Frequently Asked Questions about Preservation
Agreements (Conservation Easements)
- What is a land conservancy or land trust?
- What is a preservation agreement (conservation
easement)? How is it different from a drain easement or a utility easement?
- What kinds of properties are eligible for a
preservation agreement?
- Why would a landowner want to place a
preservation agreement on his or her land?
- Who decides what restrictions govern a
preservation agreement?
- Are there any uses of my property that are
absolutely restricted by a preservation agreement?
- What uses are generally permitted after a
preservation agreement is placed on the
property?
- In addition to restrictions, does a
landowner have any affirmative obligations
associated with
land under a preservation agreement?
- Will all of my land have to be included in
the preservation agreement?
- Does a preservation agreement require public
access to the land?
- What effect does a preservation agreement
have on a landowner’s ability to sell or
pass the land to his or her heirs?
- Does the Saginaw Basin Land Conservancy
accept all preservation agreements that it is
offered?
- How is a preservation agreement different
from other types of deed restrictions?
- Why not depend on “smart
growth” zoning, environmental laws, or
other government regulations to assure that
land with significant conservation values is
protected?
- How will future landowners know about the
preservation agreement?
- What are the responsibilities of the
Saginaw Basin Land Conservancy with respect to
the preservation agreements that it holds?
- What costs are incurred by the landowner in
creating a preservation agreement?
- What are the potential income tax benefits
of donating a preservation agreement?
- How is the value of the preservation agreement calculated?
- How does the donation of a preservation agreement affect estate taxes?
- How might property taxes be affected by the
donation of a preservation agreement?
- What is the process for creating a
preservation agreement?
- (Public
Act 446; Assessor Memo)
1. What is a land conservancy or land trust?
Land conservancies or land trusts are local,
regional or statewide non-profit organizations
directly involved in protecting important natural
resources for the public benefit. As community
organizations, land conservancies understand and
are responsive to the special needs of the land
and people in their regions. As non-governmental
organizations, land trusts offer quick response,
flexibility and confidentiality. Land
conservancies use a variety of creative land
protection tools that achieve conservation goals
while meeting the specific needs of landowners
and the community.
2. What is a preservation agreement? How is it
different from a drain easement or a utility
easement?
Drain easements and utility easements are
examples of “affirmative” easements.
An affirmative easement is the right of one
person to enter the property of another and
“do something thereon”. Affirmative
easements are what most of us are familiar with..
For example, right-of-way easements to permit
passage to a landlocked property or utility
easements, that permit the power or water company
to enter the property to construct and maintain
electric or water lines, are common affirmative
easements.
A preservation agreement is a type of
“negative” easement. A preservation agreement is a voluntary legal agreement --
essentially a contract -- between a landowner and
a land conservancy or public agency. The contract
requires the landowner to give up, or severely
limit, certain uses of the property.
Nevertheless, the landowner continues to own the
land and may use it in any way as long as the easement is not
violated.
Like other easements, a preservation agreement
“runs with the land” and binds the
landowner who grants the CE as well as all
subsequent landowners. Except for the purpose of
monitoring the easement, the holder of the CE has
no right to enter the property.
3. What kinds of properties are eligible for a
preservation agreement?
State and federal laws require that the purpose
of a preservation agreement be for maintaining
land in a natural, scenic, or open-space
condition, for wildlife habitat, for
agricultural, recreational, or open-space use, or
for conserving buildings or other aspects of
historic, archaeological, or cultural value.
Thus, any property that possesses one or more of
these values is potentially eligible for a
preservation agreement.
4. Why would a landowner want to place a
preservation agreement on his or her land?
Most landowners are interested in preservation agreements because they wish to protect their
family's land from future development or
fragmentation. In addition to the permanent
protection that a preservation agreement provides,
there are potential financial and tax benefits
for the landowner. Because the conservation
values protected by a preservation agreement are
considered a benefit to the public, the Internal
Revenue Code recognizes the donation of a
preservation agreement as a charitable
contribution that may qualify for income and
estate tax deductions.
5. Who decides what restrictions govern a
preservation agreement?
The landowner and the land trust or conservancy
decide together what’s needed to protect
the land’s conservation value, while at the
same time meeting the financial and personal
needs of the landowner and his or her family. The
set of restrictions for any property is quite
flexible provided that the easement is
sufficiently restrictive so that the conservation
values of the property are substantially
protected. For example, an easement on property
with rare wildlife habitat might limit or
prohibit further development of any kind, while a
farmland easement may allow continued farming and
building of limited agricultural structures.
Land-use restrictions may affect only certain
portions of a property (significant woodland,
wetland or stream banks for example) but allow
development on the remainder.
6. Are there any uses of my property that are
absolutely restricted by a preservation agreement?
IRS regulations and the goals of most eligible
easement holders require that certain uses will
always be prohibited, such as extensive
subdivision or mining (if you do not own mineral
rights, you can still grant an easement so long
as the rights were severed before 1972 and future
mining is considered unlikely). Other activities
including commercial or industrial development,
filling of wetlands, erection of signs or
billboards and refuse dumping are normally
prohibited by a CE.
7. What uses are generally permitted after a
preservation agreement is placed on the
property?
Traditional uses of the property are almost
always allowed to continue, even under the most
restrictive easements. This means that landowners
may continue to live on the property. In
addition, the easement agreement will normally
allow the re-construction of any existing
structures and may allow some modification or
expansion. In general, landowners are free to use
the property any way consistent with the terms of
the easement agreement. For most landowners in
the Saginaw Basin, this means that their ability
to use the land for recreational purposes
(hunting, fishing, hiking) is not
limited.
8. In addition to restrictions, does a
landowner have any affirmative obligations
associated with
land under a preservation agreement?
A landowner may have some, minor obligations
required by the preservation agreement. For
example, in cases where a CE protects a natural
area or sensitive habitat, a landowner may be
required to control noxious or invasive weeds in
accordance with a plan approved by the
Conservancy.
9. Will all of my land have to be included in
the preservation agreement?
No. A preservation agreement can be applied to
the landowner's entire property or to only a
portion of it, such as the land along the bank of
a stream. Each preservation agreement is designed
specifically to address a property's unique
characteristics, its conservation values, and the
interests and needs of the landowner.
10. Does a preservation agreement require public
access to the land?
No. However, public access to protected land can
be a stipulation of a preservation agreement
agreement if mutually acceptable to the landowner
and the land trust. Granting public access in the
preservation agreement document at the time of
donation is one way to qualify for a federal
income tax deduction, but is usually not
necessary for the landowner to obtain tax
benefits.
11. What effect does a preservation agreement
have on a landowner’s ability to sell or
pass the land to his or her heirs?
While restrictions defined in a preservation agreement document remain with the property
forever, land protected in this way can be sold,
passed to heirs or otherwise transferred at any
time.. Transfer of ownership does not affect the
integrity or enforceability of the preservation agreement. The landowner who establishes a
preservation agreement ensures that his or her
careful stewardship of the land is a legacy that
lasts.
12. Does the Saginaw Basin Land Conservancy
accept all preservation agreements that it is
offered?
The Saginaw Basin Land Conservancy assesses each
preservation agreement offered for donation. We
visit the site, research the conservation values,
talk with the landowner about his or her goals
and expectations and then decide whether to
accept an easement offer.
13. How is a preservation agreement different
from other types of deed restrictions?
Protecting significant land through a
preservation agreement provides a guarantee of
accountability. Unlike simply attaching deed
restrictions to a property title, donating a
preservation agreement provides the certainty that
a landowner’s desire to preserve the
land’s conservation values is honored far
into the future by an organization dedicated to
the principles of saving precious resources.
14. Why not depend on “smart
growth” zoning, environmental laws, or
other government regulations to assure that
land with significant conservation values is
protected?
Unlike easements, public policy is not
implemented in perpetuity. Political moods can
and do change and one legislative body can alter
the plan and intent of another. preservation agreements are voluntary, private land use
restrictions that do not change over time.
15. How will future landowners know about the
preservation agreement?
The easement document is a formal legal
agreement that is recorded at the County’s
Register of Deeds office. A title search by
anyone interested in acquiring the property will
give notice of the easement.
16. What are the responsibilities of the
Saginaw Basin Land Conservancy with respect to
the preservation agreements that it holds?
Accepting the donation of a preservation agreement is a tremendous responsibility for a
land conservancy. It means accepting the
obligation to monitor and enforce the easement
terms forever. Once an easement is established, SBLC documents the site’s conservation
values, performs periodic inspections to ensure
all the easement’s terms and conditions are
being honored, and keeps all future owners of the
site informed of the agreement.
If a violation is found, the landowner is
notified according to the provisions of the
preservation agreement and steps are taken to
repair the impacts of the violation. Most
easement documents contain language that defines
the process for resolving disputes between the
landowner and the Conservancy. The Conservancy has
the right and responsibility to take legal
action, if necessary, to enforce easement
restrictions.
An endowment is established along with the
preservation agreement agreement and is used to
cover the costs of monitoring, enforcing
compliance and legal defense of the
easement.
17. What costs are incurred by the landowner in
creating a preservation agreement?
The landowner should expect to pay for legal
and, financial advice, ($500-$2500) and an
appraisal of the property ($1500-$5000). An
appraisal is only required if the landowner wants
to take advantage of the tax deduction for
granting the easement, and is a deductible
expense. The Saginaw Basin Land Conservancy
maintains a list of appraisers qualified to
appraise preservation agreements for tax purposes.
18. What are the potential income tax benefits
of donating a preservation agreement?
Under the Internal Revenue Code, qualified
preservation agreement donations may be treated as
charitable gifts for federal income tax purposes.
The value of the gift can then be deducted at an
amount up to 30% of the donor's adjusted gross
income (AGI) in the year of the gift. If the
easement value exceeds 30% of the donor's income,
the excess can be carried forward and deducted
(subject to the 30% limit) in each of the five
succeeding tax years.
Example: Joe and Mary Smith donate a
preservation agreement on a 150 acre undeveloped
woodlot to the Saginaw Basin Land Conservancy.
The value of the easement is determined to be
$135,000. If their AGI in the year of the
donation is $100,000, they would be able to
deduct $30,000 (30% of $100,000) in the first
year. Since the value of the easement is greater
than their allowable deduction, the Smiths would
also be able to deduct $30,000 in each of the
next three years -- assuming their income stays
the same – and $15,000 the fourth year in
order to claim the full amount of the easement
donation.
For
more information about the tax benefits of preservation
agreements, see this article by Timothy Lindstrom, Esq. from the
Michigan Bar Journal.
19. How is the value of the preservation agreement calculated?
The value of the easement is the difference
between the value of the land without the
easement restrictions and the value of the land
after the restrictions have been applied and the
development rights have been removed. The change
in property value associated with a preservation agreement must be determined by a qualified real
estate appraiser.
Example: The Smith family conveys a preservation agreement on its 150 acre woodlot to the Saginaw
Basin Land Conservancy. If the property's current
value is $3,000 an acre, its total fair market
value-before the easement is in place-would be:
150 acres x $3,000/acre = $450,000. If removing
the development rights lowers the value to $2100
an acre, then the total market value of the restricted property
would be: 150 acres x $2100/acre = $315,000. The difference
between the before and after values is the value of the
Easement: $450,000 - $315,000 = $135,000 tax deduction.
20. How does the donation of a preservation agreement affect estate taxes?
The donation of a preservation agreement--whether
made during a landowner's life or by bequest--can
reduce the value of the estate upon which taxes
are calculated. In some cases, the value of an
estate after an easement donation may fall below
the lifetime exemption so that estate taxes are
avoided. Good planning is necessary to ensure
that heirs of estates that include property
receive maximum tax advantages. If you want to
know more about the advantages of a CE for estate
planning purposes, talk to your attorney or
financial advisor.
For
more information about the tax benefits of preservation
agreements, see this article by Timothy Lindstrom, Esq. from the
Michigan Bar Journal.
21. How might property taxes be affected by the
donation of a preservation agreement?
The property's current assessment for tax
purposes determines if tax benefits may be
realized by protecting it with a preservation agreement. If the assessment reflects the
property's development potential and those rights
have been permanently relinquished, the landowner
can make a case to the local assessor for a
reduction in property assessment. See Indian
Garden Group v. Resort Township MTT Docket No.
157543, 205036 (Feb, 17, 1995) for the most
up-to-date view of preservation agreements and
property valuation for tax purposes by the
Michigan Tax Tribunal.
22. What is the process for creating a
preservation agreement?
Step 1: Contact with the Saginaw Basin Land
Conservancy. The landowner or his or her
representative contacts SBLC. SBLC sends basic
information including brochure, fact sheet,
landowner questionnaire and a sample easement
agreement to the landowner. The landowner and SBLC discuss what an easement is and whether it
might be appropriate for the property and the
landowner.
Step 2: Site Visit. The landowner or
representative reviews the material, consults
with family and/or advisors. If the landowner is
interested in further exploration of an easement,
SBLC arranges an initial site visit to meet
landowner and view the property. On site, SBLC
photographs the property, assesses the
property’s conservation values, and
discusses with the owner his or her long-term
objectives. SBLC and the landowner talk about
easement terms that will meet the
landowner’s goals, protect the resources,
and meet the standards of SBLC. SBLC suggests
that the landowner consult an attorney and
provides a disclosure statement for the
landowner’s signature.
Step 3: Preliminary Agreement. The landowner and
SBLC reach a preliminary agreement consisting of
an identification of the parcel and the proposed
terms of the easement.
Step 4: SBLC Easement Research. SBLC staff
completes and documents background research on
the property including land use history, property
zoning, local planning documents, preliminary
title search and legal description of the
property.
Step 5: Negotiation and Board Approval. The SBLC
staff presents the proposed easement to the Board
of Directors for consideration and approval. The
Board may reject the proposed easement, agree to
accept it, or agree to accept it subject to
changes. If there are any changes to the proposed
terms of the easement, the landowner must
consider and agree to the new terms. Drafts of
the easement are produced and refined pursuant to
discussions among the parties
Step 6: Donation. When the final terms of the
easement have been drafted and approved by SBLC
and the landowner, the landowner signs the
easement agreement and delivers it to SBLC. The
president of the SBLC Board of Directors
indicates acceptance of the donation by signing
the easement agreement.
Step 7: Recordation. SBLC sees that the easement
is properly recorded in the County Register of
Deeds office.
Step 8: Appraisal. If the landowner intends to
take a qualified tax deduction for the non-cash
charitable gift, he or she engages an appraiser
to determine the value of the gift. Selection of
the appraiser is the landowner’s decision,
and SBLC is not involved in this process.
Step 9: Completion of SBLC baseline and file on
the Easement. SBLC completes the file for the
easement by obtaining the standard documentation
for the property. The file includes a copy of the
final easement, maps and surveys of the property,
natural features inventory, photographs of the
property, correspondence, memos and preliminary
drafts of the easement document.
Step 10: Annual Status Report. SBLC monitors
easements and reports annually to the Board of
Directors on the status of all easements that the
Conservancy holds.
Note: The landowner can change his or her mind
about the easement at any time until the easement
deed is signed and delivered to SBLC. While these
steps show the typical procedure, there are
situations where the order of these steps is
changed. The process may take anywhere from a few
weeks to several years to complete.
For
more information about the tax benefits of preservation
agreements, see this article by Timothy Lindstrom, Esq. from the
Michigan Bar Journal.
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