Understanding Conservation Easements: A Guide for Landowners and Investors

What Are Conservation Easements?

In simple terms, conservation easements are legal agreements between landowners and land trusts that restrict subdivision and certain types of development on a property. The primary objective is to eliminate the right to commercially develop or further subdivide the property while preserving the ecological values of the land. Each conservation easement is unique and tailored to the specific goals of the landowner and the ecological characteristics of the land.

Common Misconceptions

One common misconception is that conservation easements grant public access to private property; in reality, such situations are quite rare. Additionally, these easements typically do not restrict landowners from building on their property. Instead, they often outline specific building envelopes regarding location or size, allowing construction in designated areas.

Another misunderstanding concerns the relationship between the land trust and the landowner, particularly whether this dynamic is intrusive. In my experience, the opposite is often true. Many landowners consider the conservation consultations provided by the land trust to be valuable, and they look forward to the visits, which usually occur just once a year.

Historical Context and Evolution

The concept of conservation easements dates back to the 1970s but started to become a popular conservation strategy in the 1990s. Over the years, these easements have evolved and become more complex, especially following instances of syndicated easement scams that prompted scrutiny from the IRS. This scrutiny has led land trusts to tighten their operational practices.

As westward migration continues, the importance of conservation easements has come to the forefront. Increased funding for conservation initiatives has allowed more land trusts and landowners to engage in this practice, protecting valuable ecosystems while providing a financial benefit for landowners.

The Valuation Process

A conservation easement is a negotiated agreement between a landowner and a land trust, and the value of the easement is assessed by a third-party appraiser. This appraisal considers various factors, such as the specific development rights the landowner is relinquishing, as well as the property's location. Properties located near higher-density developments or important ecological areas are particularly attractive to land trusts.

The valuation of a conservation easement is essentially the difference between the value of the land without the easement and the value after the easement is in place. With the easement limiting the development potential of the land, a reduction in the land’s value is the typical result.

Financial Benefits of Conservation Easements

Landowners can benefit financially from the implementation of a conservation easement in one of two ways: cash or tax deductions. Cash easements have become increasingly common over the last couple of years due to recent funding provided to conservation agencies for purchasing these rights. In a cash easement scenario, a landowner receives cash from a land trust equivalent to all or some of the value of the easement in exchange for the property rights they convey.

Alternatively, landowners may deduct some or all of the easement's value as a charitable tax donation. This deduction can be claimed in a single year or spread out over a maximum of fifteen years. Often, a combination of cash and tax benefits is considered for the easement's payment.

Long-Term Value Considerations

While it is undeniable that traditionally, conservation easements diminish the market value of a property, one could argue that this diminution may be less impactful moving forward as compared to what we have seen in the past. That is to say that conservation easements mature, and value adds implemented on a given property over time may overcome the diminution of value attributed to the conservation easement.

For example, initiatives such as stream restoration projects that enhance fisheries, the improvement of wildlife habitat, the implementation of regenerative agricultural practices that increase the productivity of a property, and tasteful and timeless ranch compounds that are built on these properties are all examples of what we see on top tier offerings that sell at a premium price although they are encumbered by a conservation easement.

The reality is that an increasing number of properties are protected with conservation easements, making them more commonplace, and these easements are not hindering a landowner's purpose or intent in how they want to utilize their land, which is typically for agriculture and recreation rather than subdivision or development.

It’s essential to acknowledge that considerate development plays a significant role in conservation. Additionally, it’s important to understand that conservation easements may not suit every landowner or property. However, having a well-informed understanding of what conservation easements entail will help landowners make informed decisions about managing their own land. This knowledge is crucial for every landowner.

If you would like to learn more about conservation easements, I would encourage you to explore the Land Investor podcast episode, Conservation Easements: Preserving Land, Property Value, and Land Trusts, where my co-host Matt Henningsen and I had the chance to discuss conservation easements in depth with Dan Mahoney from Fay Ranches and Chad Klinkenborg of Montana Land Reliance.