Legal Aspects of Conservation Easements: A Primer for Transportation Agencies (2013)

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3 LEGAL ASPECTS OF CONSERVATION EASEMENTS: A PRIMER FOR TRANSPORTATION AGENCIES By Tyson Smith, Esq., AICP, White & Smith, LLC; Tara D. Allden, Esq.; and Ross Appel, Esq. I. INTRODUCTION The conservation easement is a modern development of property law that enables the long-term protection of natural and cultural resources without a full transfer of ownership of the land itself. The legal transaction that creates a conservation easement differs from other real property transactions in that the property interest transferred is “nonpossessory,” meaning that the land itself does not change ownership. Rather, certain rights to and uses of that land are removed from the land- owner and the obligation of protection and enforcement are transferred to a third-party “easement holder.” The terms of the conservation easement, which are documented in a “deed of conservation easement,” spec- ify the relevant parties and the rights and restrictions remaining on the land. The deed of conservation ease- ment should be recorded in the same manner as other property transactions in the governing jurisdiction. Be- cause a conservation easement is an actual transfer of property interests1 and is most often perpetual, the easement runs with the land and affects all subsequent transfers and future use of the property. While a conservation easement may be transferred as an ordinary property interest, it may not be termi- nated in the same manner. Ordinarily the restrictions and obligations imposed by a conservation easement may be extinguished only by judicial proceeding or by eminent domain. Conservation easements are often acquired and held by nonprofit land and historic property conservation organizations2 for the purpose of protecting such land 1 It is this separation of property interests that differenti- ates a “conservation easement” from a “restrictive covenant.” Restrictive covenants may be recorded with a deed and run with the land, but the entire property interest remains with the underlying fee. Deed restrictions do not generally provide the same level of protection to the land as do conservation easements. Deed restrictions may not be challenged or enforced by the public and may be terminated for reasons such as eco- nomic hardship or impracticability or consideration of public benefit. See Karin F. Marchetti Ponte, Conservation Easements v. Deed Restriction, Land Trust Alliance Fact Sheet (2008), http://www.landtrustalliance.org/conservation/documents/CE- deed-restriction.pdf. 2 California Senate Bill (SB) 436, effective January 1, 2012, authorized transfer of mitigation property endowments to ap- proved nonprofit organizations and special districts. California Senate Bill 1094, which became law September 28, 2012, clari- for the common good. Private landowners may choose to have a conservation easement placed upon their prop- erty for the protection of the property and also for the financial benefits, including tax and estate planning considerations. Local government entities and land de- velopers may use conservation easements to protect certain ecologically or historically significant property in exchange for increased density or other considera- tions in the development process. Transportation agen- cies may use conservation easements to meet regulatory requirements in the permitting and construction of pro- jects. Conversely, a parcel of land burdened by a con- servation easement may be in the path of a planned transportation project and may be incompatible with the project. In each of these situations, a thorough understand- ing of the legal aspects of conservation easements is essential to the practitioner, including right-of-way agents, private parties and their counsel, government attorneys, and outside counsel. This digest will provide the reader with an understanding of the background, utility, and implications of conservation easements. II. BACKGROUND ON CONSERVATION EASEMENTS Because conservation easement practice is a rela- tively new area of law, case law and precedent are lim- ited. Therefore, an understanding of how the law of conservation easements developed will help practitio- ners work through the issues that arise. A. Legal Origin Conservation easement practice in the United States emerged in the late 1800s as a tool to protect public spaces. The first areas to be protected by conservation easement were Frederick Law Olmsted’s “Emerald Necklace” parkways in Boston in the 1880s.3 In the 1930s, the National Park Service began using conserva- tion easements to protect scenic areas along the Blue fied and expanded SB 436 by extending this authority to gov- ernmental entities, community foundations, and some water districts and utility commissions. See SB 1094 Bill Analysis, http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_1051- 1100/sb_1094_cfa_20120419_151448_sen_comm.html. 3J. Breting Engel, The Development, Status, and Viability of the Conservation Easement as a Private Land Conservation Tool in the Western United States, 39 URB. LAW. 19 (2007).

4 Ridge and Natchez Trace Parkways.4 Building on this precedent, Wisconsin began protecting its parks with conservation easements in the 1950s. Notwithstanding the example of these early innovators, conservation easements were not common in the first 7 decades of their existence. The common law was one of the principal early im- pediments to the use of conservation easements, which likely would have failed under the tenets of common law because they would have been categorized as “nega- tive” (restricting use) and “in-gross” (not upon the land) easements. The common law recognized negative ease- ments only for limited purposes. Moreover, negative easements under the common law, at that time, did not confer key affirmative rights to the easement holder, such as the ability to enter onto the property to inspect its condition and to confirm compliance with the terms of the easement.5 This posed a problem for modern conservation ease- ments, whose purposes fell outside of the common law categories of recognized property rights and depended on holders to engage in management activities. In order for conservation easements to become a useful resource and land management tool, the limitations of common law had to be addressed. State legislatures seeking to “cure” these problems responded by adopting conserva- tion easement enabling legislation that would super- sede the common law. B. State Enabling Legislation Massachusetts, home to the first conservation ease- ment, was also the first state to adopt express legisla- tive recognition of conservation easements, and, in 1954, the State expressly authorized the Boston Metro- politan District Commission to purchase open space “in fee and otherwise [to acquire] lands and rights in land” for exercise and recreation in the Metropolitan Parks District (emphasis added).6 California built on Massa- chusetts’ action in 1959 by passing legislation that pro- vided statewide authorization for counties and cities to acquire open lands via “fee or any lesser interest or right in real property in order to preserve…open spaces and areas for public use and enjoyment.”7 In the late 1960s, Massachusetts amended its statute to allow nongov- ernmental entities, such as private land trusts, to hold conservation easements. By the mid-1970s, 16 states had adopted conservation easement legislation. 4 ELIZABETH BYERS & KAREN M. PONTE, THE CONSERVATION EASEMENT HANDBOOK 10, The Trust for Public Land and the Land Trust Alliance (2d ed. 2005), hereinafter cited as “BYERS & PONTE.” 5 Uniform Conservation Easement Act (UCEA) (1981), National Conference of Commissioners on Uniform State Laws, drafted and approved by the American Bar Association in 1982, http://www.cals.ncsu.edu/wq/lpn/PDFDocuments/uniform.pdf. 6 MASS. GEN. LAWS ch. 92, § 79 (2012). 7 CAL. CIV. CODE § 815. In 1981, the profusion of state conservation ease- ment legislation resulted in the drafting of the Uniform Conservation Easement Act (UCEA) by the National Conference of Commissioners on Uniform State Laws. This standardization effort, along with the increasing use of conservation easements for financial planning, resulted in more and more states adopting statutes. Today, all 50 states and the District of Columbia have some form of conservation easement enabling legisla- tion.8 In addition to removing common law impediments,9 state-specific enabling legislation also describes how conservation easements are created, enforced, and ad- ministered in more detail than had emerged though the common law. While many states have based their con- servation easement legislation on the UCEA, each state has its own variations, and some are entirely unique in their approach. As a result, when working with conser- vation easements, especially across multiple jurisdic- tions, each state’s statute must be consulted. This sec- tion summarizes the core property law elements that will govern most conservation easement issues that underpin the statutory frameworks adopted by the states. Since roughly half of the states follow the UCEA, the following discussion is based on the UCEA with selected, notable state variations highlighted. A Common Framework The UCEA defines “conservation easement” as fol- lows: A nonpossessory interest of a holder in real property im- posing limitations or affirmative obligations the purposes of which include retaining or protecting natural, scenic, or open-space values of real property, assuring its availabil- ity for agricultural, forest, recreational, or open-space use, protecting natural resources, maintaining or enhanc- ing air or water quality, or preserving the historical, ar- chitectural, archaeological, or cultural aspects of real property.10 The definition establishes the particular protections for which conservation easements can be used. Some states have changed or added to this list of acceptable “conservation purposes.” For example, Alabama lists “silvicultural” and “paleontological” uses as permitted conservation purposes.11 Moreover, the UCEA provides that conservation easements may be for an unlimited duration or for a shorter term of years in order to retain and protect the specific characteristics of the property.12 8 Nancy A. McLaughlin, Condemning Conservation Easements: Protecting the Public Interest and Investment in Conservation, 41 U.C. DAVIS L. REV. 1897, 1900 (2008), herein- after cited as “McLaughlin.” 9 See UCEA § 4. 10 UCEA § 1(1). 11 ALA. CODE § 35-18-1(1), § 35-18(2). 12 UCEA § 2(c).

5 Some states require perpetual easements,13 whereas others may limit the duration.14 The UCEA defines the “holder” of the conservation easement—the individual or entity holding the right to enforce the easement’s terms—to include federal, state, and local governmental entities, as well as private envi- ronmental or charitable organizations, such as land trusts.15 The conservation easement may identify more than one party that will serve as the holder and divide the holder’s responsibilities and obligations between these parties. For example, a local government may want to be a holder for purposes of enforcing the ease- ment but may want another entity to provide onsite monitoring services. Both of these parties would be documented in the conservation easement as holders. Some states place restrictions on who can be an easement holder. For example, Arizona prohibits unin- corporated charitable associations from being a holder.16 Conversely, North Carolina allows private businesses or corporations to be a holder if their organization’s pur- pose includes one or more of the listed conservation purposes.17 Within the accepted definitions of “holder,” a wide variety of entities can hold conservation easements. On the governmental side, examples include, but are not limited to, state departments of natural resources or local governments themselves. However, increasingly, governmental entities have come to rely on the exper- tise and resources of private, nonprofit land trusts. As a result, it is not uncommon for a conservation easement required by a governmental agency to be held by a pri- vate land trust. Examples of this are discussed in Sec- tion IV with regard to compensatory mitigation. Accord- ing to the Land Trust Alliance, today there are 1,700 land trusts in the United States, including the Nature Conservancy and the Trust for Public Lands at the na- tional level, and community land trusts, such as the Lowcountry Open Land Trust, a Charleston, South Carolina, local-level land trust.18 The surge in the num- ber of land trusts over the last several decades has co- incided with a variety of factors that promote conserva- tion easements, including tax and estate planning benefits, intense development pressure, regulatory compliance, and a growing environmental ethic across the nation.19 The impetus for any conservation ease- ment greatly affects how it is established, implemented, monitored, and transferred. 13 CAL. CIV. CODE § 815-2(b). 14 ALA. CODE § 35-18-2(c). 15 UCEA § 1(2). 16 ARIZ. REV. STAT. ANN. § 33-271(3)(b). 17 N.C. GEN. STAT. § 121-35(2). 18 See Lowcountry Open Land Trust, http://www.lolt.org/. (Accessed July 10, 2012.) 19 Nancy A. McLaughlin, The Role of Land Trusts in Biodiversity Conservation on Private Lands, 38 IDAHO L. REV. 453, 454 (2002). The Mechanics of Implementation Creation.—The UCEA provides that “a conservation easement may be created, conveyed, recorded, assigned, released, modified, terminated, or otherwise altered or affected in the same manner as other easements.”20 This flexibility enables conservation easements to be used for a variety of purposes and allows for transac- tions between private parties with minimal government oversight.21 Again, however, individual states may re- quire an increased level of review. In Massachusetts, all “conservation restrictions” (the state’s term for “conser- vation easements”) must be approved by the Massachu- setts Secretary of Environmental Affairs and those held by land trusts approved by the local governing body.22 Conservation easements put in place to meet regulatory parameters may require review from multiple parties at many governmental agencies, depending on the state. Land with a conservation easement on it may be bought and sold as any ordinary land transaction, but the burden of the conservation easement will remain with the land and its benefits and rights to enforcement with the easement holder. The terms of the conserva- tion easement should specify whether notice among the parties to the easement is required when ownership of the land or the easement changes or the holder changes. The application of eminent domain to the creation, transfer, and extinguishment of conservation ease- ments is of particular importance to transportation agencies and of particular relevance to this digest. While the government is empowered to and often does “take” private land for public use, the law in several states, including Alabama, California, and Florida, pro- hibits the creation of conservation easements by emi- nent domain.23 Recordation.—Unlike the common law easements of old, which often came into being by the evident and conspicuous use of the property, today’s statutory easements may not be obvious to one simply observing a particular piece of property. Thus, the UCEA requires that a conservation easement be recorded to bind the parties to its terms.24 Recordation serves to provide “no- tice” to others of the existence of the conservation easement. Notice is a long-standing tenet of property law. The usual place of recording the transfer of a prop- erty interest is the Register of Deeds in the county seat, but may differ from state to state. Conservation ease- ments may have additional recording requirements. For example, in New York, copies of recorded conservation easements must be sent to the Department of Environ- 20 UCEA § 2(a). 21 See, e.g., NRDC v. FAA, 564 F.3d 549, 553 (2009). To mitigate environmental damage that would be caused by the construction of a new airport, the owner committed to set 9,609 acres of its acreage as a conservation easement. 22 MASS. GEN. LAWS ch. 184, § 32. 23 ALA. CODE. § 35-18-(2)(a); CAL. CIV. CODE § 815.2(a), 815.3(b); FLA. STAT. § 704.06(2). 24 UCEA § 2(b).

6 mental Conservation for inclusion in the statewide reg- istry.25 Transportation agencies benefit from early no- tice of the existence of conservation easements within a project area and should be familiar with the processes and places for documenting conservation easements. Effect on Existing Interests.—Finally, the UCEA pro- vides that “[a]n interest in real property in existence at the time a conservation easement is created is not im- paired by [the easement] unless the owner of the inter- est is a party to the conservation easement or consents to it.”26 Any and all parties with an interest in the sub- ject property should be involved in the creation of the conservation easement so that the interests of each are understood and properly protected or extinguished as necessary. In some states, such as Pennsylvania, con- servation easements may allow for protection of certain rights and uses that may be incompatible with the con- servation purpose, such as the rights to subsurface ma- terials.27 In such instances, the disallowance of these rights would bar almost all conservation projects.28 Enforcement.—In addition to requirements pertain- ing to easement creation and transfer, the UCEA pro- vides rules regarding enforceability. Under the UCEA, the following four categories of parties have the author- ity to bring an action concerning a conservation ease- ment: 1. The owner of the burdened property. 2. The holder(s) of the conservation easement. 3. A party having a third-party right of enforcement. 4. A person authorized by other law.29 The need for the first two categories is readily ap- parent since ordinarily these are the two principal par- ties affected by the use of the property subject to the easement, but the other two require additional explana- tion. A third-party right of enforcement is defined by the UCEA as “a right provided in a conservation easement to enforce any of its terms granted to a governmental body, charitable corporation, charitable association, or charitable trust, which, although eligible to be a holder, is not a holder.”30 Allowing third-party enforcement provides an addi- tional means of securing the property value protected by the conservation easement and recognizes the public purpose of conservation easements. The “other law” provision provides for the involve- ment of other local, state, or federal agencies. For ex- ample, the state attorney general may be designated to 25 N.Y. ENVTL. CONSERV. LAW § 49-0305(4). 26 UCEA § 2(d). 27 32 PA. STAT. ANN. § 5059. 28 It is important to note that the conservation easement does not enable such uses, but only does not prohibit them. A proposed mining activity, for example, would have to undergo all ordinary regulatory processes. 29 UCEA § 3(a). 30 UCEA § 1(3). supervise charitable trusts. In Arizona, any governmen- tal body may enforce a conservation easement if the holder no longer exists and the easement itself failed to create a third-party right of enforcement.31 Other states, however, limit the list of eligible enforcers. For example, Wyoming statutes do not include the “person authorized by other law” provision, which traditionally has been viewed as precluding the Attorney General or the public from enforcing an easement.32 Again, this is an area that varies from state to state and requires that the law be confirmed in each case. Modification and Termination.—In most cases, con- servation easements protect the underlying property in perpetuity. In practice, however, perpetuity may mean until the terms of the conservation easement no longer suit the parties or become impracticable.33 The issues of modification and termination are of particular relevance to transportation agencies and are often the basis of legal and political challenges. As be- tween the parties to the conservation easement (i.e., the property owner grantor and the easement holder grantee), the UCEA allows conservation easements to be freely modified and terminated. In some cases, the UCEA also provides for limited modification and termi- nation by governmental entities and the courts that are not express parties to the conservation easement, given the potential of changed conditions after the easement is executed. However, the UCEA broadly acknowledges that it “does not affect the power of a court to modify or to terminate a conservation easement in accordance with the principles of law and equity” of the particular jurisdiction.34 When termination of a conservation easement is deemed necessary by a nonparty, governmental entity, that entity, if authorized, may exercise its power of eminent domain to remove the conservation easement from the property. In this instance, the government is usually acquiring the underlying property at the same time and must provide just compensation for the value of the land taken.35 As with other aspects of the UCEA, states have adopted the provisions regarding termina- tion and may specifically address eminent domain. Ha- waii, Idaho, and South Carolina, for example, expressly provide that conservation easements are subject to 31 ARIZ. REV. STAT. ANN. § 33-273(A)(5). 32 Land Trust Alliance, A Guided Tour of Conservation Easement Enabling Statutes (citing WYO. STAT. ANN. § 34-1- 203(a)). But see Hicks v. Dowd, 2007 WY 74, 157 P.3d 914 (2007) (holding that a private citizen lacked standing to prevent county from releasing conservation easement based on charitable trust principles, but inviting the Attorney General to participate). 33 Jessica E. Jay, When Perpetual Is Not Forever: The Challenge of Changing Conditions, Amendment, and Termination of Perpetual Conservation Easements, 36 HARV. ENVTL. L. REV. 1 (2012). 34 UCEA § 3(b). 35 See § III of this digest.

7 eminent domain.36 When the government exercises its power to acquire land for a public purpose, the land- owner must receive just compensation for the property. Some states provide rules on the issue of compensation for easements. For example, Arizona provides that easements are not to be considered compensable real property interests.37 Conversely, states like Florida re- quire increased scrutiny in the taking of land protected by a conservation easement.38 The doctrines of changed conditions and cy pres may each be used to terminate an easement when the pur- pose for which the conservation easement was estab- lished is no longer practicable or possible to enforce. Nebraska law, for example, allows the holders or gran- tors of any easement to petition a court for subsequent amendment or termination and provides a balancing test for the court to apply when considering the re- quest.39 Pennsylvania takes a somewhat different ap- proach by providing that, even though courts may mod- ify an easement, conservation easements “shall be liberally construed in favor of the grants contained therein to affect the purposes of those easements and the policy and purpose of this act,”40 meaning that the bar for terminating the conservation easement is likely to be quite high. Again, each of these termination issues—eminent domain, changed conditions, and cy pres—are discussed in more detail later in the digest. The discussion above illustrates how each issue is handled by the UCEA and the importance of reviewing the laws of the particular state when working with conservation easements. C. How Conservation Easements Are Used by Non-Transportation Agencies Conservation easements are used for many purposes, all of which are based on the public policy that conser- vation has an inherent positive value. One commenta- tor has noted that “the framers of the [UCEA] intended to provide a loose legal framework with latitude for the parties to arrange their relationships as they see fit.”41 This breadth in development has enabled policy makers and the private property owners to use conservation easements as a tool in tax and estate planning, growth 36 HAW. REV. STAT. § 198-6; IDAHO CODE ANN. § 55-2108; S.C. CODE ANN. § 27-8-80. 37 ARIZ. REV. STAT. ANN. § 33-275(3). 38 FLA. STAT. § 704.06(11) (“In any legal proceeding to condemn land for the purpose of construction and operation of a linear facility as described above, the court shall consider the public benefit provided by the conservation easement and linear facilities in determining which lands may be taken and the compensation paid.”). 39 NEB. REV. STAT. § 76-2609(b). 40 32 PA. STAT. ANN. § 5055(c)(1), (2). 41 JEFF PIDOT, REINVENTING CONSERVATION EASEMENTS: A CRITICAL EXAMINATION AND IDEAS FOR REFORM 8 (Lincoln Institute of Land Policy 2005). management policy, regulatory compliance,42 and de- velopment review. Each of these items will be discussed in turn. Private Property Owners Financial Planning.—Private landowners may choose to protect historically- or ecologically-significant prop- erty with a conservation easement to receive significant tax and estate planning benefits. The federal income tax deduction for donated or “bargain sale” conservation easements was established in 1976, and, subsequently, activity spiked during the 1980s and 1990s. Many states have followed suit and provide a tax benefit for conservation easements.43 Land trusts and other con- servation organizations have been established through- out the United States to take on the role of overseeing and maintaining conservation easements. Between 1988 and 2003, the acreage protected by conservation easements held by private land trusts nationwide surged by 1,624 percent, and over the same period the number of private land trusts grew from 743 to 1,537.44 Today there are 1,700 land trusts.45 Conservation easements are a popular tool given their financial advantages and the ability for property owners to preserve their land for the future while re- taining the right to continue uses of the property that are compatible with the easement. Appendix A dis- cusses how tax benefits work and their appeal to prop- erty owners. Though transportation agencies may not benefit directly from tax advantages of conservation easements, the well-prepared agency representative will be familiar with this aspect of the conservation easement formula. The landowner, however, should have his own legal and accounting professionals. Regulatory Compliance.—Like private landowners and developers, transportation agencies will often be required to use conservation easements in order to comply with environmental or historic resource regula- tions. Private landowners and developers must comply with the same rules and regulations and may find con- servation easements useful to meet compensatory miti- gation requirements for both aquatic resources and threatened and endangered species. Policy Makers Growth Management.—Aside from the use of conser- vation easements as a financial planning tool, non- transportation entities commonly incorporate conserva- tion easements into their growth management frame- 42 Transportation agencies are most likely to encounter and use conservation easements in regulatory compliance. 43 According to the Land Trust Alliance, 16 states have state tax incentives. See http://www.landtrustalliance.org/ policy/tax-matters/campaigns/state-tax-incentives/ (Accessed Jan. 2012). 44 ELIZABETH BYERS & KAREN M. PONTE, THE CONSERVATION EASEMENT HANDBOOK 9 (2d ed. 2005). 45 The Land Trust Alliance, http://www.landtrustalliance. org/land-trusts (Accessed Dec. 29, 2012).