AN INTRODUCTION TO CONSERVATION EASEMENTS FOR THE NON-LAWYER

Transcription

1 AN INTRODUCTION TO CONSERVATION EASEMENTS FOR THE NON-LAWYER James Wyse, Esq. Herold and Haines, P.A. 25 Independence Boulevard Warren, New Jersey (908)

2 An Introduction To Conservation Easements For The Non-Lawyer Initial Thoughts If you are involved with land preservation or land use planning, you have probably heard of conservation easements. You may be associated with a land trust that holds conservation easements; you may know someone who has donated a conservation easement on his or her property; you may have sold development rights on your own land to a governmental agency; you may be a member of a planning or zoning board that has acquired conservation easements on stream corridors or steep slopes as part of a site plan or subdivision approval. But the chances are you have only limited familiarity with the kinds of provisions found in a well-drafted easement document. And unless you are a real estate attorney, you may not be acquainted with the procedural steps that have to be taken to successfully protect property using conservation and agricultural easements. These materials have been prepared to help you better understand easement documents and the process involved in creating and transferring them. They include a brief description of the legal and practical steps that must be taken, and a thumbnail explanation of each of the major types of provisions found in a good conservation easement. What follows is, of course, an abbreviated guide. It is not a model easement. It is not intended to substitute for the guidance of experienced legal counsel, or the input of qualified land stewards and conservation biologists in the planning and preparation of easement documents for particular parcels of land. Likewise, this article will only touch on federal and state tax benefits that may be available when a conservation easement is donated or sold in a bargain sale, and the requirements that apply to conservation contribution deductions. Conservation easements can take many different forms depending on the nature of the property, the particular resources the parties wish to protect, and the activities the owner wishes to engage in after the easement is recorded. Some easements are intended to protect wildlife habitat and biodiversity, and therefore require that the land be left in its natural state, allowing only passive recreational use. Others are primarily meant for farmland preservation and permit various agricultural activities on the property, some of which can be fairly intensive uses. Still others create greenway corridors, protect scenic views, or assure sustainable woodland management practices. In my practice, I have often combined several of these purposes in a single easement. The term conservation easement is used in this outline in a generic sense, to refer to any easement that limits future development of land in order to protect open space, wildlife and natural resources, whether it be a pure conservation restriction, an agricultural easement, an easement for forest management, or an easement for public recreation. However, there is no such thing as a generic easement one that is suitable for all properties. At the very least, every conservation easement must be drafted to take into account the unique characteristics of the particular property on which it will be placed. In addition, the parties involved may have different ideas about what should and should not be included. Moreover, the laws of the jurisdiction in 2007 James Wyse 1

3 which the property is located and the requirements of various funding agencies will frequently dictate variations in the form of conservation easements. The best easement is one that meets the reasonably foreseeable needs of the parties, effectively protects the resources you are trying to preserve, and provides the holder of the easement with the necessary rights and remedies to enable it to monitor and enforce the easement over the long haul. More often than not, the document will also need to qualify for a charitable contribution deduction for state and federal income tax purposes, and for reduced property valuation and special tax exclusions available for federal estate tax purposes. One may draw a useful, albeit loose, analogy between conservation easements and lease agreements. The essential purpose of both is to define the relationship between two parties, each of whom will have an interest in the same real estate. Of course, the nature of these relationships is fundamentally different. Nevertheless, easements and leases are alike in that they must accomplish two things if they are to work effectively; first, they must anticipate and deal with foreseeable problems that may arise over time, and second, they must define as clearly as possible the relative rights, duties and obligations of the parties so as to avoid future misunderstandings and disputes. In addition, because a conservation easement is intended to last in perpetuity, it must be sufficiently flexible to allow the parties to respond appropriately to unexpected circumstances. A well-drafted easement should, at the least, inform the parties as to what is required of them, help them to avoid disputes in the future, and provide the legal tools to ensure that the easement is respected by future owners. Accomplishing this generally requires more than just a three or four page restriction. Again, the lease analogy may be instructive. Typically designed to last only for five to ten years, most commercial lease agreements are nevertheless lengthy, detailed documents, containing explicit provisions to govern such things as permitted uses and alterations of the leased premises, insurance, repairs, liability, remedies for breach, and a host of other matters. Conservation easements deserve no less attention to detail. A Few Words About Tax Law A variety of tax benefits are available in return for the donation of qualified conservation restrictions. These include both federal and New Jersey state income tax deductions, reduction of federal estate taxes, and a special estate tax exclusion for preserved family lands. Although discussion of the detailed rules governing qualified conservation contributions is beyond the scope of this article, it is a good idea to have some familiarity with them. For the most part, the provisions IRS requires for qualified conservation easement donations are also appropriate for non-tax deductible easements, because they ensure long-term protection and effective enforcement. I have seen a number of conservation easements, drafted by well-intentioned people, that failed to include one or more provisions required for favorable tax treatment. In some cases it has been possible to correct them, and in some cases it has not. Some easements aren t subject to tax requirements, although they are still subject to New Jersey s Conservation Restriction Act. For example, most easements given in connection with land use applications to protect stream 2007 James Wyse 2

4 corridors, steep slopes and so forth don t qualify as charitable contributions because they are given as a quid pro quo for zoning approvals. Even so, these types of easements would better protect the lands they are supposed to protect if they had the types of provisions described later in this article. Briefly, Section 170(h) of the Internal Revenue Code requires that a qualified conservation easement: Satisfy at least one of the conservation purpose tests set out in the regulations (simply prohibiting additional subdivision is not enough); Be perpetual, i.e., it must last forever unless terminated by a judicial proceeding on the grounds that it is no longer possible to carry out its conservation purposes; Be accompanied by baseline information documenting the current condition of the property, if the owner has reserved rights the exercise of which may impair conservation interests; Prohibit all extraction and removal of minerals by surface mining methods; Not permit a degree of intrusion or future development that would interfere with the essential scenic quality of the land or with the governmental conservation policy that is being furthered by the donation, i.e., the owner cannot reserve rights that would permit destruction of significant conservation interests; Give the easement holder the right to enter the property to monitor and enforce the easement (without notice in emergencies), and to require that the property be restored in the event of a violation; Require the owner to notify the holder in writing before exercising any reserved right that might impair conservation interests; Give the easement holder an immediately vested real property right, which must include the right to a proportionate share of any future condemnation award, or of the proceeds of sale following a termination of the easement, per a minimum formula based on values at the time of the gift; Prohibit transfer except to a qualified organization or governmental unit that agrees to carry out the conservation purposes of the easement as a condition of the transfer; Prohibit all but de minimis commercial recreational use (but this applies only if the donor wishes to be able to use the special estate tax exclusion in Code. Sec. 2031(c)); Be recorded (not just delivered) before the end of the tax year for which the deduction is sought James Wyse 3

5 For a thorough discussion of these rules and many other aspects of conservation easements, see The Conservation Easement Handbook published by The Trust For Public Land and the Land Trust Alliance (2005). About The Easement Transfer Process When considering the transfer or acceptance of an easement, one of the first things that should happen is for the landowner and staff members of the recipient organization to tour the property and identify its most significant conservation-related features and characteristics, as well as the type and number of existing structures and the nature of existing uses. The land trust should become acquainted with the owner s vision for the property s future, what the family goals and objectives are, and what conservation, agricultural, woodland, and other values can be preserved through an easement on the land. This is all part of the first step in an easement transaction: making sure that a conservation easement makes sense for the property and the parties, and that the recipient organization is interested in holding and administering an easement on the land in question. Easements can be acquired in several ways: by donation, through a tax-free exchange and, in appropriate cases, by purchase either at market value or through a bargain sale. Donation of conservation easements has become a popular way to preserve family lands. Sometimes the motivation is to enable the family to keep its land instead of having to sell it to pay estate taxes. Sometimes a family simply wants to make sure the land they ve come to love will remain free from development. As you might expect, most organizations ability to acquire easements by purchase is limited by the availability of public funding, and competition among projects for those limited funds. One of the most important and time-consuming tasks in arranging the donation or purchase of a conservation easement is drafting the easement document itself. The parties must give careful thought to activities and uses that should be permitted to occur on the land, and their likely impact on the conservation and other goals applicable to the property. You should evaluate which special or unique features warrant extra protection, and how the property is likely to be used in the future. Clarify how much in the way of further development rights the landowner wishes to keep. While the right to build additional structures is often desirable and appropriate, one must be sensitive to the impact that such rights might have. On some properties, even a small amount of additional development could seriously compromise conservation values. Consideration should be given to locating building envelopes in less sensitive areas and establishing appropriate limits on impervious lot coverage, size and number of buildings, and other bulk restrictions. It can be difficult to form a good mental picture of how a property would look if all reserved rights were fully utilized, but this is very important. If the easement is donated and an income tax deduction will be sought, the donor should keep in mind that reserving the right to build additional houses and other buildings will reduce the value of the easement for tax purposes. Indeed, retaining substantial development rights could result in complete disallowance of a contribution deduction on the ground that the easement fails to further a legitimate conservation purpose. While the recipient of an easement can discuss tax 2007 James Wyse 4

6 rules in general terms, it should never give tax advice to a landowner. Landowner should be encouraged to seek help from competent tax advisors. Once the fundamental decisions have been made, including special features of the property that need to be protected and uses that the landowner wishes to make of the property (residential use, future house lots, farming, woodland management, etc.), these should be summarized in a term sheet. This will serve as a guide for counsel in preparing an appropriate easement document. The following are the most common steps required in order to conclude the transfer of a conservation easement: ü The parties must agree on the conceptual framework for the easement, including the kinds of things discussed above and, in particular, the size and location of areas to be designated for residential and other uses, the amount of additional development that will be allowed, if any, and other special provisions. This information will be given to the attorney so that a draft easement can be prepared and circulated. ü If the easement will be purchased, an option or purchase contract will have to be negotiated. The details of such agreements are beyond the scope of these materials, but the terms will often be influenced by the anticipated sources of funds, their funding formulas and grant matching requirements, appraisal and other due diligence requirements, and the amount of lead time the funding agency can be expected to require. In cases of donation, the organization will generally request a letter confirming the donor s intention to donate the easement, and an undertaking to reimburse costs and expenses in the event the donation does not occur. ü The landowner should provide the recipient with an inventory of existing structures on the property, if there are any, along with their approximate size and, if possible, their location on a survey map. If there are existing tenancies, land leases, or farming agreements, copies should be provided, if written, or a summary prepared if they are verbal. This will aid in determining where various uses should occur, what additional structures would be acceptable, and whether there are any special concerns related to third parties. ü The specific terms of the easement will have to be agreed upon, with input and advice of counsel for both parties. ü A survey map and various metes and bounds descriptions must be obtained and reviewed. This will include, at a minimum, a metes and bounds description of the property. If there will be different use areas on the property, such as a residence area, a future residence area, a conservation area or a farmland area, they too must be described. The survey and descriptions will require the help of a professional surveyor; generally one hired by the landowner. The land trust should be consulted before such survey work is begun, to ensure that proposed boundaries make sense from both a conservation and monitoring point of view James Wyse 5

7 ü A title search must be obtained. This assures that there are no title issues that might affect the validity of the easement or impair its purposes. A copy of the owner s existing title insurance policy, deed, etc. can help to expedite this. ü One or more appraisals of the easement s value will generally be necessary. If the easement is being purchased in whole or in part, the state, county or local agency will usually require two professional appraisals. These are sometimes done at the agency s expense, or the recipient may have to advance the cost of the appraisals. The government agency involved will review the appraisal reports and then arrive at its own certification of the value of the easement. If the owner is donating all or part of the easement s value and wishes to claim a tax deduction, the tax law requires that the donor obtain his or her own appraisal of the easement s value within certain time deadlines. ü It is sometimes necessary, and often advisable, to obtain a phase one environmental site assessment of the property by a qualified environmental consultant. ü Accurate baseline information describing the current condition of the property, including photographs, maps, an inventory of conservation features, and so forth must be gathered, documented, and acknowledged by the parties. This should be completed before the easement is transferred. It is useful to have this information early in the process, so that informed choices can be made about appropriate easement terms. ü If there are mortgage or other liens against the property, they will have to be satisfied or subordinated to the easement before it is accepted. Because lenders usually need time to evaluate subordination requests, you should notify them as early as possible. Provided the reduced value of the property continues to meet lenders loan to equity ratio requirements, they will generally be willing to cooperate. Finally, a word about the stewardship costs involved in accepting conservation easements. Easements represent both an asset and a liability from a holder s point of view. When an easement is accepted, the easement holder assumes the obligation to monitor and enforce the easement restrictions. Besides the initial costs involved in preparing the easement, there are recurring expenses for such things as periodic inspections, preparing reports, photographs, updating baseline data, and so forth; and, unfortunately, there is always the possibility that enforcement action might have to be taken at some point in time. This represents a substantial commitment of staff, professional and other resources a commitment that continues forever, not just for the time it takes to draft the easement, attend to closing preparations and gather baseline data. For these reasons, many land trusts request that an appropriate endowment be established to provide for such future monitoring and enforcement costs. Easement Provisions In Brief Form agreements can seldom be pulled off the shelf and used as is, and this is certainly true of conservation easements. Drafting an easement that it will do what it is intended for a given 2007 James Wyse 6

8 piece of property takes considerable investment of time and effort by the parties and their counsel. Although many provisions can be characterized as boilerplate, they are often negotiated to some degree and, of course, you will always need specific provisions tailored to the unique circumstances of the land and the parties. Moreover, as more and more experience is gained with conservation easements, they inevitably evolve and improve. The following summarizes the provisions found in many of the easements I have prepared for land trust clients, including easements that allow various degrees of residential use, agricultural uses, and woodland management. Recitals The recitals portion of a conservation easement typically contains background information describing the property, the features and natural resources the easement is intended to protect, and other information important to understanding the legal and factual basis for the easement. Recitals are not an operative part of the document, i.e., they do not actually create restrictions or agreements among the parties. But, they can be important in interpreting the easement terms, and should enable the reader to understand the conservation values the property possesses and any governmental policies that favor its protection. Where a contribution is involved, the recitals also set the stage for establishing tax deductibility by describing the public benefits to be derived, the conservation purposes of the grant, and the qualification of the grantee to receive conservation donations. The recitals section should be fleshed out with such things as a description of habitats, adjacent streams, soil types, threatened or endangered species, if any, scenic characteristics, applicable governmental policies or planning initiatives affecting the property (such as inclusion in an open space plan), etc. Definitions A separate definitions section conveniently brings together in one place all of the various defined terms used in the easement. This makes for easy reference when reading the document. Some defined terms are simply a shorthand way to reference things without repeating all the details every time. Other definitions contain important substantive language. Term, Future Instruments & Notice Of Transfer The easement should include a provision making it absolutely clear that it is effective in perpetuity. It is also a good idea to require that the owner include a reference to the easement in future deeds and notify the easement holder when the property is sold. This helps to assure that future owners will know about the easement, and reduces the risk of inadvertent violations. By giving notice of a pending sale, the easement holder can arrange to meet with the new owners, go over the easement with them, and establish a good working relationship. Without such notice, a year or more could pass before the easement holder realizes that there are new owners. Purposes The purposes section provides a touchstone for interpreting the easement, and an aid to determining the permissibility of actions that may not be explicitly mentioned in the document James Wyse 7

9 However, it is not intended to be an exhaustive recitation of every specific purpose furthered by the easement. Rights Of Grantee An easement should confer upon the grantee certain specific rights. These are intended to enable the easement holder to carry out its monitoring and enforcement responsibilities and to do those things necessary to ensure that the conservation purposes of the easement are carried out. Among these are the right to have access, to protect the property and enforce the easement, to place easement boundary signs, and, in some circumstances, to control invasive and other pest species that might otherwise damage the conservation and wildlife values associated with the property. Prohibited Uses The Prohibited Uses section of an easement, as the heading suggests, prohibits uses of the property that would be inconsistent with the conservation and other purposes of the easement. In addition to this general prohibition, a number of specific prohibitions are usually set forth in detail. Prohibitions are often tailored to address circumstances peculiar to the particular property. The approach I usually take is to use broadly worded prohibitions that will apply unless there is a specific reserved right stated elsewhere in the easement. Some prohibitions may also contain builtin exceptions. Subject to specific reserved rights, a typical easement will prohibit commercial or industrial uses, new buildings, roadways and other improvements, removal of vegetation (other than pest and invasive species, and trees that are in danger falling), mining and other mineral extractions, changes in surface topography, storage of hazardous materials, dumping of refuse and waste materials, inappropriate use of chemical fertilizers, herbicides and pesticides, diversion of streams, creation of water impoundments, activities within wetlands buffers, off-road vehicle use, and other activities inconsistent with conservation purposes. Grantor s Reserved Rights Unless you are dealing with a pure conservation easement, the landowner will want to retain the right to engage in various activities on the property. They will necessarily vary from one easement to the next, although certain reserved rights provisions are fairly common. If the property was going to be used partly for agriculture, partly for timber harvesting and partly for residential use, the reserved rights section would be rather extensive, detailing the terms and conditions attached to each of these various rights. It is very important that reserved rights not become so intrusive as to permit the landowner to significantly compromise conservation values. That would undermine the very purpose of having a conservation easement. As noted above, no tax deduction is allowable if a donor reserves rights the exercise of which would destroy significant conservation interests associated with the property. Moreover, most organizations aren t interested in devoting time, attention and resources to an easement that gives the owner extensive development rights, for the simple reason that it doesn t further their conservation mission. The potential impact of specific reserved rights needs to be carefully evaluated on a case by case basis. For example, if the primary purpose of the easement is to protect scenic views, it should prohibit walls, fences, hedgerows, tree lines, and other structures in locations that would 2007 James Wyse 8

10 obstruct or degrade the public s view from nearby roads and vantage points. Limitations on impervious coverage, and perhaps floor area ratio, building size and location, will assure that conservation interests are protected against the impact of future development. It can be difficult to imagine what a maximum build-out under your easement would look like. You might want to consult other organizations or visit other properties to get a visual idea of how properties look with various amounts of lot coverage, what the typical sizes are for barns, riding facilities, run-in sheds, and so forth. Residential Use Provisions Many New Jersey conservation easements involve properties on which there is at least some residential use. Sometimes it may be useful to deal with the residential aspects in a separate provision, and to carve out a specific area on the property to which the residential activities will be restricted. Such provisions are really just a more detailed form of reserved right, outlining the particular restrictions that will apply in any designated residence areas of the property. Carving out a small area around an existing house or houses and treating that area differently is appealing to many landowners, since it provides a sort of residential enclave free of most of the easement restrictions, while not excluding them from the easement entirely. The main restrictions applicable to these areas would typically be a limitation to single-family residential use, and a prohibition against activities that would result in contamination or damage to other protected areas of the property. If you use this approach it is highly desirable to keep residence areas as small a possible, consistent with the need to allow sufficient space for the residential structures themselves and associated gardens and lawn areas. Remember, these areas exist only in the easement. They are not separate building lots, and there is no need for them to meet the minimum requirements applicable to subdivided lots. Thus, a residence area could be one acre, or even one-half acre, even though the local zoning ordinance might require minimum five acre lots. Landowners sometimes insist on being able to create one or more additional residential sites on the property in the future. Often, they will not know yet the exact boundaries of the area they will want to use. In that case, the easement should contains provisions setting forth a procedure for delineating such areas, obtaining land trust approval of them, and amending the easement to incorporate them, as well as specifying the uses to be made of those areas in the meantime. Since the precise boundaries are often not known at the time the easement is conveyed, the general location is shown on a map attached as an exhibit to the easement. In some cases, such as where the State is providing funding for the acquisition of the easement, there may be no choice but to specify metes and bounds descriptions of future residence areas and include them in the easement document. Woodland Management Woodland management easements contemplate that some degree of woodland management and harvesting of timber products will take place on the property, or within the designated woodland management area. Naturally, the cutting of trees, especially in New Jersey forests, is a somewhat sensitive issue. A land trust is not likely to support clear-cutting as a method of woodland management. This is seldom a significant issue, since woodland management activities in New Jersey are often driven by the desire to qualify land for reduced property tax assessment. In easements I have drafted I have identified detailed woodland management objectives oriented toward sustainable yield management techniques, preservation of habitat, aesthetic considerations, and discouragement 2007 James Wyse 9

11 of invasive species. These objectives operate as a guide to future management decisions, and are to be implemented in a written woodland management plan approved by the easement holder. In some cases, production of wood and timber products is merely a means of preserving special assessment for the property. Where that is the case, consideration should be given to including a sunset provision so that such activities will no longer be permitted if such special assessment statutes are repealed, or equivalent preferential assessment is afforded to conservation lands. Finally, an arbitration provision is sometimes included as a means of resolving any disputes concerning the appropriateness of a proposed woodland management plan. Transfer & Extinguishment of Development Rights The net effect of a conservation easement is, of course, to significantly reduce the developments rights available to the landowner. This relinquishment of development rights must be formalized by a specific provision in the document. I recommend that such a provision also transfer in advance any additional new development rights that may accrue to the property as a result of future changes in law. Transferable development credits would be a good example. Thus, if the property would have accommodated 100 housing units before the easement and only one unit after the easement, those development rights will have been transferred to the easement recipient. They could not, for instance, be used to increase development density on other property owned by the grantor or a third party. Access Most access provisions state that no access rights are intended to be given to members of the public, absent some express provision to the contrary. The land trust, however, should specifically be given the right to enter upon the property for purposes of monitoring inspections, enforcement and restoration actions. If the property affected by the easement does not have good road access, you should make sure that the grantor gives the land trust the right to enter upon other lands owned by the grantor, or the right to use easements for ingress and egress that the grantor has on lands owned by third parties. Without clear access, monitoring and enforcement will be virtually impossible. Notice Before Undertaking Certain Activities Federal tax law requires that the landowner be required to give the easement holder advance notice before undertaking any reserved rights that might significantly harm or damage the conservation values associated with the property. In addition to being a tax requirement, this is a common sense approach to avoiding costly mistakes before they happen. In the drafting stage, you should try to identify those reserved rights the exercise of which pose a potentially significant risk of harm. New construction is certainly one. The landowner should be required to supply enough information with the notice to enable the easement holder to make an informed judgment as to whether the activity is permitted by the easement and whether any special precautions should be taken. In the long run, the ability to discuss these matters before violations occur is a substantial benefit to both parties, and adds considerably to the long-term effectiveness of the easement in protecting the land James Wyse 10

12 Grantee s Approval As noted in the preceding section, certain activities may be so potentially destructive of conservation values that they should be permitted by the easement only if they are approved in advance by the easement holder. Generally, the issue often arises as to whether the easement holder s approval right is completely discretionary, or whether the granting of approval cannot be unreasonably withheld. This is really a judgment call. Essentially, a reasonableness requirement attached to an approval right establishes a presumption in favor of the activity. In the case of activities that have the potential to pose a risk of significant harm to the conservation or scenic purposes of the easement, it may be more appropriate to provide that the decision to approve or disapprove is within the sole discretion of the easement holder, or at least to establish conservation-related standards and criteria that must be satisfied in order to carry out the activity. Sometimes an owner may want to build in some flexibility to expand the permitted uses of the property in the future is the use is an appropriate one. This is dangerous territory, but can be managed by provision stating that the use will be allowed only if the grantee land trust determines that it is consistent with the conservation purposes of the easement, and that this determination will be in the sole and absolute discretion of the grantee. Property-Related Costs, Taxes & Liabilities It is useful for the easement to spell out various responsibilities of land ownership that remain the obligation of the landowner (such as paying real estate taxes, property upkeep and maintenance, insurance, obtaining required permits, etc.), and to protect the grantee from liability with respect to those matters, including environmental claims. Remedies The remedies provision gives teeth to a conservation easement. Although some remedies are probably available without having to state them in the document, it is better to spell them out than leave them to chance. The New Jersey Conservation Restriction and Historic Preservation Restriction Act (which enables conservation restrictions as a separate property right) merely states that conservation restrictions are enforceable in the same manner as other interests in land. Obviously, this is not very specific. And thus far we do not have enough judicial decisions to establish the remedies available to a conservation easement holder at common law. By way of example, a rule in most jurisdictions is that litigants are not entitled to injunctive relief unless they can show that monetary damages are inadequate. Since our legal system is grounded on the assumption that money will compensate for most legal wrongs, you cannot assume that a court would grant an order requiring, for instance, that property be restored after a violation has taken place. A well-drafted remedies provision avoids this problem by stating that the easement holder will be entitled to injunctive relief without first having to prove the inadequacy of money damages. As mentioned above, the IRS mandates that such a provision be included in a tax-qualified conservation easement. This provision might also set forth a basis for determining money damages in connection with violations that cannot be fully rectified through restoration efforts. The remedies provision should also give the easement holder the right to be reimbursed for its legal fees and other litigation costs if it has to take enforcement action to correct a violation. A court will not award such fees absent an agreement. Note that I do not consider it appropriate to make this right reciprocal. The holder is legally obligated to enforce the easement, violations are 2007 James Wyse 11

13 entirely under the control of the landowner, and failure to get a court to force the owner to correct a violation may have nothing to do with the fact that it took place. Exposing the holder to possible payment of the owner s litigation costs has a powerful and wholly inappropriate chilling effect on enforcement. Assignment & Secondary Right Of Enforcement It sometimes is necessary or desirable to assign a conservation easement to another organization that will undertake ongoing monitoring and enforcement responsibilities. For example, another land trust may already have, or subsequently acquire, an easement on a nearby property. The easement should allow such an assignment to take place, provided the assignee is qualified to accept and enforce the easement and assumes those responsibilities. If Green Acres Program funding will or might be used to acquire the easement, you will need to include a provision that allows the grantee to give the State a standby enforcement right, called a Secondary Right of Enforcement. This operates as a safety net for the State if the easement holder were to become unable or unwilling to carry out its obligations at some future date. The concept for this standby legal right was developed in cooperation with the New Jersey Attorney General s Office for use in private easement acquisitions funded by the Green Acres Program. The actual form for granting this right to the Department of Environmental Protection is available from the State. Condemnation & Termination Federal tax law requires that the holder of a qualified conservation easement be entitled to a proportionate share of the value of any award in the event all or a portion of the restricted property is condemned. The condemnation and termination provision should implement that requirement. Even where no donation is involved, it is appropriate that any future condemnation award be shared between the landowner and the easement holder. IRS requires that the easement holder be entitled, at a minimum, to the proportion of the value of the easement to the value of the restricted fee at the time of the grant. But, it may be appropriate to provide that, if higher than the IRS minimum, the easement holder be entitled to the amount determined as of the date of the condemnation. The same sharing provision should apply in the case of a judicial termination. Under Section 170(h) of the Internal Revenue Code, a conservation easement must state that it cannot be terminated except through a judicial proceeding, and then only if the court determines it is impossible to accomplish the conservation purposes of the easement. Impossibility should not be measured by the landowner s subjective desires, or the fact the one or more reserved rights can no longer be carried out due to changed circumstances, economic considerations, or the like. Bear in mind that the New Jersey Conservation Restriction and Historic Preservation Restriction Act, N.J.S.A. 13:8B-1, et seq., imposes additional newspaper notice, public hearing and DEP approval requirements as a pre-condition to the release of all or any portion of a conservation restriction. This includes amendments that would allow the owner to engage in previously prohibited activities, and such things as would be considered diversions under Green Acres Program rules James Wyse 12

14 Baseline Documentation The gathering and documentation of baseline data describing the current condition of the property, including in appropriate cases an inventory of species found on the site, special features and characteristics of the property, the size, appearance and location of existing structures, the nature and extent of existing activities and operations on the property, and similar kinds of information, is a very important part of the transfer or a conservation easement. Under federal tax law, the landowner is required to provide such documentation to the easement holder at the time of the donation, although in practice this is usually a joint undertaking. Without adequate baseline data, it may be difficult or impossible to evaluate whether there has been compliance with the easement as time goes on. The baseline data should, in addition to narrative descriptions, include appropriate maps and photographs, and possibly even a species inventory. This information should be signed or initialed by the grantor of the easement, and kept in a very well protected storage area maintained by the easement holder for this purpose. Speaking of storage, baseline photographs should be of archival quality prints stored in accordance with archival standards. Do not rely solely on digital files stored on a computer hard drive, floppy disc, compact disc, or similar medium. Representations & Warranties Both parties to an easement rely upon the truth and accuracy of certain factual matters in giving and accepting the easement. The landowner wants to know that the recipient is qualified to hold and enforce easement restrictions both under applicable tax law, and under state law. The land trust needs to know that the party with whom it is dealing is in fact the legal owner of the property and has the right to convey the easement, that no one has been given the right to carry out activities detrimental to the intended preservation of the property, that the landowner is in compliance with laws applicable to the property and whatever operations the owner conducts on the property, and that there are no known environmental contaminants or environmental liabilities affecting the property. Certificate Concerning Compliance A prospective purchaser, lessee or mortgage lender will sometimes request assurance from the easement holder that the landowner has not violated the easement. Well-drafted easements often provide a mechanism for requesting and obtaining such a certificate. The cost of preparing the certificate, including, if necessary or appropriate, the staff time involved in conducting a new inspection of the property, are most often made the responsibility of the landowner. General Provisions This section of the easement contains miscellaneous provisions concerning such things as the manner of giving notices, choice of law, binding effect, entire agreement, attorney s fees, and so forth. Donation Of Monitoring Fund As noted previously, many land trust organizations request that the landowner establish a fund to cover the future expenses of monitoring and enforcement, since this is an ongoing 2007 James Wyse 13

15 liability for the organization. Where such a fund will be established the easement should acknowledge that fact and require that the fund be used in connection with the organization s monitoring and enforcement activities (although not necessarily for that particular property). In the event of a future assignment of the easement, the easement may (and usually does) also provide that the fund will be transferred to the organization to which the easement has been assigned, for the same dedicated purpose James Wyse 14