Reinventing Conservation Easements

A conservation easement is private land, held by a private nonprofit corporation (typically a land trust) or a government agency. Though conservation easements are perceived as a win-win land protection strategy, there are several downfalls in their design—requiring this fairly new real estate law to come under increased scrutiny.

Conservation easements leave the land in private ownership and often achieve the goals of land protection without regulation or adversity, and usually without any government oversight. There is often concern that the terms of the conservation easement will be honored and that the conservation easement holder will have the capacity and resolve to monitor, enforce and defend the restrictions of the conservation easement in perpetuity, as conservation easements promise.

Because conservation easements are privately held property, most states have no public registry for conservation easements, no particular legal structure and no public review, transparency or accountability concerning their design, monitoring, enforcement, defense or stewardship.

This article identifies issues with the current practices for conservation easements and seeks solutions for the future of the conservation easement. Should their be standards enforced by federal or state governments? Should more responsibility be placed on the land owners? How would new regulations affect the use of the land? If conservation easements are to serve future generations as is their promise, they will have to resolve the issues they face.

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No recent happening in land conservation rivals the deployment from coast to coast of conservation easements. Beyond tax and other public subsidies, one of the driving forces favoring this phenomenon is that conservation easements are perceived as a win-win strategy in land protection, by which willing landowners work with private land trusts or government agencies to provide lasting protection for portions of the American landscape. Conservation easements leave land in private ownership, while allowing the easement holder (the land trust or agency) to enforce voluntary, contracted-for, often donated but increasingly paid-for restrictions on future uses of the easement-encumbered property. Conservation easements are often welcomed as achieving the goals of land protection without regulation or adversity, and usually without any government oversight.

At the same time, the rapid increase in the use of conservation easements raises the concern that they may present something of a time bomb that requires preventive action. Most of the laws and conventions concerning conservation easements were created at a time when no one could have foreseen their explosive growth and complexity. These laws and conventions require well-considered approaches to reform, lest we ultimately risk losing the public benefits that we thought conservation easements would secure in the future.

Definitions

A “conservation easement” (in some states referred to as a conservation restriction or similar term) is a set of permanently enforceable rights in real property, held by a private nonprofit corporation (typically a land trust) or a government agency. These rights impose a negative servitude (in other words, a set of promises not to do certain things) on the encumbered land, and they are permanently enforceable by the easement holder. Conservation easements are a relatively recent invention of real estate law and are enabled by statute in virtually every state.

A “land trust” is a loosely defined concept that usually includes at least two basic elements. First, it is a private, nonprofit charitable corporation incorporated under the laws of a state and qualified as tax-exempt and entitled to receive tax-deductible donations under section 501(c)(3) of the Internal Revenue Code. Second, depending on state law, a land trust’s mission, but not necessarily its exclusive or even primary one, is the conservation of land.

The Public Stake in Conservation Easements

Why should the public, and therefore its government at all levels, care about how conservation easements are created and managed? One reason is that virtually every conservation easement is associated with a significant public subsidy. Although most easements are donated by private landowners to private land trusts, they almost always result in public subsidies in the form of income tax deductions to the easement donors. In many cases a further subsidy comes in the form of reduced real property and estate taxes in the future. Increasingly, conservation easements are being purchased with public money, sometimes on a grand scale involving millions of dollars.

The public should care about how its money is being spent, whether it is being spent for something of long-term public benefit, and whether it is being spent efficiently; that is, the public should be interested in whether it is getting a fair public bang for its buck.

Beyond the public’s financial investment, its interest in conservation easements as a form of charitable trust transcends the interests of the private parties to the transaction. Further, some conservation easements guarantee public access to the property, such as for hiking or scenic enjoyment, giving the public an added stake in the long-term security of the easement. In the case of conservation easements granted by developers as a quid pro quo for regulatory permits, these easements may also comprise a public investment because they are part of the consideration in exchange for the right to proceed with a project that may cause environmental harm. Finally and not least importantly, the public has an abiding concern in the orderly future of legal understandings and the stability of interests in real estate.

In sum, when a conservation easement is created there is a legitimate public interest and concern that the terms of the easement will be honored and that the easement holder will have the capacity and resolve to monitor, enforce and defend the restrictions of the easement in perpetuity, as conservation easements promise. Indeed, the very purpose of state and federal laws that support and subsidize the creation of conservation easements is that the public interest is intended to permanently benefit from them.

Trends and Problems

Rapid growth. The attractiveness of conservation easements is demonstrated by the explosive growth of land trusts established to accept easements. Land trusts have become a big business in America, both for their vast holdings of conservation easements and other properties and for their increasing memberships and finances. Even so, many land trusts have come into existence only during the past 15 years and operate at a local level. While land trust creation continues to increase rapidly, an important policy question is whether the ever-expanding number of small land trusts throughout the nation is something that is good for our (and their) future.

The Land Trust Alliance (LTA), an organization that serves many land trusts nationwide, reported in its national census that between 1998 and 2003 the number of local and regional land trusts increased 26 percent from 1,213 to 1,526; the number of conservation easements held by these land trusts grew from 7,400 to nearly 18,000; and the area covered by these easements expanded from nearly 1.4 million acres to more than 5 million acres (Land Trust Alliance 2004; see Figures 1 and 2). In addition, there are a number of national organizations, such as The Nature Conservancy and the American Farmland Trust, that hold additional thousands of conservation easements. Untold thousands of easements also are held by federal, state and local governments.

Often land trusts and government agencies alike focus on, publicize and celebrate the accumulating numbers of conservation easements in their portfolios, as well as the numbers of acres that they cover, without equivalent regard for the quality of the easements or of the lands they protect. Since conservation easements bring with them long-term and costly responsibilities for the holder in monitoring, stewardship, enforcement and defense, this focus on numbers can be short-term thinking that leads to long-term problems.

Lack of uniformity. The terms of conservation easements are infinitely variable. Calling something a conservation easement tells one nothing about what protections it affords or even what legal boilerplate it includes. Many conservation easement advocates extol the virtues of this flexibility, since it allows the landowner and easement holder to tailor each easement to their mutual interests.

However, this increasing variability of conservation easements inevitably will result in more problems over time for both easement holders and future successions of landowners in understanding, undertaking, monitoring, defending and upholding all of the legal rights and responsibilities of each easement. Heightening this effect is the fact that many conservation easements are increasingly negotiated, nuanced and complex agreements, leaving even legal experts challenged in easement preparation, interpretation, oversight and enforcement.

Valuation issues. The valuation problem for conservation easements arises in two forms: the opportunity for excessive claims of income, estate and property tax deductions or reductions; and uncertainty as to the societal and cost-benefit calculus of each easement. The valuation of donated conservation easements has become a major cause for alarm by the Internal Revenue Service, which says that it will be applying an increasingly watchful eye on the deductions taken for these donations. However, part of the problem may be that the IRS has not been precise enough in stating how conservation easement appraisals should be undertaken.

Even if the IRS adopts a more rigorous approach to easement appraisal in the future, it will never be in a good position to determine whether each easement, for which a charitable deduction is taken, is worthy in terms of conferring a public benefit commensurate with the public subsidy. That task must be undertaken by others, starting with the land trust or other easement holder and embracing some degree of broader public participation.

Lack of legal standards. While conservation easements are intended to be permanent servitudes on privately held property, most states have no public registry for conservation easements, no particular legal structure and no public review, transparency or accountability with respect to their design, monitoring, enforcement, defense or stewardship. Accordingly, there may be a growing disconnect, or perhaps it is a correlation, between the massive deployment of these new interests in real estate, their nearly infinite variability and the multitude of new-born land trusts that hold them on the one hand, and the largely undisciplined laws and conventions that govern them on the other.

In sum, potential legal and other reforms should be considered to respond to many diverse issues related to conservation easements.

This state of affairs, already evident in many thousands of conservation easements, cannot serve future generations well. Under the present laws and conventions, how can we expect holders of these easements and succeeding generations of landowners to understand, no less attend to, the often subtle differences in their terms and to comply with, uphold, defend and enforce conservation easements forever?

Although the nearly exponential trends in the deployment of conservation easements may be heartening to many in the land conservation community, they also pose equivalent challenges that require critical examination and consideration of reform. The evident solution is to create standards for conservation easements and their holders that are more uniform, explicit, publicly transparent and rigorous. Doing so would be in the long-term best interests of those in the conservation easement community and the public at large.

Potential Solutions

Among the general approaches to reform are changes to federal tax laws; greater state oversight of conservation easements and their holders; increased self-regulation by the land trust community; consolidation and networking of land trusts; and greater supervision of conservation easements and their holders by funding sources. The purpose of advancing these reform ideas is to create more predictability and stability in the design and long-term management of conservation easements, so there can be a greater degree of assurance that these new inventions of real estate law will deliver on the promises that they make to future generations.

The most universal approach to reform would be to create more rigorous IRS standards for conservation easements, their appraisals and their holders, so there is greater assurance that their public subsidy will result in conservation easements that are permanently monitored and enforced. A second and complementary approach would be for the National Conference of Commissioners, which gave birth to the Uniform Conservation Easement Act in 1981, to reconvene and consider the issues that went unresolved in its earlier work. A third approach would be for each state to consider amendments to its conservation easement enabling act that respond to these issues. Finally, the Land Trust Alliance is already making efforts to inform and encourage its members to take affirmative but voluntary action to resolve many of these concerns.

Even while considering needed change, these reforms should not impose unreasonable transaction costs on conservation easements. The goal is to select reforms that are efficient in making a difference. At the same time, it is important to consider the tremendous and increasing public subsidies of conservation easements, their opportunity costs and potential effects on government regulatory and land acquisition programs. This scrutiny is not a condemnation of conservation easements, but rather is aimed at articulating issues and possible reforms that can make easements deliver their promises.

Conclusions

This should be an uneasy time for those in the conservation easement community. Because of alleged abuses widely reported by the media, both Congress and the IRS are investigating easement practices by their donors and holders. Congressional proposals are emerging to substantially reduce tax incentives for donations of conservation easements. The time is right to explore potentially useful reforms of all kinds in order to avoid throwing the baby out with the bathwater.

The principal source of many issues with conservation easements is the laws and conventions that govern these interests in real estate, which were created at a time when no one could have anticipated the explosive growth of easements and land trusts. While national organizations like the Land Trust Alliance have shown outstanding leadership in devising and promoting standards, practices and other assistance for land trusts, these standards are purely voluntary, and land trusts have no legal obligation to follow them. Moreover, in some cases the worst problems with respect to long-term management of conservation easements involve understaffed or inattentive government holders.

How dire is the future of conservation easements? Just as conservation easements are intended to endure, each of the problems reported here will have its day, and some already have. When evaluating the effectiveness of conservation easements under the prevailing legal structure, perhaps the best answer is that the jury will be out for 100 years, but one should be sufficiently concerned about a possibly adverse verdict to consider these issues and ways to resolve them.

If conservation easements are to serve future generations as is their promise, they will have to live up to three essential principles.

1. The value of conservation easements depends upon their being able to effectively and permanently deliver the public benefits they promise.
2. Landowners and conservation easement holders, who receive the benefits of the state and federal laws that provide for and subsidize conservation easement acquisition, should be legally accountable for upholding their part of the bargain, including monitoring and upholding the terms of each easement and assuring that its public benefits are secured in the future.
3. The process by which conservation easements are designed, appraised and managed should be more rigorous, publicly transparent and accountable.

With these principles in mind, there are many approaches to resolving the issues presented by conservation easements. However, to fashion the solutions one must first acknowledge the problems. If ever we are to take action to assure the future of conservation easements, the time to do so may never be better, nor easier, than now.

Jeff Pidot is a visiting fellow at the Lincoln Institute, on leave from his work as chief of the Natural Resources Division of the Maine Attorney General’s Office, a position he has held since 1990. He has been an active participant in the land trust movement in Maine and has a wealth of experience with conservation easements in both his professional and volunteer work. While at the Lincoln Institute, he is researching and writing about the challenges of conservation easements and reforms that may be considered to meet these challenges.

His working paper, Reinventing Conservation Easements: A Critical Examination and Ideas for Reform, is available on the Institute’s website.

Reference

Land Trust Alliance. 2004. National Land Trust Census. November 18 http://www.lta.org/census/index.shtml