A conservation easement is a voluntary, but legally enforceable, agreement in which a landowner agrees to restrict future use or development on his or her property in order to achieve conservation goals. Conservation might include preservation of wildlife habitat, agricultural land, or an historic site, or protection of scenic views and open space. The agreement is typically made with a governmental entity or non-governmental organization like a land trust. That party is then responsible for enforcing the restrictions—seeing that the landowner follows the agreement.
Conservation easements are donated by or purchased from the landowner and recorded as deed restrictions that "run with the land" for a specified period or, more commonly, in perpetuity.
Funding for easements may come from a variety of sources, public and private. One important source is the Federal Farm and Ranchlands Protection Program, a component of the 2002 Farm Bill. For a story about how this funding has supported conservation easements in one Montana valley, see "Federal dollars funding conservation easements in Bitterroot Valley," Ravalli Republic, 1/23/12. Another important source is the Land and Water Conservation Fund, which Congress has not fully funded in recent years.
An easement is a right to use the property of another. A conservation easement is a special kind of easement. In a conventional easement, a landowner might hold an easement in the land of a neighbor, allowing the landowner to cross the neighbor's property, draw water from the neighbor's well, or store materials on the neighbor's property. These conventional easements are "affirmative" (carrying rights to specific actions) and "appurtenant" (attached to and benefiting a neighboring parcel of land). A conservation-minded landowner might make an agreement with a local land trust to forgo additional development on her property in order to maintain open space or important wildlife habitat. Such conservation easements are "negative" easements—prohibiting specified actions or relinquishing the right to take specific actions, and "in gross"—they are a personal interest in using (or not using) the property, not tied to another piece of land. In a conservation easement, the landowner relinquishes the right to develop the land, but that right is not conveyed to the easement holder. The right to develop the land is eliminated.
The "dominant" estate is the estate or land that benefits from an easement. The "servient" estate is the estate or land which is burdened by an easement—on which or against which an easement is enjoyed.
An "affirmative" easement requires that one landowner (the servient estate owner) permit something to be done on the servient estate for the benefit of the dominant estate. Classic affirmative easements include permitting rights of access, rights of storage, and rights of doing things that might otherwise be considered a nuisance. An affirmative easement increases the value of the dominant estate land.
A "negative" easement gives the holder the right to prevent the servient owner from doing something specific on the servient land. Typical negative easements include agreements to not build certain sizes or types of structures or to not conduct certain types of business on the land. Negative easements generally decrease the value of the servient parcel.
An "appurtenant" easement is attached to or for the benefit of a neighboring parcel of land—the dominant estate. The rights affected by the easement are thus appurtenant or incidental to the benefited land. If the benefit of an easement is personal to the holder of the easement, rather than attached to a piece of property, it is said to be "in gross."
An easement "runs with the land" when the benefit or burden of the easement is automatically transferred with change in ownership of the dominant or servient estate. Both the benefit and burden of an appurtenant easement run with the land. Only the burden of an easement in gross can run with the land because there is no dominant estate with which the benefit can run.
What are the advantages of conservation easements (CEs) for the protection of private lands and the promotion of conservation values?
- Conservation values of the land are protected.
- Sale or donation of the CE is a voluntary transaction.
- A land trust or government agency secures the benefit but avoids the cost of purchasing the land outright.
- The land remains in private ownership.
- CEs are flexible—the restrictions placed on development and use of the land can be tailored to the land and the interests of the landowner.
- CEs allow continuation of traditional uses of the land that are not inconsistent with the purpose of the easement.
- A land trust or government agency need not actively manage the land.
- The public need not have access to the land.
- Private land trusts can often protect a broader spectrum of land with CEs than can be protected by government.
The UCEA is a model state statute for authorizing the creation of permanent easements on real property for conservation and historic preservation purposes with favorable federal income tax benefits. The UCEA was developed to overcome two problems with the common law that disfavored conservation easements. First, the common law did not allow an easement in gross to run with the land—under the common law, it would be extinguished if the land being protected were transferred to another owner. Second, the common law generally refused to enforce negative easements in gross. The language of the UCEA fixes these two problems by recognizing negative easements and by making an easement in gross run with the land.
In addition, the UCEA has several provisions which facilitate efficient implementation of conservation easements:
- Two kind of entities can hold easements—charitable organizations and governmental bodies;
- No easement arises until a prospective holder records an acceptance of the easement. This precludes any unilateral creation of easements;
- No contractual relationship is required for the easement to be valid;
- No effect on a dominant estate is required;
- One holder may assign an easement to another holder qualified under the Act;
- Easements are perpetual, unless terms specifically provide for a limitation in time; and
- An easement may empower a third party (also eligible to hold an easement under the Act) to enforce the easement.
In the intermountain West, the legislatures of Idaho, New Mexico, and Wyoming have adopted the UCEA as state law. All other states have created their own statutes, often using elements of the UCEA, to recognize some form of conservation easement as a legally binding property interest.
To find any of the state statutes on conservation easements, go to the FindLaw Web site, go to the state you are inquiring about, go to statutes, and search for "conservation easement" in the search function, or go directly to the statute sections listed below.
Conservation Easement Statutes:
- Arizona—33-271 to 276
- Colorado—38-30.5-101 to 109 (click on "CO Revised Statutes"; search "conservation easement" or the statute number)
- Idaho—55-21-2101 to 2109
- Montana—76-6-201 to 211
- Nevada—111-390 to 440
- New Mexico—47-12-1 to 6 (click on "statutes"; search "conservation easement")
- Utah—57-18-1 to 7
For more information on the UCEA, visit the Web site of the National Conference of Commissioners on Uniform State Laws, go to "Final Acts and Legislation" and choose Conservation Easement Act.
Click to download the conservation easement section of Colorado College's 2006 State of the Rockies report card (.pdf). A land trust is a nonprofit organization that actively works to conserve land by undertaking or assisting in land or conservation easement acquisition, or by its stewardship of such land or easements. In 2003, there were about 1,500 land trusts nationwide, protecting about 800,000 acres per year.
According to a 2003 census conducted by the Land Trust Alliance, local and regional land trusts have now protected 9,361,600 acres of natural areas—double the 4.7 million acres protected as of 1998. National land trusts have protected an additional 25 million acres. Voluntary land conservation agreements protect a record 5 million acres—more than triple the amount (1.4 million acres) protected just five years ago.
For more information, see the National Land Trust Census on the Land Trust Alliance website. For a detailed analysis of the benefits that public land management agencies receive from working in cooperation with land trusts, see "The art of the land deal," Billings Gazette, 2/1/20.
Working with an experienced land trust is important in setting up a conservation easement, as several pitfalls must be avoided or at least recognized in order to take full advantage of this conservation tool. Inadvertent termination of easements and liability under The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) are two potential pitfalls.
"The mission of land trusts is not just to save land, but to protect the traditional lifestyles of a community, a way of life that remains connected to that land. This can mean saving the family farm, setting up a community garden or urban park, ensuring the sustainability of a southeastern forest, or conserving ranchland in the American West."
— Rand Wentworth, Land Trust Alliance President
Conservation easements are usually created, with good intentions, to last forever. Land, people, and situations may change, however, and place the easements at risk of termination. Recognizing these situations can help protect conservation easements in perpetuity. For an example of a current controversy over a county's attempt to terminate an easement to allow development to occur, see "State, landowners negotiate in easement suit," Casper Star-Tribune, 9/25/09. For a discussion of what happens when a land trust goes out of business, see "Little orphan easement?" High Country News, 12/21/09.
Eminent domain is the power of the government to force the transfer of property from private owners to itself for public purposes. "Public purpose" has been very widely interpreted to include use for railroads, telecommunications, water supply, public buildings, schools, highways, and cemeteries. A recent and highly controversial Supreme Court case even said that "public purpose" could include allowing a private developer to redevelop the property in an urban renewal project. Little can be done to avoid this pitfall when dealing with private land trusts. Some state statutes even specify that conservation easements are subject to the state's power of eminent domain (see Wyoming Statute 34-1-207 and Utah Statute 57-18-7, but cannot be obtained through eminent domain.
|Kelo v. City of New London
Eminent domain can be used to condemn property for an economic revitalization plan.
Several western states enacted laws restricting eminent domain either just before (Colorado, Nevada and Utah) or after the Kelo decision (California and Texas). Other states have legislation in the works (Arizona, California, Idaho, and New Mexico). At least one federal law has also been introduced (H.R. 4128).
Eminent domain can be avoided by selling or donating the conservation easement to a local, state, or federal governmental entity instead of to a private charitable organization. Encouraging conservation-friendly government planning and developing good relationships between the conservation community and government can also help avoid eminent domain impacts.
Establishing a conservation easement is just the first step in long-term protection of the land. The easement holder must then monitor and enforce easement terms. Failure to do so can result in termination of the easement through abandonment. Abandonment can result if the easement holder simply fails to enforce easement terms flaunted by the landowner or if the land trust dissolves and fails to transfer the easement to another party that can enforce it. Including a provision in the easement for third-party enforcement can help permanently prevent termination by abandonment.
The doctrine of changed conditions allows a landowner to prevent enforcement of the restrictions of an easement if the surrounding area has changed to the extent that the restrictions no longer make sense. In considering whether the doctrine should apply to terminate a particular conservation easement, a court might consider the:
- Intent of the parties;
- Foreseeability of changes;
- Effect of restriction on economic productivity of land;
- Burden on the landowner compared to the benefit to the easement holder;
- Location of changes; and
- Duration of the restriction.
Since conservation easements are generally created to prevent changing conditions from changing the area, parties can frustrate the application of this doctrine by clearly stating this purpose in the easement deed.
Conservation easements are usually intended to protect the area indefinitely. Some states, however, have "marketable title" acts that require automatic termination of restrictions on property (such as easements) after a certain amount of time, if the restriction does not specify a particular duration. The inadvertent effect of a marketable title act can be avoided through state legislation or through careful wording of the easement. First, the state's conservation easement statute can be written to presume that a conservation easement is perpetual if it is silent as to duration. More directly, parties setting up a conservation easement can avoid this problem by including language in the easement deed that specifies that it is a perpetual easement.
The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) holds owners and operators of waste facilities liable for natural resources damages and cleanup of contamination. While it is highly unlikely that the holder of a conservation easement would have anything to do with causing contamination of the land, "owner" and "operator" are broadly defined in CERCLA.
CERCLA cases that have dealt with other types of easements indicate that conservation easement holders are not likely to be held liable under CERCLA as "owners." There are, however, fewer cases to help predict whether a negative easement holder could be considered an "operator." Generally, there is greater potential for CERCLA liability for easement holders actively involved in managing the land - more likely the situation with an affirmative easement. Whether monitoring and maintenance of a negative easement is sufficient activity to be considered "operation" is, however, unclear.
With this uncertainty, avoiding liability under CERCLA should start with a "due diligence" investigation by the land trust prior to setting up the conservation easement. This investigation could help a land trust avoid involvement with contaminated properties. If avoidance is not possible - for example, if a trust wants to protect a property that includes an abandoned mine - knowledge of the situation may help the trust avoid active involvement that would trigger the "operator" designation. Holders should also consider including an indemnity agreement in the easement to help avoid liability. Finally, the holder should be prepared to argue for a minimal share of the cost of cleanup if the holder is found partially responsible under CERCLA.
A strong conservation ethic may be the principal impetus for creating a conservation easement, but economic incentives can help encourage private landowners to donate or sell conservation easements on their land. Landowners can benefit financially through outright sale of an easement or through tax benefits associated with donation of an easement. Tax savings may include estate, property, gift, and federal and state income taxes. Current tax law provides more benefits to higher income landowners, but there is something in it for every landowner.
Value Your Easement Honestly!
In May 2006, the U.S. Tax Court rejected a conservation easement deduction for the first time. The court ruled that a land donation that eventually turned into a housing development could not be used for a tax deduction. The judge ruled that the developer overvalued the easement's development restriction since part of the area was a floodplain and development was already restricted on another part by historic zoning.
The tax benefits associated with an easement are based on the change in fair market value of the property due to easement restrictions placed on the property. Generally, property burdened with development restrictions has a lower value even if the value of nearby property actually increases because of the restrictions. To take the tax benefits, the easement donor must show an appraisal from a "qualified appraiser" and maintain certain records for tax purposes. The appraiser uses a "before and after" method of property valuation. An amendment to the law in 2006 sets higher standards for appraisers and appraisals of all donated property and sets higher penalties for abusive appraisals. (See the Pension Protection Act of 2006, Section 1219 (HR 4 in the 109th Congress).
Confusion over 2006 Pension Protection Act Provisions
The Land Trust Alliance has asked the IRS for clarification regarding provisions of the new law, regarding:
- Applicability of the law to gifts in fee;
- Gifts of Historic Preservation easements;
- Definitions of qualified farmer, farming, agricultural or livestock production, gross income, etc.;
- Qualified real property interests.
For a copy of the LTA's request for information, click here.
For more information on appraisals and penalties, see IRS Guidance 2006-96.
Following some partial tax incentives for charitable land donations in the 1960s and early 1970s, Congress created the basic law for charitable contributions for conservation purposes in 1976 (Tax Reform Act of 1976) and added limitations in 1977 (Tax Reduction and Simplification Act of 1977) and 1980 (Tax Treatment Extension Act). There are three major tax incentive provisions — one for federal income tax and two for gifts or estate taxes.
Available Tax Incentives
- A charitable income tax donation - equal to the value of the donated easement (I.R.C. §170(h))
- Reduction in the value of the landowner's estate, free of gift or estate tax - equal to the value of the donated easement (I.R.C. §2522(d))
- Reduction in the value of the landowner's estate for estate tax purposes - equal to 40% of the value of the land encumbered by the easement (I.R.C. §2031(c)) and Treas. Reg.§20.2031(c))
The current tax code authorizes a charitable income tax deduction for donation of a qualified real property interest, to a qualified organization, exclusively for conservation purposes. I.R.C. §170(h).
- A "qualified real property interest" includes a restriction on use which may be made of the real property (a negative easement) if that restriction is granted in perpetuity.
- A "qualified organization" includes charitable organizations that receive a substantial portion of their support from the public (publicly supported charities) and government entities.
- "Conservation purposes" include land protected for outdoor recreation and education, and preservation of wildlife and plant habitat, scenic values, and open space.
Until 2006, donors could deduct up to 30 percent of their adjusted gross income in the year of the gift. Easement donations in excess of the annual limit could be carried over for the next five years, subject to the same stipulations. In 2006 the law was changed - at least for two years - to allow individuals a larger deduction and a carryover of up to 15 years. Further, qualifying farmers, ranchers, and forest owners can deduct up to 100 percent of their income. (See the Land Trust Alliance Factsheet) Under current law, the exclusion is set at 40 percent and the cap is set at $500,000.
In the final days of the 111th Congress, federal lawmakers extended the conservation easement provision through the end of 2011. Conservationists and farmers had been seeking legislation to allow rural families to exclude 50 percent of the value of land from federal taxes if they put a permanent conservation easement on their land, and to raise the cap to $5 million. The tax provision has continued to survive through temporary extensions, and is currently scheduled to expire at the end of 2013. See "Laws give break for land preservation. But hurry," Wall Street Journal, 2/23/13.
|Internal Revenue Service Rules (Treasury Regulations)|
A tax code change in 1986 (Tax Reform Act of 1986) created the second inventive, which allows taxpayers to claim a charitable gift or estate tax deduction for donation of a conservation easement without having to demonstrate the same "conservation purposes" as required for the charitable income tax deduction.
Tax code changes in 1997 (the Taxpayer Relief Act) and 2001 (Economic Growth and Tax Relief Reconciliation Act of 2001) added a third incentive to help land-rich, cash-poor landowners. Under this provision, up to 40 percent of the value of land encumbered by a conservation easement (to a maximum of $500,000) can be excluded from a deceased's estate for figuring estate taxes. The full benefit offered by the new law is available for easements that reduce the fair market value of a property by at least 30 percent. Smaller deductions are available for easements that reduce property value by less than 30 percent. The easement must have been donated and it has to have met the requirements for charitable income tax deductions (§170(h)).
For more detailed information on tax incentives, see Nancy A. McLaughlin, Increasing the Tax Incentives for Conservation Easement Donations-A Responsible Approach.
Protecting Water Resources through Land Conservation: Funding Options for Local Governments
A 2005 webcast provides context for the role of conservation finance in land conservation, describes critical components for creating a successful funding effort, and showcases local government success stories. The webcast also provides attendees with an understanding of current conservation finance trends; revenue sources being used by local governments; voter opinions on water protection; and the importance of good measure design in funding campaigns. A multimedia CD-ROM recording of the webcast is now available for free from LGEA. To order a copy of the CD-ROM, contact LGEAN at 877/TO-LGEAN or email@example.com.
In recent years, a few states have enacted state tax incentives to supplement the existing federal tax incentives and further encourage the donation of easements within their borders. Some state tax codes direct local tax assessors to consider the restrictions imposed by a conservation easement in valuing land for property tax. Other states reduce property taxes by assessing land at its value for agriculture or forestry purposes, rather than its "highest and best" use, which is generally for residential, commercial, or industrial development.
Some state income tax statutes also mimic the federal charitable income tax deduction described above. For example, New Mexico law provides for a state income tax credit equal to 50 percent of the fair market value of land or interest in land that is conveyed for the purpose of open space, natural resource or biodiversity, conservation, agricultural preservation, or watershed or historic preservation. The donation must be in perpetuity and be eligible for the federal income tax credit. The credit is limited to $100,000 with the amount used each year, not exceeding the individual income tax other wise due. A portion of the credit that is unused in a taxable year may be carried over for a maximum of 20 consecutive taxable years.
Colorado has a unique program, established in 2001, which provides additional benefits to encourage donations. Colorado's program allows landowners who donate a conservation easement to receive a credit on their Colorado state income tax of up to $260,000. A landowner can claim a credit against Colorado income tax equal to 100% of the first $100,000 of the value of a perpetual easement donated with respect to land located in Colorado, and 40% of the value of such easement in excess of $100,000, subject to the $260,000 cap. Unused credit may be carried forward for up to 20 years. Or, if there are sufficient state revenues, the state can refund the excess (unused credit) in an amount not exceeding $50,000 per year. If the landowner cannot use the credit, he or she can sell it to someone who can. In general, sellers receive 80% of the value of the credit and buyers pay 90%, with the difference going to the broker and to the conservation organization(s) involved in the transaction. Colorado's Conservation Easement Tax Credit Program is the first of its kind in the nation. See Colo. Rev. Stat. Ann. §39-22-522.
For more information on the Colorado tax credit, see the Colorado Conservation Trust Web site.
Sounds like the perfect conservation tool? Maybe. Maybe not. Despite potential advantages for both landowners and resource conservation, conservation easements are still controversial. Criticism of the tool comes from all sectors—some on principle; some responding to how the rubber meets the road.
Some criticisms of conservation easements are based in equity. While tax deductions can be a sizable financial benefit of restricting future property development, land rich and income poor landowners cannot always benefit fully from such a tax break—at least in the owner's lifetime. Some also see conservation easements as an unfair burden on property by one generation on another. Some states even prohibit conservation easements in perpetuity. The alternative view is, of course, that the easement is not an unfair burden, but a perpetual benefit bestowed by one generation on another. Precluding development is also touted as an equity issue where conservation easements on private lands are coupled with large-scale federal ownership of land. Some say that this combination exacerbates housing shortages—or at least shortages of moderately priced housing.
For a discussion of the relative merits of preserving land through regulation versus easements, see "Drawing the Line: Striking a Principled Balance Between Regulating and Paying to Protect the Land," Environmental Law Reporter, Vol. 39, No. 9 (Sep. 2009).
Open-space to Subsidize Low-Income Housing?
The proposal—for which the state was roundly criticized—would also reopen existing easement documents to allow development of some parcels for housing.
Tax implications of easements are also controversial. Landowners expecting a tax break can be frustrated if restrictions on future development actually enhance the value of their property. Congress and others are concerned there is overvaluation of easement restrictions resulting in excessive tax deductions. State and local governments are criticized for earmarking transfer tax revenues to fund easements. In the typical case, revenues from transfer taxes are given to private land trusts, which then purchase and manage easements.
And finally, there can be conflict over easement restrictions. Each conservation easement is created to protect specific values. Typically conservation easements are more protective than applicable zoning restrictions, but they needn't be more restrictive. Easements can simply prevent a change to more intensive development. Conservation groups are concerned, however, that this type of easement can be more akin to a development permit than to a conservation agreement. On the other side, some landowners are concerned that management of easements will intrude on use of their land. While burdening the property is certainly the intent of the easement, changes in trustee personnel and landowners can lead to unnecessary conflict over what uses are allowed under the easement. For all but the most fervent property rights advocate—who might resist any restriction on individual control of property—a clear easement document spelling out allowable uses and development can be the answer. Clearly written documents can also help landowners worried that an easement will open their land to the public. While taxpayers may want recreation access to maximize the public benefit of easements, it is important to recognize that the terms of a conservation easement are entirely negotiable.
There has to be something in it for everyone—and there usually is. Conservation easements help landowners protect their way of life and their children's future while helping government and conservation groups protect biodiversity and unique habitats across the West. These are just a few of the collaborative efforts that use conservation easements to achieve mutual benefits:
Lassen Foothills Project: The Lassen Foothills Project depends on conservation easements to protect existing ranches at the north end of the Central Valley in California. These easements help The Nature Conservancy (TNC) and its many partners ensure the sustainability and economic viability of local ranches and conserve important habitat for area plant and animal species. Success depends on leveraging protection of a TNC nature preserve and California state trust lands with thousands of acres of conservation easements on privately-owned ranch lands.
Mattole Restoration Council: Conservation easements are just one of many tools used by the Mattole Restoration Council to protect and restore the Mattole River watershed on the north coast of California. The easements, held by land trusts and California State Parks, help preserve existing critical salmon habitat and old-growth areas in the King Range.
Yampa Valley Legacy Project: The Yampa Valley Legacy Project developed in large part to take advantage of grants from Great Outdoors Colorado (GOCO) to fund conservation easements and cooperative management agreements. The project uses easements to protect the Yampa Valley's agricultural and tourism economies by protecting working ranches and important wildlife habitat and by facilitating recreation access.
In an alternative approach to agricultural land preservation, a new partnership in Montana seeks to connect prospective sellers of farmland with buyers who intend to keep the land under agricultural production. The nonprofit Community Farm and Agricultural Coalition formed Land Link Montana to slow the conversion of valuable agricultural land to development and encourage more local food production.
For a story about opportunities to link water and land conservation, see "Where land and water meet," in the Land Trust Alliance's spring 2012 issue of Saving Land.
For information about the implications for land trusts of the "Fiscal Cliff" agreement at the conclusion of the 112th Congress, see resources available from the Land Trust Alliance's Policy Action Center.
In February 2013, Sens. Max Baucus (D-Mont.) and Richard Burr (R-N.C.) reintroduced a bill (S. 338) to fully fund the Land and Water Conservation Fund (LCWF), a source of federal money to pay for land and easement acquisitions. Although authorized at $900 million, the fund has hovered around $300 million in recent years.
Uniform Conservation Easement Act
The UCEA is a model state statute for authorizing the creation of permanent easements on real property for conservation and historic preservation purposes with favorable federal income tax benefits.
The U.S. Treasury publishes its guidance regulations in the Federal Register. These regulations are codified in Title 26 of the Code of Federal Regulations. Most of the sections of interest to conservation easements are in parts 1-29.
Land Trust Alliance (LTA)
The Land Trust Alliance promotes voluntary private land conservation to benefit communities and natural systems. The LTA is the national convener, strategist, and representative of more than 1,500 land trusts across America.
View the LTA's priorities for the Obama Adminstration, 12/9/08.
American Farmland Trust
Since its founding in 1980, American Farmland Trust has helped win permanent protection for over a million acres of American farmland. Our hard work and sound strategies unite farmers, environmentalists, and policymakers. In part, it works to protect the best land through publicly funded agricultural conservation easement programs.
Agricultural Conservation Easements Fact Sheet
Ruckelshaus Institute of Environment and Natural Resources, University of Wyoming
The Open Spaces Initiative of the Ruckelshaus Institute has published a series of reports and assorted links to other resources on open space protection, including several publications specifically focused on conservation easements.
Click here for this report.
Click here for this report.