Conservation easements are restrictions landowners voluntarily place on their property that legally bind the actions of present and future owners of the property.
Property ownership includes certain privileges that allow a landowner to exercise certain rights. Being allowed to cut timber, explore for minerals, dig a ditch or build a house are all examples of a landowner's rights. A conservation easement restricts the landowner's ability to exercise some or all of these rights in order to protect the land's natural features, flora and fauna or other conservation needs.
The rights the owner relinquishes and those he or she retains are set forth in a legal document, known as a "conservation easement." The easement is transferred to either a qualified conservation organization or a government agency. When the document is properly drawn, signed and recorded on the land records, the property's current and future owners can no longer exercise the rights relinquished in the conservation easement. Each conservation easement must be specifically designed with a particular piece of property and its unique natural characteristics in mind. The specific rights retained by a landowner or restricted by an easement vary with each property.
The conservation easement "holder" -- a qualified conservation organization or government agency -- has the right to enforce the restrictions placed on the land. In addition, the easement holder has a limited right of access for inspection, scientific data collection or other purposes agreed to by the landowner.
If the land requires active management to preserve or restore its natural values, some management rights may also be granted to the easement holder. But the conservation easement does not allow the holder to do anything that the landowner is prohibited from doing to the land.
Conservation easements can be used to preserve wildlife habitat, open space, agricultural land, or the historic features of a building or site while allowing the landowners to continue owning and using the property.
The landowner retains all property rights except the ones specifically relinquished or restricted by the conservation easement. The landowner still owns the land and can use it in any way consistent with the restrictions. For example, the landowner can sell the land, live on it or leave it by will. The landowner is obligated to pay real estate taxes on the property and ensure that the restrictions are not violated.
Specific activities that the landowner may continue on the property:
- the ability to sell the property,
- the ability to use the property for any and all purposes consistent with the conservation purpose of the easement or otherwise restricted,
- the ability to build additional buildings at specified locations, but only if the conservation values of the property will not be adversely affected.
A conservation easement can include almost any kind of restriction agreed to by the landowner and the easement holder. For example, it can specify that the land must be left completely in its natural state. In other cases, the easement may restrict subdivision or development of the land, but allow activities such as forest or grazing management. Even construction of new facilities may be allowed, provided they do not destroy the ecological value of the land or interfere with the conservation purpose of the easement. The easement can be applied to the landowner's entire property or to only a portion of it, such as the land along the shore of a lake or stream.
Each conservation easement is specific to the protection needs of the particular piece of land. The terms of the easement must be precise and detailed. The condition of the property, at the time the easement is finalized, should be documented in a report using maps, photographs and biological inventories. This documentation can help avoid future disagreements or uncertainties that may arise after the land changes ownership.
Restrictions typically contained in conservation easements usually address a number of land use issues, including:
- disturbance of natural habitat,
- introduction of non-native species,
- forest, grazing or agricultural management,
- mining, dredging, filling, dumping,
- development, such as buildings, roads, bridges and other improvements,
- wetlands and other water bodies.
The federal income tax benefits of donating a conservation easement are similar to other tax-deductible gifts of real property, but are subject to some unique requirements. As with other gifts of land, a taxpayer is entitled to take a federal income tax deduction for the value of the interest in land given to charity.
To meet the additional criteria necessary to qualify for this deduction, a conservation easement must be given in perpetuity to a qualified organization for a qualified conservation purpose. Many conservation organizations - including the Conservancy - and government agencies meet the criteria for qualified organizations.
The value of a conservation easement must be based upon an appraisal for tax purposes. Appraisals are the responsibility of the landowner and must be acceptable to the Internal Revenue Service. Although often difficult to calculate, the value of an easement is generally the difference between the value of the land unrestricted and the value of the land with perpetual conservation restrictions in place. For example, if a tract of land is valued at $50,000 without restrictions and at $30,000 after the conservation easement has been given, the value of the conservation easement (and the amount of the tax deduction) is $20,000.
Keep in mind that each parcel of land and each conservation easement is unique, and there is no set or average percentage of value attributed to any rights relinquished. Each situation will be different.
Real property tax assessments are based on the property's value as determined by a local assessor. State law, local practice and local tax assessors determine whether a conservation easement causes a reduction in the assessed value of the property. If the assessed value of the property is reduced by the easement, then real property taxes may be lowered.
A gift of a conservation easement may also reduce federal estate taxes whether the gift takes place prior to death or through a will. In the first case, the value of the property in the estate will be reduced; in the second, the value of the easement is deducted as a charitable contribution from the value of the estate. Both cases may mean reduced estate taxes. Too often, heirs who have inherited family land must sell all or a portion of the property to pay the estate or inheritance taxes. Conservation easements may be an effective way to pass land on to the next generation in its natural state.
In addition to the above tax benefits, Congress enacted in 1997 the American Farm & Ranch Protection Act. If you donate a conservation easement, this law allows your executor, after your death, to elect to exclude from your taxable estate up to 40 percent of the value of any underlying land subject to a qualified conservation easement that meets the following requirements:
- The land has been owned by the decedent or a member of the decedent's family at all times during the three-year period ending on the date of the decedent's death.
- A qualified conservation contribution of a qualified real property interest was granted either by the decedent, by a member of his or her family, or by the executor of the decedent's estate.
The maximum exclusion for underlying land subject to a qualified conservation easement is limited to $500,000.
This new provision is quite complicated, and there are additional significant limitations when applying this law. Landowners should consult with their own tax attorney to advise them on this matter and determine the applicability of this provision, and other income and estate tax laws, to their own tax circumstances.
As we have stressed, each conservation easement is unique and must be individually crafted to address the particular property involved, the natural resource being protected, and the needs of the landowner and the easement holder. Each easement should address what the landowner and the easement holder have agreed upon in as much detail as possible and should be reasonable. Often resembling deeds or other documents used to transfer interests in land, easements have a great deal of legal language to ensure their validity and the intentions of the parties are carried out.