Frequently Asked Questions
About Conservation Easements
What are the basic elements of a conservation easement document?
What is the legal basis for conservation easements in Colorado?
What is the difference between a conservation easement and a deed restriction?
What steps and costs are involved in completing a conservation easement?
Who establishes the dollar value of a conservation easement?
Does PLT provide info about landowners and properties to other parties?
1. What kind of land can be protected with an easement?
Federal and state laws place important restrictions on easement donations. Additional restrictions apply to easements that qualify for income tax benefits. In general, an easement must meet at least one of the following four categories:
1. property that provides significant natural habitat.
2. property that preserves a scenic view that provides a significant benefit to the general public.
3. property that preserves historically significant land or structures.
4. property that is made available for public recreation or education activities.
Many easements meet two of these requirements by preserving both wildlife habitat and a scenic view that can be appreciated by the public from an adjacent public road.
Some examples of what will not qualify are instructive. Agricultural and forestry lands per se, do not qualify for tax benefits. Merely limiting the amount of development on a property will not qualify a property for an easement or for tax benefits. Farms, ranches, and ‘improved’ (nonnative) forests are eligible if other qualifying criteria such as scenic, historic, or wildlife habitat values are present. Such is often the case in Colorado, especially in ranchlands where the native prairie or other natural habitat has been preserved. With respect to federal regulations, historic value can only serve as a qualifier if there is a national certification involved. Agricultural and open space lands that lack other qualifying criteria, can qualify if they are part of a clearly delineated, land protection program authorized by a governmental body (typically, a county government).
2.
How much
land is needed to do a conservation easement?
Most any size of land can be protected with an easement. A conservation easement may apply to only a small part of an owner's land or to all of it, depending upon what the owner wants to protect and whether the easements and restrictions are acceptable to the monitoring organization. As a practical matter, the smaller the parcel the less likely that it will have significant conservation values that warrant placing a conservation easement on it. Palmer Land Trust currently holds easements on ranches as large as 4,000 acres and on urban parcels as small as eleven acres. Unfortunately, the cost of preparing and monitoring an easement can sometimes outweigh the conservation values of a property that is very small. The Land Trust evaluates each proposed easement on a case-by-case basis. (See “The Palmer Land Trust - Land Values Check List”).
Any owner of property with qualifying conservation values (see “The Palmer Land Trust Land - Values Checklist”) may grant a conservation easement to an authorized holder of easements that is willing to accept the easement. If the property belongs to more than one person, all owners must consent to granting the easement. If the property is mortgaged, the owner must obtain an agreement from the lender to subordinate its interests to that of the easement holder so that the easement cannot be extinguished in the event of a foreclosure.
4. Why do landowners grant conservation easements?
Landowners grant conservation easements to protect their land in perpetuity from inappropriate development or land use. Usually, they want to keep things the way they are. A conservation easement, because it runs with the title of the property, assures the landowner that the conservation values of the land will be protected forever, no matter who owns it. The donation of an easement may also provide grantors with important tax benefits and secure desired estate planning objectives. (See “Tax Considerations”)
5.
What are the
basic elements of a conservation easement document?
First, the document identifies the owner of the property as the grantor and the land trust or governmental agency that will hold the easement as the grantee. A description of the designated property follows, identifying the special features or significant qualities that will be protected. A section explicitly states the grantor's purpose for donating the easement. A good portion of the documents details the use restrictions and prohibitions—which the recipient organization pledges to monitor and uphold—and also specifies the rights reserved by the landowner The final sections include standard administrative provisions addressing such matters as notices, enforcement, warranties, etc.
6.
What is the legal basis for conservation easements in Colorado?
Colorado law (C.R.S. §38-30.5-101 et seq.) recognizes conservation easements as fully transferable interests in real property. To qualify as a property interest, a conservation easement must be granted to either a governmental entity or a 501(c)(3) charitable organization, such as a land trust, founded at least two years prior to the receipt of the easement. The law also stipulates that the land and easement must meet one of the four conservation purposes described in the answer to question number one above. To qualify for tax benefits under State or Federal law, the easement must comply with section 170(h) of the Internal Revenue Code.
7. To
what extent does the government get involved?
For the most part, these transactions are private agreements between property owners and qualified, private, non-profit organizations such as the Palmer Land Trust . The easement document is available to the public because it must be recorded in the Office Clerk and Recorder of the county where the property is located. When an easement is held by a land trust, the government is not involved in the monitoring or potential enforcement of the easement. To the extent that a property owner claims tax benefits, both the Internal Revenue Service and the Colorado Department of Revenue have the power to audit the transaction and challenge for the appraisal and the tax benefits claimed by the owner. In some cases, one or more levels of government are further involved through providing funds for the purchase of the easement (i.e., ‘purchase of development rights’). Nonetheless, for an easement donated to a land trust, governmental agencies are not involved in the monitoring or enforcement of a conservation easement.
8. What
is the difference between a conservation easement and a deed restriction?
Deed restrictions are covenant agreements that specify certain use limitations on a property. These restrictions run with the land, but lack the special legal status of a conservation easement. Unlike an easement, deed restrictions do not transfer rights to a land trust organization that commits to monitor the agreement and ensure compliance with the easement’s stated objectives and conditions. In addition, an owner granting a deed restriction may not claim and tax deductions or credits from the transaction.
9. What
rights do landowners retain?
Grantors of conservation easements retain title to their property. Both the donated and reserved rights are specified in the easement document. The donated rights are the uses of the land that become prohibited (e.g., commercial logging and surface mining) or restricted (e.g., the number, type, location, size, and uses of buildings and structures). Although some landowners may grant limited public access, most reserve the right to regulate use by the public and by guests as they choose. Owners may still construct fences and agricultural structures, make necessary improvements, and undertake habitat restoration projects. They may sell, gift, transfer, or mortgage the easement parcel, conduct ranching operations, harvest trees for use on the property, and occupy and use their property in any way that is both compatible with the specific terms of the conservation agreement and in keeping with the overall conservation purpose of the easement. The easement will also include some land stewardship requirements such as the management of noxious weeds, protection of water quality, and limiting soil erosion.
10.
What rights
do landowners give up?
Conservation easements are individually tailored to meet the specific desires of the landowner and to protect the distinctive values identified on each property. As a general statement these agreements restrict development of residential subdivisions, limit nonagricultural commercial activities, prohibit surface mining, and prevent other stated uses that would jeopardize the property’s particular conservation values. Owners may desire to place other restrictions or use limitations on their land, such as disallowing billboards, motorized, off-road recreation, construction of paved roads, and the establishment of commercial feedlots. The list of conditions in the easement document reflects mutually agreed upon stipulations reached between the landowner and the land trust. Recognize that it may not be feasible for a land trust to monitor and enforce some restrictions that the landowner wishes to impose, such as prohibitions against trapping predators or hunting.
11. What responsibilities does the land trust assume?
Landowners convey to the land trust the right to preserve and protect the conservation values identified in the easement. The easement conveys to the land trust the right—with proper advance notification—to enter the property (usually once a year), and monitor its condition. If violations of the agreement occur, the land trust as a final resort has the legal right to obtain a court order prohibiting a violation and requiring restoration of damaged property. This power insures that the landowner's (the original grantor) desires as spelled out in the easement will be enforced in perpetuity. Mutual respect and shared objectives almost always lead to the satisfactory resolution of misunderstandings without legal action.
12. What
are the responsibilities of the landowner?
Not only must the landowner personally adhere to the provisions of the easement, it is the landowner’s responsibility to insure that third parties do not diminish the conservation values of the land, nor transgress against the prohibitions and restrictions in the easement. For example, if motor vehicle trespass results in soil erosion or damage to vegetation, it is the landowner who must see to it that the trespass ceases and that the damaged area is restored. The Land Trust may provide assistance in these matters, but it is the landowner who must take the necessary action. In addition, the landowner remains responsible for maintaining the property and paying taxes and insurance.
13.
What other documents will be needed?
A "Baseline Inventory" that describes and documents a property’s condition, use, alterations or improvements, and conservation values is required by the IRS if the grantor intends to take a tax deduction for the gift. The Land Trust requires the document regardless of any federal requirements. The baseline document provides the Land Trust with a reference point for monitoring the property’s condition through time. Although it is the responsibility of the landowner to provide this documentation, the Land Trust will facilitate its procurement by providing content specifications and a list of third party consultants experienced in preparing the document. Some land trusts take on the responsibility for compiling the document. In Colorado, the more common practice is for the landowner to hire a natural resource professional. The document must be completed before the easement can be consummated. Both parties will sign a form that acknowledges the accuracy and completeness of the Baseline. Landowners need to provide a title commitment (and after consummation of the easement, title insurance), information about the status of mineral and water rights, and maps and other descriptive information for the property the easement will affect. If mineral rights have been severed, a mineral geology report is required (by the IRS) confirming that the likelihood of mineral development is so remote as to be negligible. The IRS requires an appraisal of the property to substantiate a tax deduction claim. The easement must be recorded with the local county clerk. In some cases, the land trust may require some survey work to identify the boundaries of a building envelope or to locate existing improvements.
14.
What steps and costs are involved in completing a conservation
easement?
($ = A cost to the landowner)
· First, make contact with land trusts that serve your area to obtain information about their history and experience and the types of land and conservation values they seek to protect. Remember that there are only about three land trusts that serve the entire state of Colorado and that in any given area or county, there is only going to be zero to two local land trusts. Obtain each organization’s ‘information packet” and/or study their website information. Have a brief phone conversation with a land trust representative; share some information about your property and your motivation for protecting it.
· After studying the paper or website materials, try to narrow your choices of land trusts you wish to consider further. Schedule a more in-depth conversation via telephone or an initial, get-acquainted meeting at the Land Trust’s office. Allow time to ask questions, explore general ideas, and exchange thoughts about the land and conservation easements, and learn more about the land trust. Try to narrow your choice to one land trust.
· If the land trust of your choice shares your interest, schedule a site visit. In the case of Palmer Land Trust, the visiting staff and/or volunteers will prepare a report for the Land Committee, a group of Board members. The Land Committee will evaluate how well the property and the landowner meet Palmer’s conservation values criteria (see “Land Values Checklist”). They will also consider a list of factors, that if present, make it less likely that the Land Trust will move forward with you (for example, the property is not located in one of the counties that Palmer has identified as its service area). They will also consider a list of factors that if present, increase the likelihood that the Land Trust will agree to work with you (for example, your land is adjacent to and, thus will buffer, public land). The Land Committee’s approval is required for staff to continue to be involved in the process.
· If you have proceeded this far and believe that an easement makes sense for you, consult with an attorney experienced with conservation easements. An easement places significant restrictions on your right to use your property and an attorney can help you decide what type of rights you need to reserve to meet your needs.
· Begin to formulate the conservation values you want to preserve and the rights or uses you wish to reserve.
· Decide whether you want to manage the project yourself and coordinate the various consultants advising you or if you want to hire someone (usually an attorney) to provide management services (or that you prefer some kind of sharing of responsibilities). As appropriate, then engage legal counsel to provide project guidance, management, and review of the Land Trust’s model conservation easement document and produce a first draft of terms and conditions that represent your particular objectives. (~$2,000 to $8,000)
· Identify your financial goals and involve tax and legal professionals with expertise in estate planning and tax accounting issues. ($, cost will vary)
· Contract to have a Baseline Inventory written for the property. The Baseline consultant will need a draft version of the easement to complete the work (~$2,000 to $4,000)
· Obtain a title commitment for your property. (The commitment is usually gratis; the insurance will cost ~$600-$1,500. Make sure the Baseline consultant gets a copy.)
· Engage an appraiser to determine the market value of the property with and without the conservation easement restrictions. The appraiser will also need the draft easement language to finalize his/her work. (~$6,000 to $10,000)
· Clarify, edit, and amend the easement document as needed through ongoing discussions with the Land Trust. Develop supporting documents—Exhibits—for the easement (legal description, water rights, building envelope and driveway map)
· Secure final Palmer Land Trust Board approval for the conservation easement document language and the project itself (minerals status information or a mineral report and title commitment are required before this step can take place).
· Before ‘closing’, the Land Trust must receive the baseline document (2 copies, 2 wks. prior) and the appraisal or appraisal summary (at least 2 business days prior). If there is a lien or mortgage on the property, the grantor must obtain the lender’s signature on a ‘subordination agreement’ form before the Deed of Conservation Easement can be signed. Remember that if there are substantive changes in the easement language or significant changes in acreage, the Board will need to review the project before the agreement can be consummated.
· Close the agreement. The ‘closing’ usually takes place at a title company office. Sign the easement document and the baseline acceptance document. We prefer to do this in person.
· Record and file the final, signed easement at the county clerk’s office. Provide a copy to the Land Trust. (~$75-$95 per copy)
· Contribute to the Easement Stewardship Fund. To meet the costs of stewardship assumed in perpetuity with each easement, the Land Trust asks for a contribution from participating grantors. We pool these donations with all similar ones and draw from these funds to monitor, protect, and defend equally and to the fullest extent possible the conservation values of all donated easements. ($15,000 or more depending on nature of easement and the extent of reserved rights)
15. What
are the tax benefits of a conservation easement?
Potentially four different tax benefits are associated with a conservation easement: federal and state income tax benefits, a reduced estate value, and lower real estate taxes. If a conservation easement satisfies the Internal Revenue Code requirements, the grantor may receive a federal charitable income tax deduction and a Colorado state tax credit for donating a conservation easement. For estate tax purposes, the granting of an easement generally lowers the market value for the property. When property in an estate is subject to a conservation easement, the adjusted asset value for the property reduces its federal estate tax burden. In Colorado, the law stipulates that easements placed on lands with an agricultural tax basis must be forever assessed at agricultural levels despite changes in future use. Because the potential tax benefits of an easement are quite complicated, an landowner considering an easement should consult with his or her tax advisors and not rely on general statements concerning these potential tax benefits. A landowner who fails to comply with all of the requirements imposed by the federal and state tax codes will not realize the anticipated tax benefits but the donated easement will remain in place.
Colorado is one of a few states that provides tax credits for landowners granting conservation easements. Beginning in 2007, a landowner will receive a credit equal to 50% of the appraised value of the easement, up to a maximum credit of $375,000. This credit may be sold. Landowners selling credits have received up to 85% of the value of the credits by selling them to taxpayers who then use the credits to reduce their state income tax liability. These credits are usually sold through tax credit brokers or accounting firms.
(see “Tax Considerations”)
16. Who
establishes the dollar value of a conservation easement?
An appraisal will determine the value of the property before and after the encumbrance of a conservation easement. The gift value of the easement, which establishes the amount of a federal income tax deduction and state tax credit, is the difference between these two figures. An appraisal should be done by a certified appraiser who has experience with conservation easements lands, with local real estate conditions, and with the particular type of land use in question. Appraisers who are qualified, but who lack such specialized experience, should perform the work under the supervision or mentorship of a more experienced appraiser. A new federal statute requires that appraisers be certified or accredited by a national organization. Palmer Land Trust requires that the appraiser engaged is acceptable to tax credit brokering (or accounting services) firms. Do not engage an appraiser until you have received verification from at least one such firm. The Land Trust requires written verification of such ‘acceptability’. The Land Trust will review the appraisal and may reject the easement if the appraisal does not appear to be competent and well documented. The Internal Revenue Service and the Colorado Department of Revenue will require that a summary of the appraisal be attached to the landowner’s tax return.
17. What happens after the easement is in
place?
After signing a conservation easement, the Land Trust and the landowner begin a working partnership to assure that the intended conservation objectives become a reality. Landowners continue to make all of their own property management decisions. The easement limits only those activities such as subdivision, commercial development, and surface mining, specifically prohibited in the agreement. A land steward (staff or volunteer) from the Palmer Land Trust will schedule annual monitoring visits to the property. These occasions provide an opportunity to answer questions or respond to concerns. A clear understanding of the easement’s terms helps to avoid potential conflict. During the Palmer Land Trust's 30-year history, this system has served landowners well. Only a number of minor easement infractions have occurred, and almost all have been resolved by voluntary compliance.
18. Can
a conservation easement be changed?
Conservation easements place perpetual use restrictions on a parcel of land. An amendment to a conservation easement must be consistent with the terms and conservation intent of the original agreement and receive written approval from the current landowner and the Land Trust. The proposed change must maintain or enhance the conservation values of the land. As a general rule, an amendment must not reduce existing restrictions and may not release property from an easement. An amendment proposal will likely require a site visit by a staff member. The cost of evaluating & preparing an amendment are the responsibility of the party proposing of the amendment. These costs include staff time, travel expenses, and consultant (e.g., attorney) fees. For these reasons, changes to an easement rarely occur except to add property or to impose new restrictions for which an additional tax benefit may be claimed.
19. How
are the terms of an easement enforced?
In addition to the formal, annual monitoring visits, the Land Trust will seek to prevent future easement violations by orienting new landowners to the provisions and processes of a prevailing easement. If the land trust steward monitoring the easement notes conditions or activities that violate provisions of the easement, we contact the landowner and seek voluntary actions to achieve compliance. Violations are infrequent with the original grantors (although third party violations are not that uncommon). As time passes and ownership changes, however, the likelihood of violations increases. For the rare circumstance when voluntary resolution fails, Colorado law and the easement agreement permit the Land Trust to initiate legal action to require an owner to comply with an easement, and, in appropriate circumstances, to repair property damaged by an easement violation. The standard form of easement documents provides that the costs of an enforcement action are charged to the landowner.
20. Does
PLT provide info about landowners and easement properties to other parties?
Explain.
PLT does not provide information about you or your property to other parties, except to acknowledge the existence of an easement. There are exceptions to this policy. We provide information in the following ways:
1) We share information with the professionals and consultants—such as the appraiser and attorney—that you formally identify to us on a signature form.
2) We participate in a mapping program at Colorado State University called CoMAP (Colorado Ownership, Management and Protection) (http://www.nrel.colostate.edu/projects/comap/index.html). This is the official state mapping project covering public and private conservation lands. It is supported in part by GOCO. We provide location (legal description) and acreage information to them. We do not provide owner names or contact information, instead relying on a code system to identify our easement and other properties. If your property is in El Paso County, we provide similar information to the Parks Department for monitoring the location of conservation easement acreage.
3) In the past, we have named all of our conservation easement donors in our annual report. Beginning with the 2005 annual report, we have featured all of the projects consummated that year, unless the donor wished not to be included. With a landowner’s permission we publish a paragraph-length description that includes the name of the property and/or the grantor-owner and the county where the property is located.
If you have any questions, concerns, or objections about this last exception, please contact us. Also, from time to time, we may feature a particular easement property in a newsletter or other document, format, or media. The landowner involved will be contacted for permission.
We provide information as described in 2 and 3 above for the following reasons:
1) Conservation planning is a very important part of good preservation. Only with comprehensive general information can strategic and effective conservation take place.
2) Almost all easement grantors avail themselves of state and/or federal income tax benefits. This means that indirectly, the public is paying for what you and the state and federal governments treat as a charitable donation. Therefore, we feel that the public—as a group and via governmental institutions—is entitled to some information about the privately protected land in the state.
3) We feel that as a nonprofit organization, dependent on the community for support, we must “tell our story” and we can’t really do so without communicating about the special lands and the special land stewards (owners) that protect those lands.