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

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32 As discussed previously, conservation easements, in order to be valid, ordinarily must be consented to by all those with interests in the property. Beyond this how- ever, the law may also require certain adjustments in the relative positioning of the various parties. For ex- ample, conservation easements created for federal in- come tax purposes require mortgage subordination,177 which means the conservation easement itself may be relevant in the event of foreclosure. Also, subordination may be structured—in compliance with IRS regula- tions—so as to allow for limited, additional mortgages on the property if the holder subordinates its rights.178 These types of arrangements may be necessary for working farms, subject to conservation easements, that depend on financing. VI. MAINTAINING AND ENFORCING A CONSERVATION EASEMENT The previous section dealt with some of the ways that conservation easements provide for obligations and rights regarding monitoring and enforcement. This sec- tion offers additional background and details on these issues, specifically how holders and third parties carry out these tasks. A. Maintenance and Enforcement Responsibility An understanding of the long-term maintenance and enforcement provisions arising from conservation easements will enable transportation agencies to make informed decisions regarding who is best suited for these tasks, which may affect the way the transaction is structured. For example, compensatory mitigation properties may have irregular boundaries and specific ecological needs that require expertise beyond the scope of the transportation agency personnel involved. In these cases, the agency may contract the task of moni- toring and enforcing easement lands and boundaries to a third-party professional. For the purposes of this dis- cussion, it is assumed that a transportation agency is most likely to be the proponent of the conservation easement (either the grantee or holder) and not the landowner (grantor). As described previously, the conservation easement itself should document the basis for granting mainte- nance and enforcement authority to the holder or a se- lected third party.179 The authority to enforce conserva- tion easements, however, varies from jurisdiction to jurisdiction and may depend on a number of factors, including conservation easement enabling legislation, 177 Treas. Reg. § 1.170A-14(g)(6); 26 C.F.R. § 1.170A- 14(g)(6). 178 BYERS & PONTE, supra note 4, at 457. 179 RENEE J. BOUPHON, CONSERVATION EASEMENT STEWARDSHIP 243 (Land Trust Alliance 2008), hereinafter cited as “BOUPHON.” http://learningcenter.lta.org/attached- files/0/71/7143/CESteward_Small.pdf. other state statutes, and case law.180 For example, in some states, the conservation easement enabling legis- lation gives the attorney general standing to enforce conservation easements.181 Also, neighbors or the gen- eral public may182 or may not183 have standing to en- force the easement. The legal basis for enforcement au- thority arises from the purpose of the easement. If an easement has a broad public purpose, then it is likely that a more general enforcement authority will exist. For the purposes of this section, the term “holder” will be used to encompass any entity with maintenance and enforcement rights and duties, whether specified in the conservation easement or otherwise authorized.184 B. Considerations for Maintenance and Enforcement Having discussed who has the authority and obliga- tion to maintain and enforce the conservation ease- ment, the discussion turns to why these activities are necessary. The reasons are both legal, as discussed above, and practical in nature. The rules governing fed- eral income and estate tax deductions require conserva- tion easements to include both monitoring and en- forcement provisions. Since a number of conservation easements are created for tax purposes and many hold- ers require compliance with federal tax regulations even if they are not being used for tax purposes, more often than not conservation easements will include these provisions. Aside from the federal tax regulations, states may have specific requirements regarding monitoring and enforcement. Maine requires monitoring and reporting to occur no less frequently than every 3 years.185 Some states prohibit third-party enforcement of easements unless the third party is a party to the conservation easement. For example, Wyoming’s legislation does not include a “person authorized by other law” to be a third- party enforcer, as do several other states whose legisla- tion is based on the UCEA.186 As a result, the enforce- 180 Jessica E. Jay, Third-Party Enforcement of Conservation Easements, 29 VT. L. REV. 757, 758 (2005). 181 E.g. CONN. GEN. STAT. § 47-42c. (“The Attorney General may bring an action in the Superior Court to enforce the public interest in such restrictions.”). 182 E.g. 765 Ill. COMP. STAT. § 120-4(c) (granting standing to “the owner of any real property abutting or within 500 feet of the real property subject to the conservation right.”). 183 E.g. Burgess v. Breakell, No. 95-0068033, 1995 Conn. Super. LEXIS 2290, at *1 (Conn. Super. Ct.. Aug. 7, 1995) (finding neighbor did not have standing since she was not a party to the conservation easement). 184 This use of “holder” is broader than what has been considered in the digest to this point. For simplicity’s sake, the holder has been generally discussed as the party to whom the legal ownership of the deed of conservation easement has been transferred. 185 ME. REV. STAT. ANN. tit. 33, § 477(5). 186 See WYO. STAT. ANN. § 34-1-203(a). Several states authorize a “person authorized by other law” to enforce conservation easements, which has been interpreted to include

33 ment duties of a conservation easement in Wyoming should be fully thought through at the drafting stage so that if a non-holder agency is to have such authority, that agency will be made an explicit party to the agreement. Understanding how the relevant state han- dles the monitoring and enforcement issue may influ- ence how a conservation easement is negotiated and ultimately drafted. Beyond the general requirements made applicable either through federal tax regulations or state enabling legislation, the particular holder may have legal re- quirements based on its incorporation status. For ex- ample, for private land trusts organized as IRC Section 501(c)(3) tax-exempt charitable organizations,187 failure to monitor and enforce their conservation easement holdings may result in a loss of this designation. IRS Form 990, “Return of Organization Exempt from In- come Tax,” requires the reporting of the number and acreage of conservation easements monitored by physi- cal inspection. Coupled with the need for land trusts to remain a qualified organization for tax purposes, these organizations should be expected to take their monitor- ing and enforcement duties seriously. Finally, a private land trust’s bylaws or other guiding documents may require certain monitoring and enforcement actions. Where government entities are holders of conserva- tion easements, the agency’s enabling legislation and regulations may govern how it manages its conserva- tion easements. For example, in South Carolina the SCDNR is permitted to own interests in real property but only “for the purpose of providing game reserves, fish ponds, game farms, fish hatcheries, public hunting and fishing grounds and for other purposes necessary and proper for the protection, managing or propagating of fish and game and furnishing the people of the State with hunting areas and fishing facilities.”188 Thus, it would be appropriate for the SCDNR to hold easements only when the land will be accessible for public fish and game purposes but public access may threaten the conservation value of the property. It is more difficult to control the behavior of the public at large than the behavior of the limited number of people allowed on private property. Careful consideration must be given to whether or not an agency with a statutory purpose of allowing public access is the appropriate entity to monitor and enforce a particular conservation easement. Aside from legal requirements to monitor and en- force, holders will often monitor and enforce their con- servation easements for institutional reasons. Land the Attorney General and the general public. See, e.g., FLA. STAT. § 704.6(9)(d). 187 Jane Prohaska, Nonprofit Law and Recordkeeping for Land Trusts 1, LAND TRUST ALLIANCE 130 (2008). (“Without status as a tax-exempt public charity under federal tax law, many land trusts would simply be unable to operate.”), http://learningcenter.lta.org/attached- files/0/95/9565/DL_Recordkeeping_Vol_1_05062010_lores.pdf. 188 S.C. CODE ANN. § 50-3-10. trusts tend to be committed to their conservation goals, and they are often managed and staffed by motivated, dedicated individuals. Demonstrating vigilance in monitoring and enforcement is important in terms of institutional standing and continued fundraising capac- ity. As shown in the Bear Yuba Land Trust example, the dedication of an entity to its obligations may be critical to the success of the conservation project. Transportation agencies need to be well aware of the partnerships that are created in the conservation ease- ment relationship and not be surprised by the strident advocacy of the organization entrusted with enforcing the agreement. Case Study: Bear Yuba Land Trust—A Commitment to Conservation Easement Defense The Bear Yuba Land Trust (formerly the Nevada County Land Trust) has demonstrated considerable vigilance defending its conservation easements. When a neighbor sought to judicially establish a right-of-way claim across one of the Trust’s conserva- tion easements, the Trust mounted a full-fledged legal defense. The trial, which included over 455 exhibits and 23 witnesses, lasted 8 days over an 8-month period and involved multiple site visits to the disputed property. The Trust conducted a special appeal campaign that helped fund a portion of these legal fees, which ended up totaling more than $300,000. Ultimately, the Trust prevailed by showing that the neighbor’s right-of-way claims lacked sufficient evidence. Darla Guenzler, executive director of the California Council of Land Trusts, notes that “[l]ocal communities, the public, and landowners have made enormous investments in conserving land for the many public benefits it provides, and it is essential to defend challenges to these natural treasures.”189 C. Stewardship Having discussed the legal requirements and institu- tional motivations of monitoring and enforcement, key aspects of the process are presented below. These activi- ties are generally categorized as stewardship of the con- served property. The Lowcountry Open Land Trust provides a good example of stewardship. 189 $300,000 Spent to Defend Easement in California, http://www.landtrustalliance.org/conservation/conservation- defense/conservation-defense-news/300-000-spent-to-defend- easement-in-california.

34 Case Study: The Lowcountry Open Land Trust— Monitoring and Enforcement Plans and Processes The Lowcountry Open Land Trust, based in Charleston, South Carolina, offers a good example of a land trust committed to moni- toring and enforcing its conservation easements.190 Over the years, the Trust has protected over 83,000 acres in perpetuity. As part of its Stewardship Program, the Trust engages in the follow- ing activities: • Monitoring of protected properties. • Documenting changes to properties periodically using photo- graphs and geographic information systems. • Tracking changes in ownership. • Providing easement education to new landowners. • Reviewing and granting approval requests for permitted ac- tivities. • Maintaining property records. • Serving as a resource for landowners regarding property management issues. • Correcting violations through voluntary compliance or, if nec- essary, legal proceedings. To support these activities, the Trust has established the Stewardship Fund, funded primarily by membership dues and donations. Having celebrated its 25th anniversary in 2010, the Low Country Open Land Trust has the experience, resources, and desire to monitor and enforce its conservation easement portfolio for years to come. While an entity may have an established monitoring program such as the one presented above, each transac- tion and property remains unique, and the plan should be adapted for the property. The specific needs of a par- ticular property should be set out in the baseline docu- ment. In sum, the three major components of a monitor- ing plan are frequency, methodology, and documentation. Monitoring Frequency Monitoring frequency is determined on a case-by- case basis according to legal and project-specific re- quirements as mentioned previously. Often conserva- tion easements provide for at least annual or biannual site visits,191 but certain conservation easements may need to be monitored more frequently. For example, for 190 http://www.lolt.org. 191 In addition to monitoring conservation easements to ensure compliance, these site visits also provide the opportunity for the holder to become acquainted with new owners of the property. As previously discussed, many conservation easements are perpetual in nature and almost all “run with the land” so as to bind successors in interest. Therefore, it is important for holders to maintain good relations with the original grantor as well as establish new ones with new owners. BOUPHON, supra note 179, at 213. conservation easements providing reserved rights for new construction, monitoring may need to take place regularly during the development and construction processes, to ensure that sensitive ecological features such as wetlands are protected and that activities re- served to the landowner are not in excess of the rights delineated in the easement.192 Also, some conservation easements require more frequent monitoring during certain seasons, for example, to monitor wildlife nesting activities. Whatever the case may be, monitoring fre- quency often is an important issue for holders and grantors, who must allow holders access to carry out their responsibilities. Again, it cannot be reiterated enough that these re- lationships begin at the conception of the conservation easement.193 Early in the process, it is important to un- derstand the monitoring frequency needs, identify ca- pable holders,194 and work with the grantor to make sure that all parties are in agreement regarding what will be done. Monitoring Methodology As with monitoring frequency, the appropriate moni- toring methodology depends on the circumstances of each property and may vary from a site walk for a small park to aerial viewing for thousands of acres of rugged terrain. Aside from the size of the property, the com- plexity of the conservation protections may require ex- perts to perform the monitoring. An example of this would be a compensatory mitigation site that involved extensive ecosystem restoration. In the Bear Creek ex- ample presented in Section IV, after the wetland resto- ration work was completed, specific hydrology and vegetation parameters had to be measured and docu- mented for 5 years. During this monitoring period, the landowner and mitigation banker, Restoration Systems, provided the monitoring. Once this specific, intense performance monitoring is completed, the routine main- 192 BYERS & PONTE, supra note 4, at 145. Conservation easements are often drafted to require giving the holder notice prior to commencing any construction. As a result, these requests should be recorded and identified for special monitoring needs, as necessary. 193 In addition to formal site visits, some land trusts engage in what can be described as “drive-by” monitoring. According to David Shields, Associate Director of the Land Stewardship Program with the Brandywine Conservancy, operating in southeastern Pennsylvania and northern Delaware, “we have to be sensitive to the landowners…[m]ore frequent monitoring could be interpreted by the landowner as a lack of trust, but a ‘windshield view’ can be informative without being intrusive.” BOUPHON, supra note 179, at 227. 194 Monitoring conservation easements requires monitors, of course. Land trusts typically rely on a combination of on-staff professionals and volunteers from the community. However, outside consultants may be brought in as well. The Agricultural Stewardship Association in upstate New York saw its volunteer training program expand as the land trust’s conservation portfolio grew in size. BOUPHON, supra note 179, at 217, 253.

35 tenance and enforcement duties will become the re- sponsibility of the North Carolina Coastal Land Trust as the long-term holder. Transportation agencies simi- larly may want to contract out monitoring services when very specific ecological parameters need to be assessed and reported to ensure specific outcomes, such as the production of compensatory mitigation. Monitoring Documentation Finally, since the purpose of monitoring ultimately is to ensure compliance, documentation and recordkeep- ing are essential elements of any monitoring program and should be described in detail within the baseline report. Monitoring criteria and reporting formats may be based on standard practices of the holder or specific regulatory guidelines as in the case of compensatory mitigation. The protocol will determine the best means of data collection and reporting. Photographs may be the most useful means of documenting boundaries and any encroachment violations, whereas the collection of specific rainfall data may require onsite, mechanized equipment. Periodic reporting allows for inspection of the site and an analysis of changes in the site condi- tions over time. If or when a violation of the easement terms is found, the reporting documents will become the basis of any subsequent enforcement action. D. Enforcement Programs Conservation easement holders may also have for- mal enforcement programs that direct how violations are addressed from identification through resolution. As with other aspects of conservation easements, thinking through the eventuality of enforcement before such ac- tion is needed will increase the likelihood of a smooth resolution to any such actions if it occurs. Enforcement can be time consuming, complicated, and costly; but as with monitoring, holders should take their enforcement responsibilities seriously and have the capacity to de- vote resources accordingly. In what follows, some key aspects of both the violation verification and resolution processes are discussed. Holders may learn about a potential violation though a variety of means, but no matter how it is discovered, thorough documentation and review should be com- pleted. As mentioned above, the monitoring reports completed prior to discovery of the violation will provide key evidence of the intended easement condition. Enti- ties familiar with the enforcement process go to consid- erable lengths to adequately verify and document the violation, for example by identifying the photographer, the location, and the date. While it may seem burden- some to take such measures each time there is an issue, the documentation will become significant should reso- lution fail and litigation result. Aside from the collection and documentation of data, the property’s baseline report and the conservation easement agreement should be reviewed. Because the person involved in the current situation may not have been involved in the initial acquisition, an internal re- view of the case file is essential before deciding what the next steps should be. The reviewer should have a clear understanding of the scope of the property owner’s reserved rights and what actions or conditions may con- stitute a violation.195 What is perceived to be a violation to one individual (based on expectations of what conser- vation means) may not be prohibited by the terms of the easement itself. To help determine legal violations, the review should include input of attorneys as well as the organization’s staff and policymakers. Such a measured review may prevent the expenditure of limited re- sources on misguided enforcement actions and preserve the important relationship with the property owner. If the holder determines that a violation has oc- curred, the conservation easement may contain specific terms regarding the enforcement process and should be the basis of the action where such terms exist. For illus- tration, a typical enforcement process is described here. When the violation is discovered and assessed, the property owner should be notified of the violation in writing. This writing should include details on the al- leged violation and inform the landowner what reme- dial steps must be taken and within what timeframe. The letter may also invite the property owner to meet with the holder to resolve conflicts and work towards a settlement of the issue. Often the property owner may have been unaware of the condition causing the viola- tion and quickly amenable to resolving the issue. In other instances, the owner may seek to settle the issue by negotiating a change in the conservation easement that allows the present condition in exchange for allow- ing additional protections on the property or additional clarity in the conservation easement.196 When resolution cannot be readily negotiated, the terms of the conservation easement may direct or allow the initiation of a judicial action. In other cases, some form of alternative dispute resolution, such as media- tion or arbitration, may be a required prerequisite to litigation. Mediation may be a preferable approach as it often is less costly and less adversarial than litigation. If mediation is not successful, then litigation may ulti- mately be necessary to resolve the dispute. As previously mentioned, litigating conservation easement violations can be time consuming, compli- cated, and costly; however, litigation of conservation easements does occur and the parties should be pre- pared for the possibility of this outcome. Perhaps not surprisingly, the focal point of these cases will often be the conservation easement agreement itself. Again, time spent in careful drafting with all parties involved may prevent or lessen the likelihood of an adversarial proceeding. Courts have taken a number of different approaches to resolving these issues, and some examples are pre- sented here. Depending on the position of the parties, one approach may be preferable to another. Note, how- ever, that these cases do not represent majority or mi- 195 BOUPHON, supra note 179, at 161–62. 196 BYERS & PONTE, supra note 4, at 164.