Conservation Easements

Overview

A conservation easement is a voluntary legal agreement that restricts the development of land to fulfill conservation values. A conservation easement happens when the landowner sells or donates the conservation easement to a land trust or government agency. For a landowner to qualify for a federal tax benefit associated with a donated conservation easement, the easement must be permanent (also called a “perpetual conservation easement”). If an easement is permanent, the conservation easement restrictions stay in place even after the land is sold. Many land trusts require conservation easements to be permanent.

Conservation easements are used to protect a variety of conservation values, including wildlife habitat, open space, agriculture, recreation, historic preservation, and public education. Once land has a conservation easement, the land value is usually lowered (because it is no longer available for development). This decreased value can make the land more affordable for buyers, including farmers who may want to purchase the land.

Farmer Spotlight:

Elmer Farm

Spencer and Jennifer Blackwell found Elmer Farm through Vermont Land Trust’s (VLT) Land Access Program. The program is designed to provide farmers with opportunities to purchase or lease affordable farmland. One way VLT makes land more affordable for farmers is to purchase conservation easements on farmland, as VLT did with Elmer Farm.

Below is the breakdown of the Elmer Farm property sale that shows the sale of a conservation easement to the Vermont Land Trust:

For Elmer Farm, the conservation easement VLT purchased included an additional farmland preservation tool called an Option to Purchase at Agricultural Value (OPAV). The OPAV factored into the $235,000 value of the conservation easement. Without the OPAV, the value of the conservation easement would have been lower. Read more about OPAVs here.

Tools For Revenue, Affordability, and Legacy

Conservation easements are one of several different legal tools to help farmers balance goals of: 1) generating revenue for farming or retirement; 2) making their land more affordable to future farmers; 3) keeping their farmland in farming; and 4) maintaining a treasured legacy of sustainable farm stewardship.

Other legal tools include:

These tools can be used separately or in combination, and are discussed within the Access Tools section and elsewhere in this toolkit.

Sale, Donation, and Bargain Sale

In the case of selling a conservation easement, the landowner would receive a cash payment. This is just like selling a house in that there’s a purchase price, and the buyer pays the seller the purchase price. In the case of donating a conservation easement, the landowner does not receive any cash, but may receive important tax benefits.

Sometimes, selling the conservation easement at its full value is a bit too expensive for the buyer (usually a land trust or government agency). Other times, the seller may need both cash and donation-linked tax benefits. In those cases, the conservation easement can be sold as a “bargain sale.” This means the landowner gets less cash than if it was a full value sale, and a lower tax benefit than if it was a full donation. Still, the landowner gets some cash and some tax benefit. When this occurs, the landowner may qualify for federal and/or state tax breaks for the portion of the land value that was “donated” (equal to the difference between the value of the conservation easement and the actual sale price).

For example, if the value of a conservation easement was $200,000, a bargain sale could involve 1) a cash payment to the landowner of $100,000 and 2) the landowner donating the other $100,000 and getting tax benefits for the donated portion of land.

Land Trust Or Government Agency

To sell or donate a conservation easement, farmers need to find an organization willing to own the conservation easement. Owning a conservation easement is usually referred to as “holding" it and the owner is usually called the “holder." Usually, a conservation easement holder is a land trust or a government agency.

Funding to acquire conservation easements is limited. As a result, many sales are bargain sales, which stretch a holder’s limited conservation dollars further. The holder of the easement is responsible for monitoring and enforcing the terms of the easement, which, in general, is in perpetuity or forever. Consequently, the organization agreeing to hold the easement needs to have the capacity to monitor land under easement and to enforce the terms of the easement going forward.

So, while conservation easements, affirmative agricultural easements, and options to purchase at agricultural value (OPAVs) are powerful tools, they are only available if there is an organization with money, capacity, and interest in acquiring and holding the easement.

Another consideration is finding the right fit for the organization that will hold the conservation easement. For example, a land trust dedicated to preserving wildlife may only accept conservation easements designed for habitat conservation. That may not be a good match for a farmer looking for an easement that allows agriculture. Finding an agriculture-oriented organization is crucial for farmers considering placing their land under conservation easement.

Once a conservation easement is in place, the holder will check in periodically to make sure the terms of the conservation easement are being followed. This is called “stewardship.” When a property is sold, the easement holder will usually introduce themselves to the new owner and make sure the new owner is up to speed regarding the conservation easement. The conservation easement holder and the landowner will have an ongoing relationship and must work together in many ways.

How Conservation Easements Work

Full ownership of land comes with a variety of ownership rights. Some of these rights include:

  • the right to build homes and other structures,
  • the right to minerals,
  • the right of access,
  • the right to timber,
  • the right to exclude others from the property,
  • the right to rent or sell the property,
  • the right to subdivide the property, and
  • the right to restrict use the land in certain ways.

These property rights can be thought of as a “bundle of sticks.” A landowner can hold all the sticks in the bundle or transfer some of those sticks to others. A conservation easement takes several of the sticks in the bundle and transfers them to the buyer. After the conservation easement is in place, the landowner still has many of the sticks, such as the right to farm, and the conservation easement holder has other sticks, such as the right to limit commercial development in favor of conservation.

The “bundles of sticks” concept is commonly used to illustrate the separation of property rights between the landowner and the conservation easement holder. Nevertheless, it’s important to note that the bundle of sticks concept is an over-simplification. As discussed below, the conservation easement document itself is long and complicated, and goes into great detail about how the land can and cannot be used.

The Conservation Easement Deed

Because conservation easements limit the landowner’s use of the property and give the conservation easement holder certain rights, it is very important to specifically describe who can do what, and under what circumstances. Also, because a conservation easement is a property right, it is transferred from the landowner to the conservation easement holder through a written deed, typically called a Conservation Easement Deed. The deed is then recorded publicly within the land records.

Conservation easement deeds are a very big deal. They can be between five and 50 pages long, and typically are about 25 pages long. They usually take months, or even a couple of years, to negotiate. Frequently, the landowner and the conservation easement holder go back and forth many times giving each other revised drafts. Usually, a lawyer will be involved on behalf of the landowner and another lawyer involved on behalf of the conservation easement holder.

Impact On Future Landowners

Once everyone has signed the conservation easement and it has been recorded within the land records, it is binding on all current and future landowners. This includes anyone who may use the land. As lawyers say, conservation easements “run with the land” – meaning they become a part of the chain of title and stay in effect even after ownership of the land changes. A new farmer buying land with a conservation easement is bound by the terms of the conservation easement. The new farmer is not allowed to negotiate new terms with the conservation easement holder. Consequently, a farmer buying land with a conservation easement should closely examine the conservation easement deed to make sure the farmer understands the limits and will be able to comply with them without undue economic harm.

Impact On the Value Of the Land

Conservation easements restrict a landowner’s development rights and in turn lower the property’s fair market value. This should have the effect of making that land more affordable for future landowners.

The value of a conservation easement is determined by a qualified appraiser. The appraiser determines the value of the land before the conservation easement and subtracts the value of the land after the conservation easement to determine at the value of the conservation easement. For example:

When granting a conservation easement, landowners are essentially receiving a portion of the fair market value of their land, either through payment for the conservation easement by the easement holder (a land trust or government agency) or through tax benefits from the donation of the easement.

Because a conservation easement generally lowers the property’s fair market value, farm-seekers should be able to purchase conserved land at a lower price. Or, farm-seekers looking to buy un-conserved land may have a unique opportunity to purchase the land and simultaneously sell a conservation easement. If a farm-seeker is unable to afford farmland or is interested in lowering the purchase price, the farm-seeker could look for an organization such as a land trust willing to buy a conservation easement on the property at the same time the farmer purchases the land. This way, the easement holder pays for the value of the conservation easement and the new farmer pays for the value of the land without the development rights. This sort of arrangement is known as a “conservation buyer transaction.” It is important to note that conservation buyer transactions are not commonplace because they require the right circumstances—availability of land, seller, buyer, funding, and an easement holder as well as closely coordinated land transactions.

Farm-seekers considering buying conserved land (or buying land and restricting the land with a conservation easement) should also consider that if they later choose to sell the land, they will generally receive the reduced value of the land. However, sometimes land continues to appreciate (increase in value) even with conservation easement restrictions, or a subsequent buyer is willing to pay more than the market value of the land despite it being encumbered by a conservation easement. Consequently, farmers placing their land under conservation easement might also want to consider granting the easement holder an option to purchase at agricultural value, or OPAV, discussed here. OPAVs were developed to encourage that farmland be farmed by restricting certain sales.

What About a Mortgage?

If a farm has a mortgage (as many do), it is still possible to do a conservation easement. It does, however, add some extra steps. Typically, both a conservation easement holder and a mortgage company will want to be in first position, meaning they will get paid out first in the event of a foreclosure or other default or loss. It is possible that the mortgage company would not allow a conservation easement. This is especially likely if the proceeds from the sale of the conservation easement would not be enough to completely pay off the mortgage. If there is a mortgage, contact your bank or mortgage company to discuss. Sometimes, someone from the land trust or the government agency who would hold the conservation easement can assist in this conversation. And if you have a lawyer, your lawyer can certainly assist you.

Pros and Cons

Benefits Of Conservation Easements

  • Selling a conservation easement can be a good way to get some cash out of the property.
  • Landowners who donate conservation easements may receive tax benefits.
  • Conservation easements can reduce the property’s overall value, making the land more affordable for future farmers.
  • Conservation easements can give peace of mind that a beloved property will not be commercially developed.
  • Landowners can negotiate, creating an agreement tailored to the landowner’s needs.

Drawbacks Of Conservation Easements

  • Limited number of conservation easement holders.
  • Limited amount of funds available to purchase conservation easements.
  • Most conservation easements are permanent and bind all future landowners (including heirs).
  • Conservation easement holders and farmers may not always share a common vision.
  • Conservation easements can reduce the property’s overall value, making the land worth less for future sales.
  • Farmers with a mortgage may have limited options with respect to doing a conservation easement.
  • It’s possible that a farm may have a conservation easement, but may be allowed to become fallow.
  • The amount of a loan offered by a bank to mortgage a property with a conservation easement on it may be reduced.
  • New owners are not allowed to negotiate new terms with the conservation easement holder.

How an Attorney Can Help

The Attorney’s Role

It’s not an attorney’s job to make decisions for farmers or to set farm transfer goals. Instead, attorneys can provide information about pros and cons of different options, advice about what is common versus unusual, fair versus unfair, etc. Attorneys can help farmers understand the universe of possible farm transfer goals and help narrow down individual options so that farmers can make final decisions.

How An Attorney Can Help With Conservation Easements

  • Negotiate the terms of the easement with a land trust or government agency.
  • Help decide which parts of the farm to put into the conservation easement and which to exclude.
  • Analyze the terms of the conservation easement to help farm-seekers assess what they mean and how they may affect or restrict a new farm operation.
  • Negotiate with a bank (mortgage holder) to facilitate a sale or donation of a conservation easement.
  • Determine a strategy for combining a conservation easement with other transfer or conservation tools.
  • Help farmers understand the possible tax implications of selling or donating a conservation easement.

Related Legal Tools

Property Tax
Find out how your state lowers property taxes for active farm operations.
OPAVs
A new way to raise funds and make farmland more affordable.
Land Trusts
Sell or donate conservation easements and protect farmland.

Additional Resources