Conservation Easements: The Good, the Bad, and the Ugly

Conservation easements are complicated legally binding restrictive agreements that can affect values ​​for generations indefinitely. A careful benefit analysis should be considered before entering into a conservation easement.

Basically we can define a conservation easement as an agreement to restrict some form of land use in exchange for a tax benefit. Conservation easements by design have only one objective and that is to restrict the potential for future development of the land. A conservation facility can occur in many ways. A majority land owner may want to dedicate a portion of the land for public use in the creation of a park, or a farmer may want to protect the farm from development and keep the farming tradition alive in the community. Also, a property owner may agree to stop logging and leave the property to a community trust. Whatever the motivation, the effect of the conservation easement is to restrict the use or development of the property indefinitely. Certain tax benefits accrue from these types of gifts, grants, or restrictions in the form of tax deductions equal to the dollar loss experienced by the owner of the land due to the restrictive nature of the easement.

Federal tax authorities are very interested in anyone who gives away or restricts their property for a tax benefit. With this in mind, a property owner will want to gather as much information as possible about the tax effects, legal implications, and long-term effects of placing a deed restriction on the property. An appraiser who is qualified to assess the eventual diminished value and certify that it is accurate must be hired. If the gift or restraint is substantial, a second opinion on value will be required.

Conservation easements have been used to prevent urban sprawl for many decades. The method that has been used is to purchase development rights (a shipping area) from a rancher, farmer, or majority owner of the land with a covenant (conservation easement) not to develop the land. Development rights are then transferred to a (receiving area) as designated by the land-use planning authorities of a city or county. The shipping area land owner can get a cash benefit in the form of developer cash or government tax savings. Another way conservation easements are used would be to restrict a portion of the land to public use and then develop the neighboring parcel which may experience higher value due to neighboring open space.

Whatever the motivation, a landowner must be careful to steer clear of the abuses of the federal tax code. Some charitable trusts have been found to engage in illegitimate schemes to accept a gift that leaves the owner of the land with less than a favorable tax outcome. Conservation easements are permanent and work with the land forever. Caution should be exercised when considering a conservation easement. If the goal is to restrict a certain use, then a negative or restrictive easement may be a candidate.

If you are considering a conservation easement for your property, consult a qualified CPA, land use attorney, and appraiser before entering into any agreement.