, ranch lands and mountain valleys that continue to make our state so special.
Public Education: Helping the community understand and appreciate the importance of natural lands protection is an important part of land conservation.
Real estate transfer tax: A state or local tax imposed when a property transfers ownership.
Recording: When a copy of a Conservation Easement deed is permanently recorded at the county or town office where deeds are filed.
Tax benefits: A variety of tax benefits are often available to landowners who make a charitable gift of land or Conservation Easement. Real property taxes may be lowered, due to the reduced development value of a property. A charitable conservation donation may offer substantial income tax benefits. Finally, a charitable donation of a Conservation Easement may significantly lower the value of land within an estate, thereby reducing federal and state estate tax obligations.
Title: Evidence of legal ownership to property. Title is transferred by a deed.
Title insurance: The insurance that protects landowners and easement holders against loss from defective or unmarketable title. Title insurance provides financial compensation if ownership is lost and defends the insured’s title against adverse claims (subject to listed exceptions).
Title report: A report prepared by a title company or attorney – after a title search – that contains documentation of the quality of ownership held by a particular person or entity. It identifies any encumbrances on the property and any partial ownership interests.
A portion of the definitions provided above are from the Land Trust Alliance publication: The Conservation Easement Handbook
Please note the information above is no substitute for obtaining competent legal and accounting advice from consultants experienced with Conservation Easements, accounting and tax law.