What a Landowner Needs to Know
What is a CE?
A conservation easement (CE) is a tax incentive vehicle created in the US Treasury regulations. Its purpose is to remove qualified rights from real estate. The conveyance of that right is a grant deed like any other real estate grant deed with one significant difference; the right conveyed cannot be used by the grantee. By becoming a grantee, the entity accepts the responsibility to watch and enforce what restrictions the seller has imposed on the land; forever. The grant conveyance is a liability rather than an asset.
To qualify, a right removed (like development or discontinued use of land for a habitat preservation), must achieve some natural resource conservation public policy on the books at either the local, state or federal levels. Almost anything imaginable can qualify, but in order to sell it, there needs to be an interested and capable buyer.
What do Land Trusts Do?
A land trust is a non-profit, non-government organization (NGO), chartered by a State and recognized by the IRS as a eligible to be a CE grantee. They are chartered to solely represent the interests of the public.
Landowners interested in selling a CE usually do not need a land trust to negotiate a deed and acquire funding. Although someone must come to the property each year and watch and inspect to ensure compliance of (police) the deed restrictions, which is called monitoring. If the funder does not have the capacity to carry out the monitoring, a land trust will be a necessary partner at some point in the process. If the deed is constructed properly and the land trust paid adequately1, any land trust doing their job will take on the responsibility. At any given location there will usually be more than one good land trust to choose from, although perhaps not more than one local one.
Land trusts do not supply the capital to purchase a CE, but they are often the deed grantee, The money comes from public programs and private foundations. If a land trust is the primary contact of the landowner, they will approach the funder in behalf of the landowner. In order to obtain the funding, a land trust must incorporate the funders’ goals in the deed.
Government entities can also be the grantee, but regardless of whether the funder is public or private, land trusts usually become the funders’ agent to provide services to carry out the necessary tasks in a CE transaction like compiling a baseline report, administering funds to help a seller resolve title issues and commissioning an appraisal.
Although some land trusts have a significant private sector experience within their staff and board members, If they are perceived to be representing a landowner’s interests, they can loose their charter or their funding source. Land trusts tend to be perceived as landowner advisors, and often take on that role. But a buyer or buyer’s agent advising a seller is simply a lack of fiduciary integrity.
What Can Land Trusts Do Better?
AgLand recommends that landowners use a local land trust to monitor their CE . The advantages of having the monitoring done by a local NGO, rather than a remote land trust or government agency are overwhelmingly compelling. A local land trust holds the great potential for a higher calling with regard to working lands, than just policing the terms of conservation easements.
They can be advocates for husbandry and conduits for landowner/community connectivity. As a land trust’s obligation is to represent public interests, that obligation can best be served by setting the stage for maximum stewardship. Maximum stewardship requires that local communities be working lands advocates. A land trust has the potential to provide a stewardship bridge through community connectivity. Of course only a local land trust can achieve this.
What does a good CE look like?
The challenge of any working-lands CE is to structure the deal so that working-lands values are effectively protected. This means that a ranch or forest remains at least with the potential to generate more sustainable revenue from resource use than is currently occurring, resource derived economic and enterprise flexibility is not degraded, and burdensome overhead associated with monitoring is eliminated2.
A good CE should be illustratable with a crayon. In other words it needs to be simple to understand by successors of both the grantor and grantee. To accomplish this a CE needs to only focus on tangible, appraisable, and monitorable land use restrictions, and avoid any management related restriction. This approach is almost non-existent. In the west.
Conversion of resource lands to low density housing and to public ownership are the enemy to public and private values alike. Rural farm & ranch cultures, family & community heritage, foundation economies, husbandry and community security are all at risk along with open space and habitat. If we can manage to conserve the working integrity of a landscape, and take a cooperative approach in government, the management integrity and habitat quality take care of themselves.
What does a bad CE look like?
It’s irresponsible and arrogant to dictate management methods in a perpetual deed. It’s an inappropriate interpretation of the intent of the CE vehicle created in the treasury code. Management terms also often involve performance of some kind (like snag numbers per acre). A deed can’t effectively dictate performance without also describing the exact terms of triggering a violation, and how restitutions will be made.
With the exception of grazing land residual dry matter (RDM), clarity on violation of performance triggers and what the consequences will be are never be in writing. Working-lands landowners simply would not agree to it. That ambiguity makes a CE unmonitorable and unenforceable, and that will ultimately result in conflict. CEs requiring RDM retention are also irresponsible. Forcing RDM retention is a dated academic idea, and will be out of vogue in the near future. When management dictated in a CE becomes obsolete, it will also result in conflict.
CEs were never intended to require performance. Landowners can easily take responsibility for taking an action, but being in violation for not taking action is an ignorant approach; it will result in conflict.
NRCS Conservation Easements
All NRCS CEs convey management control of the land from private landowners to the federal government in the grant deed. It’s a fact that can be verified by having an attorney read the standard NRCS deed, or giving your NRCS State Conservationist a call.
FEASILIBILITY DETERMINATION
A landowner considering a conservation easement first needs practical advise on whether one is feasible or not, where to get help and how to get started. A phone call to AgLand will often nip it in the bud and save you years of frustration, but if there is potential, we will come to your ranch/timberland for a day or two on your schedule to better understand your needs, identify working strategies and document a procedure to take you through it.
EASEMENT ADVACOCY
AgLand only advocates for working-lands landowners. Our role as a conservation easement facilitator is to protect all of a landowner’s interests, but our particular practical expertise is in the guarding of both the economic integrity and uninfringed management of working-ranch or forest properties through the conservation easement process, while optimizing financial returns to landowners.
In most cases, we engage working-lands landowners interested in selling a conservation easement by a long term agreement, and are paid only if the terms of the agreement are achieved. AgLand gets paid at the time the landowner is paid for the completed transaction.