PRESERVATION EASEMENT PROGRAM PRESERVATION ALLIANCE FOR GREATER PHILADELPHIA TECHNICAL INFORMATION

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1 PRESERVATION EASEMENT PROGRAM PRESERVATION ALLIANCE FOR GREATER PHILADELPHIA TECHNICAL INFORMATION WHAT IS AN HISTORIC PRESERVATION EASEMENT? An historic preservation easement is a means by which the owner of an historic building and its land can insure its preservation while at the same time retain possession and use of the property. Through an easement, a property owner transfers to another party certain rights and privileges pertaining to that property. The preservation easement is in the form of a deed granted in perpetuity to the Preservation Alliance for Greater Philadelphia (the "Preservation Alliance") that requires that the current and all future owners maintain the historic character of the property. The easement specifies the maintenance requirements for the building; imposes restrictions upon modifications to one or more facades (sides) of the building and on all or a portion of the land surrounding the historic building; and provides for monitoring and enforcement of the easement. WHY GIVE AN EASEMENT? An historic preservation easement is given to preserve the appearance of an historic building and its surrounding setting. Often the owner of the property wants to be sure that the visual appearance will not be altered or neglected. By giving an easement, the owner is assured that the property will be protected indefinitely, no matter who the future owners may be. There also may be tax advantages associated with giving such an easement. The granting of an historic preservation easement is often treated as a charitable contribution. Historic properties protected by Alliance easements: left, the Drake Apartments; right, the Belgravia

2 WHAT BUILDINGS ARE ELIGIBLE FOR A PRESERVATION EASEMENT? While any suitable historic building can be the subject of a preservation easement, the 1980 extension of the 1976 Tax Reform Act restricts charitable deductions on taxable income for easement contributions only for properties individually listed on the National Register of Historic Places or certified as contributing to a National Register Historic District. Information on the historic districts in Philadelphia can be obtained from the Philadelphia Historical Commission, and for districts outside Philadelphia, from the State Historic Preservation Offices in Pennsylvania, Delaware or New Jersey. It is possible to donate an easement on a property even if it is not on the Register, but it is not possible to take a charitable deduction for the donation. In addition to donating an easement on the facade of the building, a property owner may also donate an easement on the adjacent open space, if it has historic or scenic values, and on a significant interior space provided that the space is regularly accessible to the public. WHAT RESTRICTIONS ARE IMPOSED ON THE PROPERTY OWNER BY THE PRESERVATION EASEMENT? The primary restrictions of an historic preservation easement relate to the physical maintenance and possible alterations to the building's exterior appearance. The property may continue to be used for whatever legal purposes the owner may choose. Moreover, the owner may alter the interior of the building in any way he wishes. For example, the owner may create a completely modern interior so long as the historic exterior is maintained in accordance with the requirements agreed to in the easement document. The donor of an easement assumes the obligation of securing the approval of the Preservation Alliance for Greater Philadelphia before undertaking any changes to the exterior, such as cleaning, repointing masonry, or altering the windows. The owner, of course, must also comply with the applicable zoning and building codes. HOW LONG DOES AN EASEMENT LAST? An easement can be for any length of time to which the parties agree. However, the Internal Revenue Code allows charitable deductions to be taken only for easements donated in perpetuity. WHO GIVES AN EASEMENT? Any public or private owner of an historic property can donate a preservation easement. The kind of ownership affects the tax benefits that may result from donating an easement. An accountant or an attorney familiar with the IRS regulations governing charitable contributions can determine the tax benefits for a specific donor. The owner at the time of the easement donation, and all subsequent owners, is bound in perpetuity by the requirements and restrictions of the easement. WHO DETERMINES THE ELIGIBILITY OF THE BUILDING AND ITS RESTORATION REQUIREMENTS? The staff of the Preservation Alliance for Greater Philadelphia and the Preservation Alliance s Easement Committee first determines whether a property is eligible for a preservation easement. If the building is deemed eligible, the Preservation Alliance and the property owner come

3 to an agreement as to what restoration (if any) should be undertaken over a mutually acceptable time period before accepting the easement. WHO IS RESPONSIBLE FOR IMPROVING AND MAINTAINING THE EXTERIOR? Although the property owner grants certain rights to the Preservation Alliance under the terms of the easement, the owner retains full possession of the property and is responsible for maintaining the exterior features protected by the easement. As part of the easement, the property owner agrees to improve and maintain the exterior to the agreed upon level of preservation. The owner is also responsible for obtaining adequate fire and liability insurance and for listing the Preservation Alliance as an additional insured on the owner's insurance policy. Left: Merchants Row. Right: an easement protects the lobby of the Atlantic Building WILL THE GRANTING OF AN EASEMENT ALWAYS INVOLVE EXPENSIVE IMPROVEMENT TO THE EXTERIOR? The Preservation Alliance for Greater Philadelphia's objective is to preserve the visual character of historic buildings in their settings. It does not require their full restoration. In many cases, an easement can be negotiated that accepts the condition of the building as it exists and provides guidelines for its future restoration. This insures that any changes to the exterior in the future will contribute toward the structure's eventual restoration. WHAT IS THE PROCESS FOR MAKING CHANGES TO THE EXTERIOR AFTER AN EASEMENT HAS BEEN GRANTED? The property owner must submit proposed changes to the Preservation Alliance, which determines whether or not they would be compatible with the building's historic and architectural character. All major changes require the advance approval of the Preservation Alliance.

4 WHAT HAPPENS IN THE EVENT OF THE ACCIDENTAL DESTRUCTION OF THE EXTERIOR? In the event of a partial destruction of the exterior, the owner is required to make emergency repairs to render the property safe. The owner would then work with the Preservation Alliance to restore the building to the easement specifications. Afterwards, the full terms of the easement would continue to apply. In the event of a total destruction, the easement would continue and require that any new building erected on the site be compatible with the historic buildings of the surrounding area. TAX ASPECTS - THE AMOUNT OF THE DEDUCTION. The tax consequences of the gift of a preservation easement depend upon the property owner's particular tax situation in addition to the value of the easement donated. Interested property owners should discuss the tax consequences with their accountant and attorney. The costs of the review of the property, the preparation of the Deed of Preservation Easement, as well as the contribution to the Preservation Alliance's endowment for the administration and enforcement of the easement over time are tax deductible generally as expenses necessary to the making of the charitable contribution. Contact the Alliance (see below) for specifics. Left: the Victory Building Right: 108 Pine Street PRESERVATION EASEMENT DONATION PROCESS ELIGIBILITY To claim a charitable deduction for an easement donation, a property must be individually listed in the National Register for Historic Places, or contribute to a National Register Historic. Contact the Alliance (below) for help in determining whether a property is so designated.

5 To initiate this process, the owner is asked to make a small down payment to the Preservation Alliance in an amount estimated to cover the cost of preparing the easement document. At this time, the owner must also submit evidence of ownership of the property. COSTS The cost of the donation of an easement is determined on a case-bycase method taking into consideration the legal and architectural costs necessary to draft the easement document. As a general rule, the Preservation Alliance will require a contribution of five percent (5%) of the easement's value as a contribution to the Preservation Alliance's easement program. There are discounts for donating easements in the first half of any calendar year, and for multiple easement donations by the same donor. For complete information on the fee structure, contact the Alliance (below). DOCUMENTATION The Preservation Alliance prepares a draft of the easement document for review by the owner, the owner's attorney and accountant. This includes the legal description of the property, the restoration and maintenance requirements and the photographic documentation of existing conditions. The owner and the Preservation Alliance review this draft and make any changes that are mutually agreeable. APPRAISAL AND APPROVALS After agreement is reached on the terms of the easement, the owner must obtain if he/she intends to claim a tax-deductible charitable-gift donation at his/her cost, an appraisal of the value of the easement. This appraisal process includes estimating the cost of compliance with the restoration and maintenance requirements of the easement. The Preservation Alliance also requires that it be listed as an additional insured on the insurance policy of the owner. If the property is subject to a mortgage, the mortgagee is required to consent to the mortgage being subject to the easement. FINALIZING THE EASEMENT The owner must submit in advance of closing the consent of the mortgage holder, an insurance certificate and must make a final contribution to the Preservation Alliance to enable it to enforce and administer the easement. Following the closing, the Preservation Alliance records the easement and forwards the recording information to the owner. The grant of the preservation easement in Pennsylvania is generally exempt from state and local real estate transfer taxes. ADDITIONAL INFORMATION AND ASSISTANCE in donating an easement should call or write: Property owners interested Preservation Alliance for Greater Philadelphia ATTENTION: J. RANDALL COTTON, ASSOCIATE DIRECTOR 1616 Walnut Street, Suite 1620Philadelphia, Pennsylvania Telephone (215) X 2 or randy@preservationalliance.com