Note #3: Amending Conservation Easements – Are There Really Any Rules?
It was 1981 and 1982. I was in Chief Counsel’s Office at IRS in Washington, DC, and one of the assignments on my desk was to write the regulations on conservation easement donations.
There were some issues we spent a lot of time thinking about, and here are a few of those. If someone claims a federal income tax deduction for donating a conservation easement on their property, should the tax rules require public access to that property? What is the definition of a “relatively natural habitat … or similar ecosystem”? If there is a conservation easement on forestland, can the owner cut down the forest and build a public playground for underprivileged children? Or build a ballfield for municipal little league games?
And there were some issues we did not spend any time thinking about. Remember, this was the IRS, and it was around 1981. How do natural landscapes change over time, with or without human intervention? Can a real estate developer donate a deductible conservation easement on “open space” in a subdivision? (In 1981, I do not think the terms “real estate developer” and “conservation easement” had appeared in the same sentence.) Is it ok, and if so under what circumstances, to amend a perpetual conservation easement?
Now, more than thirty years later, I think the most difficult debate in the land protection community is this: is it ok, and if so under what circumstances, to amend a perpetual conservation easement? Let me start this discussion by suggesting that EVERY conservation easement holder needs to adopt its own criteria and policies for amending easements. But as this Note #3 (and its companion, Note #4) will illustrate, I think that even the most thoughtful set of amendment standards simply will not answer all of the possible questions. Do not misread this point. Every single easement holding organization can (and should) adopt standards that may be quite satisfactory for that organization. But this debate poses some very difficult questions.
This Note is not intended to be an exhaustive examination of the subject. And some readers may be upset or disappointed that I pose a number of challenging questions in Note #3, and in Note #4, and do not answer them all. But let’s look at a few examples, and consider this a continuing dialogue.
Example 1. Aunt Sally has a farm. The farm is four hundred acres, two hundred acres to the west of the county road and two hundred acres to the east of the county road. And the eastern half of the property is itself bounded to the east by a river. Aunt Sally has a home and barn and other outbuildings on the western parcel (to the west of the road), and there are no structures on the eastern half.
In 2009, Aunt Sally put a perpetual (and deductible) conservation easement on the eastern half of the farm, that is, on the property between the road and the river. The conservation easement allows the construction of one new home, plus a garage and shed, within a five-acre area (identified in the easement) that is close to the river. The holder of the easement, the local Happy Valley Land Trust, would have preferred the reserved house site to be a greater distance from the river, but on the whole both Aunt Sally and the land trust are very happy with the easement.
This year, Aunt Sally approaches the land trust with this request. “I have been thinking about this and I’m going to make the change you would have preferred in the first place. I think I’d like to move the reserved house site away from the river. I think it should be close to the road.”
The good news is that a house site close to the road has a very minor impact on the conservation values of the property, and, from that perspective, is a much better site than the original site down by the river. The land trust is delighted.
However, as it turns out (more on this below), assume that the house site down by the river is worth $150,000, and a house site close to the road is worth $175,000 (in part because it will no longer be necessary to build a long road across the property to the site by the river, which is also a significant conservation benefit of the proposed amendment).
Can Happy Valley Land Trust agree to the amendment?
Example 2. All the facts are the same as in Example 1, but in addition to making the request to amend the easement to relocate the permitted house lot, Sally says, “Just to make this easier for you, if you agree to the amendment I will put a new easement on 100 acres I own across the road.”
Can Happy Valley Land Trust agree to the amendment?
Example 3. Uncle Bob owns 50 acres of mostly wooded property in a fairly rural area outside of town. The property is undeveloped. Uncle Bob would like to put the property under conservation easement and reserve the right to build a small cabin and shed near the back of the property. Bob will need to construct a road to access the cabin, and under local zoning the road would not have to be paved.
Happy Valley Land Trust accepts the easement. Bob is not absolutely clear about the precise location of the road, but he and the land trust agree on a 45-foot-wide strip, within which Bob can construct a road not to exceed 15 feet wide, and the 45-foot strip is identified as “Accessway Area” on an exhibit attached to the easement and recorded with the easement, along with an identified “Building Area” for the cabin and the shed.
Two years pass and Bob is ready to construct the cabin and shed. However, after spending more time walking the property, he thinks construction of the road would be simpler if he moved it about 90 feet east of the 45-foot-wide “Accessway Area.” Bob asks the land trust to amend the easement to allow him to relocate the permitted road.
Can Happy Valley Land Trust agree to the amendment? Would your answer be any different if the construction of the road at the preferred site would be less expensive to Bob?
A concluding observation to end this Note #3, and there is a longer discussion of this issue in Note #4: the analysis of these issues illustrates how to a very significant extent the conservation easement business is “hemmed in” by the federal tax codes rules on conservation easements. Some good, experienced, passionate, committed people in the land trust business don’t like being hemmed in by the federal tax code rules, but to me that is akin to not liking that it gets cold in the winter. The current state of affairs is that most conservation easements in this country have been donated, and these generous donors have claimed an income tax deduction, and that implicates the federal tax code rules and brings the IRS to the table.
