A CONSERVATION EASEMENT is a legal agreement between a landowner and a land trust or government agency that permanently limits uses of the land in order to protect its conservation values. With a conservation easement in place, a landowner can realize substantial income and property tax savings, while retaining the rights to sell or bequeath the land.
When a landowner transfers to a Land Trust selected development rights through a conservation easement, safeguards are established against uses of the land that could damage its ecological, scenic, recreational, or natural resource values. The Land Trust then holds these rights but is prohibited from ever using them. The Land Trust accepts perpetual responsibility for protecting the land.
Donations of Interests in Land to Conservation Organizations
BEQUEST: The donation of fee title or of a conservation easement to a qualified conservation organization at the time of death, as provided for in a will results in the unrestricted use of land by the owner until death, as well as a reduction of estate taxes. The disadvantages to the owner are the continued full property tax liability and the loss of income tax benefits for the donation.
OUTRIGHT FEE DONATION: All rights to the land are transferred to a qualified conservation organization such as North Shore Community Land Trust, resulting in an income tax deduction for the full appraised value of the land, reduced estate taxes, and elimination of property taxes.
LEASEBACK: Property donated to a qualified conservation organization, but with the condition that the granting owner leases back the use of the land. Such a condition placed on the gift may preclude any tax deduction for the donation.
RESERVED LIFE ESTATE OR REMAINDER INTEREST: Property is donated or sold, in whole or in part, to a qualified conservation organization with a deed provision that reserves the right of the owner (and/or specified persons) to use the land or a portion of it, until death. The owner may claim an income tax deduction for the value of the donation, estate taxes may be reduced, and property taxes are levied only on that portion of the land retained for personal use.
Sales to Conservation Organizations
A sale at MARKET VALUE realizes the full price for the owner. Non-profit conservation organizations and protecting government agencies rarely can purchase property at full value for conservation purposes. The seller remains liable for income/capital gains taxes.
Selling land at a BARGAIN SALE price to a qualified conservation organization yields an income tax deduction equal to the difference between the sale price and the full fair market value of the property, and also lowers capital gains taxes.
LIMITED DEVELOPMENT provides protection for portions of a property either through a conservation easement or through other means while allowing for the development of the remaining property. Limited development arrangements can simultaneously yield tax savings for the donation of the conservation easement and enhance the value of the adjoining land to be developed.
An OPTION is a contract between a potential buyer of a property (for example, a Land Trust) and a seller, which reserves the right of purchase to the buyer for an agreed upon price to be paid in a specified period of time. The buyer secures an option in order to gain time to raise funds for the purchase. The option cost is forfeited if no purchase ensues.
For protection purposes, a RIGHT OF FIRST REFUSAL is a legal agreement granting a potential buyer the right (for a limited time) to match any bona fide offer once a property is placed on the real estate market. Unless protective restrictions exist prior to sale, the purchasing organization assumes the responsibility of defining appropriate uses for the site.
Protecting Conditions: Additional Options
DEED RESTRICTIONS can be applied to protect land if no qualified organization is available to hold a conservation easement. Enforcement must be carried out by the owner or the heirs of the owner, leaving little assurance of compliance once the title changes hands. Because no donation is made, no charitable tax deduction results.
By including a REVERSIONARY INTEREST CLAUSE in a deed stating that a title will transfer to a certain named party if deed restrictions are violated, an owner can provide stronger support for deed restrictions.
A group of landowners can limit the future use of their land through the imposition of a RESTRICTIVE COVENANT if no qualified organization is available to hold a conservation easement. Neighboring landowners with common conservation goals sign and record this agreement containing protective restrictions. The agreement can be enforced by any of the participating landowners and is binding on future titleholders.