What is a conservation easement?

A conservation easement is a deed restriction that a landowner either donates or sells to a “qualified organization” such as a non-profit land trust (such as Legacy Land Trust) or a governmental entity. By granting the easement, a landowner permanently separates certain ownership rights from a particular tract of land – usually most or all of the rights to subdivide and develop the property – and agrees to allow the donee, such as Legacy Land Trust, access to monitor the land for the purpose of insuring that the provisions of the agreement are honored. All conservation easements held by Legacy Land Trust are permanent, which makes the donor eligible for state and federal tax incentives (“term” easements may be donated or purchased by some entities, but they do not qualify for tax benefits). The easement “runs with the land” and is recorded with the county clerk and recorder so that all future owners and lenders will learn about the restrictions when they obtain title reports. Most often easements are donated along with a cash gift to the Land Trust to partially cover its maintenance cost.

Landowners grant conservation easements to protect their land from inappropriate development while retaining private ownership. A conservation easement assures the landowner that the natural resource, open space and/or agricultural values of his or her property will be protected forever, no matter who the future owners are.

Any property of value for agriculture, forestry, recreation, water resources, wildlife habitat or for its scenic or historic qualities may be protected by means of a conservation easement. The staff of the Legacy Land Trust can help you evaluate the features of your property.

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Who can grant an easement?
Any owner of property with conservation values described above 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 that of the easement holder so that the easement cannot be extinguished in the event of a foreclosure.

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How restrictive is an easement?
An easement restricts development and other uses of the property to the degree that is necessary to protect the significant conservation values of that particular property.

Future residential or commercial construction, including roadways, may be prohibited entirely or limited to specific sites where the impact will not impair the environmental, scenic or historical quality of the property.

Other restrictions or limitations in the use of the land may be applied, such as limiting the land to forestry or to agriculture, prohibiting filling, excavating or removal of topsoil and gravel, or disallowing billboards, commercial buildings and other undesired structures.

Certain uses of the land may be specifically allowed, such as educational and scientific activities, hunting, fishing, hiking or skiing in specified areas, or construction of buildings that conform to the purposes of the agreement.

Provisions for the preservation or restoration and protection of structures and sites of historic significance that are located on the land may be included.

Land protected by a conservation easement may be sold, given or transferred at any time. Some easements may allow limited development, if it was determined at the time the easement was granted that such subdivision would not impair the conservation values of the property.

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How much land must be included in a conservation easement?
There is no set minimum number of acres that must be included in a conservation easement. The ultimate driving factor is that specific “conservation purposes” as defined by the IRS exist on the property, and that they are adequately protected by the conservation easement. Legacy Land Trust’s smallest easement is four acres and includes a cottonwood-willow gallery along the Poudre River complete with a bear den. Our largest easement is over 6,700 acres and protects miles of shortgrass prairie and the wildlife habitat for a number of rare species. In general, it is easier to pass the IRS’s conservation purposes test with a larger rather than smaller land area.

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How are conservation easements enforced?
The landowner has the primary responsibility for ensuring that the conservation easement provisions are complied with. Legacy Land Trust also accepts responsibility for monitoring compliance with the agreement in perpetuity. Representatives of the Legacy Land Trust will visit the property periodically to determine that no violations have occurred. The Legacy Land Trust will use written records and photographs to document the existing conditions during each monitoring visit.

If the terms of the easement are not being complied with, the Land Trust will attempt to resolve the matter informally with the landowner. Often, a landowner may not be aware that a certain activity may not be allowed and once it is explained, the issue is resolved cordially. In the case where an activity or structure violates the terms of the easement and there is not agreement between the parties, the Land Trust may seek a legal remedy.

A property owner should make sure that the recipient organization has the time and resources to carry out its monitoring responsibility. When the Legacy Land Trust accepts the donation of an easement, it typically asks the landowner to make a contribution toward the costs of monitoring in perpetuity.

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Are there financial benefits to donating a conservation easement?
The donation of a conservation easement constitutes a charitable gift that may be deductible for federal income tax purposes if the property meets conservation purposes established by the federal government. A conservation easement may also reduce the value of a landowner's estate, and lower the estate taxes levied on his or her heirs. In some cases a conservation easement may also reduce a landowner's property taxes. Additional information on the tax consequences of land protection is available from the Legacy Land Trust, however, donors are advised to consult with their attorney and accountant if this aspect is important to them.

In general, once the value of the donation has been determined by an appraisal, the donor of a conservation easement can claim up to 50% of their adjusted gross income (AGI) in the year the easement was granted. The unused amount of the donation may be carried forward for 15 years or until exhausted, whichever comes first. If the donor earns at least 50% of their income from farm and ranch activities, the deduction may be 100%. These federal rules are in effect from January 1, 2006 to December 31, 2007. Following that, if Congress has not acted to extend or make permanent these deductions, the federal tax deduction returns to 30% of AGI for a maximum of six years.

Colorado is one of only a few states that has a state income tax credit for the donation of a conservation easement. Starting in January 2007, the tax credit is a flat 50% of appraised value to a maximum of $375,000 per conservation easement. The tax credit is transferable, meaning that it can be sold to another entity that has a tax liability with the state. There are a number of tax credit brokers that bring sellers (the easement donors) and buyers of the tax credits together. Legacy Land Trust maintains a list of brokers who have transferred credits from easements we have received. For more information about the state tax credit, visit the Colorado Department of Revenue website and look for “FYI #39”, which will give you up-to-date information on how the state tax credit program is implemented. You should also consult a tax attorney or accountant who is familiar with the financial implications of donating a conservation easement.

Appraising the value of a conservation easement is a complex and time-consuming project. Landowners must choose an appraiser who is familiar with conservation easements and should have the appraisal process explained to them along the way. The Land Trust maintains a list of appraisers who are familiar with conservation easement appraisal, and are also familiar with northern Colorado real estate. There are many qualified appraisers who may not be on our list – this means only that we are not familiar with their work.

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Does an easement allow public access?
A conservation easement does NOT require landowners to allow the public access to their property. Landowners who grant conservation easements make their own choice about whether to open their property to the public. In some cases, a landowner may convey specific public access rights such as allowing fishing in designated areas or hiking along a clearly defined trail corridor. Public access may also be granted when the property has a history of public use and is perceived to be a recreational resource.

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What is the structure of a conservation easement?
A conservation easement conveys certain rights or interests in real property. It first identifies the grantor (landowner) and the grantee (Legacy Land Trust). It states explicitly the purposes of the grantor in granting the easement. This is a requirement of the Internal Revenue Service as a prerequisite to deductibility of the value of the easement by the donor. The agreement will contain a careful description of the property to which it applies, including a designation of the property covered by the easement and any special features or unique and significant qualities that will be protected. The most important sections of the document are the “reserved rights” and “prohibited uses” sections. Reserved rights are those that the landowner does not want to give up, while prohibited uses are those (such as subdivision and many types of structures) that the landowner gives up. The more rights a landowner gives up, the greater the appraised value of the easement and the amount that can be claimed as a deduction and/or credit. There will also be some standard provisions typically included in all deeds and conveyances.

LLT’s Project Evaluation Criteria for Conservation Easements
The Legacy Land Trust has developed criteria for the acceptance of land or a conservation easement on land. The criteria were developed to ensure that the Legacy Land Trust acts to preserve lands in Larimer, Weld and Jackson counties in a manner consistent with the Land Trust's mission. The Land Trust seeks to promote broad land conservation and planning efforts in the region while complying with Internal Revenue Service regulations. To qualify for consideration for acquisition by purchase or donation, a site must be able to be justified as having value in one or more of the following categories:

Lands of agricultural or forestry significance.

Lands that have potential to be a part of community, regional or state park or greenway systems.

Lands that contain, or have the potential to contain, ecosystems of educational or scientific value.

Wetlands, floodplains or other riparian lands necessary for the protection of water quality.

Lands of historical value, or adjacent to lands of historical value, and that are necessary for the protection of the items of historical interest.

Lands that contain endangered, threatened or rare species or natural communities.

Lands that contain unique or outstanding physiographic characteristics (e.g. a large rock outcropping).

Lands that contain wildlife habitat, exemplary ecosystems or natural features (e.g. migratory waterfowl wintering area).

Land that is valuable to a community as open space due to its proximity to developing areas or its prominent position in how people perceive their community (e.g. open fields on a major thoroughfare at the entrance to a town).

Land that, if developed, would diminish scenic views or interfere with views across already protected open space.

Land that is contiguous with, or in close proximity to, land that has been protected by the Legacy Land Trust or that is likely to be protected in the near future.

Land that provides a buffer for or corridor between important wildlife habitats, wetlands, floodplains, or surface and groundwater supplies so that its protection would diminish the impact of dense development on these resources.

Whether a site falls into one or more of the above categories is only the first stage of the process in deciding whether the Legacy Land Trust will acquire the land. Many circumstances may lead to a Board decision not to pursue a proposed project. Such a decision is not a criticism of the proposal, since the Land Trust believes that almost all open lands in Larimer County are valuable. Rather, it reflects the Board's conclusion that the proposal does not fall within the specific management or acquisition abilities of the Legacy Land Trust at the time. Some of the circumstances that could lead to a decision not to pursue a particular project might include:

The property would be unusually difficult to manage either because of the cost of upkeep, access problems, size, or other situations related to the particular parcel or the Land Trust's resources.

There are provisions in the transaction that the Land Trust believes would significantly diminish the property's conservation values.
The property is unalterably contaminated.

In order to qualify for federal and state tax benefits (described above) the conservation easement must further at least one of four “conservation purposes.” These are:

Preservation of land areas for outdoor recreation by, or the education of, the general public;

Protection of a relatively natural habitat of fish, wildlife or plans or a similar ecosystem;

Preservation of open space for the scenic enjoyment of the public or pursuant to a clearly delineated Federal, State or local governmental conservation policy and will yield a significant public benefit; and/or
Preservation of an historically important land area or a certified historic structure.

There are specific requirements for each of these conservation purposes. The Land Trust will evaluate your property and determine which of the conservation purposes a conservation easement may further.

THE IRS MAKES THE ULTIMATE DETERMINATION OF THE VALUE OF THE EASEMENT AND WHETHER IT MEETS ONE OR MORE OF THE CONSERVATION PURPOSES LISTED ABOVE.

Because the Legacy Land Trust is an Internal Revenue Service 501(c)(3) charitable organization, we are able to provide possible tax benefits to those who protect their lands. At the same time, we also have a legal and ethical obligation to be sure that our land protection program results in a significant public benefit, and the obligation assumed by the Trust can be fulfilled in perpetuity. We therefore evaluate each project with care.

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