Much of the information on this page is based on information taken from The Conservation Easement Handbook, published by the Land Trust Alliance, 1660 L Street, N. W., Suite 1100, Washington DC 20036, www.landtrustalliance.org.
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1. What Is A Conservation Easement?
A conservation easement is a legal agreement that a property owner makes to restrict the type and amount of development that may take place on his or her property. Each easement’s restrictions are tailored to the particular property and to the interests of the individual owner.
To understand the easement concept, think of owning land as holding a bundle of rights. A landowner may sell or give away the whole bundle or just one or two of those rights. These may include, for example, the right to construct buildings, to subdivide the land, to restrict access, or to harvest timber. To give away certain rights while retaining others, a property owner grants an easement to an appropriate third party, such as a public agency, a land trust, or a historic preservation organization. The Conservancy of Montgomery County is both a land trust and a historic preservation organization.
Easements often are called by different names, according to the resource they protect. Easements used to preserve an agricultural operation for example, are termed agricultural easements or agricultural preservation easements. When the resources are primarily scenic, easements can bear that name. Another term for a conservation easement is conservation restriction. Whatever they are called, the concept is the same.
An easement runs with the land – that is, once the easement becomes effective, the current owner and all subsequent owners are bound by the restrictions of the easement. An easement is recorded at the county courthouse and attached to the property deed so that there is a public record of what the easement says and so that all future owners and lenders will learn about the restrictions when they obtain title reports.
2. Why donate a Conservation Easement?
People grant conservation easements to protect their land or historic buildings from inappropriate development while retaining private ownership. By granting an easement in perpetuity, the owner may be assured that the resource value of his or her property will be protected indefinitely, regardless of who owns the property in the future. Granting an easement can also yield tax savings, as discussed below.
3. What Kind Of Property Can Be Protected By An Easement?
Any property with significant conservation or historic preservation features can be protected by an easement. This includes forests, wetlands, farms, endangered species habitat, scenic areas, historic areas, and more. Land conservation and historic preservation professionals at The Conservancy of Montgomery County can help landowners evaluate the important features of their property.
4. Can Easements Be Used To Protect Historic Structures?
Easements can be used to protect historic structures. Typically such easements protect only the outside of a building and are called facade easements. Such a restriction maintains the historic appearance of the building. In some cases groups of buildings can be protected in this manner.
5. Who Can Grant An Easement? To Whom Should It Be Granted?
Any owner of property with conservation or historic value may grant an easement. If the property belongs to more than one person, all owners must consent to granting an easement. If the property is mortgaged, the owner must obtain an agreement from the lender to subordinate its interests to those of the easement holder so that the easement cannot be extinguished in the event of foreclosure.
If an easement donor wishes to claim tax benefits for the gift, he or she must donate the easement or sell it for less than fair market value to a public agency or to a conservation or historic preservation organization that qualifies as a public charity under Internal Revenue Code Section 501(c)(3). The Conservancy of Montgomery County is a 501(c)(3) public charity.
Holding an easement, however, is a great responsibility. An organization that accepts the donation of an easement typically either will ask the land owner to make a contribution toward the costs of monitoring and enforcing the easement in perpetuity or will establish a fund for this purpose from other sources.
6. How Restrictive Is An Easement?
An easement generally restricts development to the degree that is necessary to protect the significant features of a property. Each easement is a unique document tailored to the specific parcel of land and the needs of the landowner. Sometimes an easement totally prohibits construction, sometimes it doesn’t.
If the goal is to preserve a pristine natural area, for example, an easement may prohibit all construction, as well as any activity that would alter the land’s present natural condition. If the goal is to protect farmland, however, an easement may restrict subdivision and development, while allowing for structures and activities necessary for and compatible with the agricultural operation. Even the most restrictive easements typically permit landowners to continue traditional uses of the land.
7. Must An Easement Allow Public Access?
Landowners who grant conservation easements generally make their own choice about whether to allow access to their property. Some landowners specify certain public access rights, such as allowing the public to fish or hike in specified locations or permitting guided tours once a month. In most cases, this is not a requirement when making a donation.
If an income tax deduction is to be claimed, however, some types of easements require access. If the easement is given for recreation or education purposes, public access is required. For scenic easements, much of the property must be visible to the public, but physical access is not necessary. Access is generally not required for easements that protect wildlife, plant habitat or agricultural lands.
8. What Are The Responsibilities of the Conservancy of Montgomery County?
When an easement is granted to the Conservancy of Montgomery County, CMC is then responsible for enforcing the restrictions spelled out in the easement document. To do this, the Conservancy monitors the property on a regular basis, typically once a year. A Conservancy representative visits the property that is subject to the easement, usually accompanied by the owner. He/she determines whether the property remains in the condition prescribed by the easement and documented at the time of the donation.
If a monitoring visit reveals that the easement has been violated, the Conservancy has the legal right to require the owner to correct the violation and restore the property to its condition prior ro the violation.
9. How Can Donating an Easement Reduce a Property Owner’s Income Tax?
The donation of a conservation easement is a tax-deductible charitable gift, provided that the easement is perpetual and donated “exclusively for conservation purposes to a qualified conservation organization or public agency. Internal Revenue Code 170(h) generally defines “conservation purposes” as:
• The preservation of land areas for outdoor recreation by or the education of, the general public;
• The protection of relatively natural habitats of fish, wildlife, or plants, or similar ecosystems;
• The preservation of open space – including farmland and forest land – for scenic enjoyment or pursuant to an adopted governmental conservation policy; in either case, such open space preservation must yield a significant public benefit;
• The preservation of historically important land areas or buildings.
To determine the value of the easement donation, the owner has the property appraised both at its fair market value without the easement restrictions and at its fair market value with the easement restrictions. The difference between these two appraised values is the tax deductible easement value. Detailed federal regulations govern these appraisals. Presently, conservation easement donations are deductible up to 50% of the donor’s adjusted gross income (AGI) with a 15 year carry-forward in addition to the year of donation. It should be noted that a provision of the tax code known as the Alternative Minimum Tax (AMT) often reduces the income tax benefits of easement contributions. A potential easement donor should consult a tax advisor about the AMT. It is also important for donors to hire an appraiser who has experience appraising conservation easement properties to avoid future problems with the IRS questioning the value of the easement donation.
10. How Can Granting an Easement Reduce a Property Owner’s Estate Tax?
Heirs who become owners of large historic properties, large tracts of open space, or farms face monumental estate taxes. Even if the heirs wish to keep their property in the existing condition, federal estate tax is levied not on the value of the property for its existing use, but on its fair market value, which is typically the amount a developer or speculator would pay. The resulting estate tax can be so high that the heirs must sell the property to pay the taxes.
A conservation easement, however, can often reduce estate taxes. If the property owner has restricted the property by a perpetual conservation easement before his or her death, the property must be valued in the estate at its restricted value. To the extent that the restricted value is lower than the unrestricted value, the value of the estate will be less, and the estate will thus be subject to a lower estate tax. The Pennsylvania Inheritance Tax is reduced for land that is preserved with a conservation easement.
Even if a property owner does not want to restrict the property during his or her lifetime, the owner can still specify in a will that upon the owner’s death a charitable gift of a conservation easement be made to the Conservancy of Montgomery County or other qualifying organization. Assuming that the easement is properly restricted, the value of the easement gift will be deducted from the estate, thus reducing the value on which the estate taxes are levied.
11. Can Granting an Easement Reduce an Owner’s Property Tax?
Property tax assessments usually are based on the property’s market value, which reflects the property’s development potential. If a conservation easement reduces the development potential of the property, it may reduce the level of assessment and the amount of the owner’s property taxes.
The actual amount of reduction, if any, depends on many factors. State law and the personal attitudes of local officials and assessors may influence or determine the decision to award property tax relief to easement grantors.
12. Where Can One Get More Information Regarding The Donation Of Easements?
To discuss bow to protect land or historic structures, contact the Conservancy of Montgomery County at 215-283-0383. We will provide you with information and put you in contact with someone who is knowledgeable about easements and other preservation techniques.