Conserving the Future: How Easements Shield the Land
By Lisa Martin
Henley’s Orchard, now owned and managed by Tim and Sarah Henley and their family, was founded in 1932 with the purchase of a house on five acres by Tim’s grandfather. Expanding the apple and peach orchards and adding a herd of cattle, horses, and hay, Tim’s father steadily increased the family’s holdings to over 800 acres of farmland, plus 770 acres of forested land on the mountainside along White Hall Road. To protect the land and preserve it for future generations, the Henleys have gradually placed large tracts under conservation easement.
“The easements make it possible for us to invest in the farm and to continue our sustainable agriculture practices,” said Sarah Henley. “It will never be developed, and it’s nice to know that our kids won’t have to sell the farm to pay the taxes.”
Conservation easements have surged in popularity over the last 20 years as a prime tool for preserving land as open space, left in its natural state and undeveloped. An easement is a legal agreement between a landowner and a nonprofit organization (a “land trust”) that restricts development and certain commercial or industrial uses of the land. The agreement essentially splits off the owner’s development rights and conveys them to the land trust to hold into perpetuity. Most often, a landowner gives up the right to construct additional buildings or alter waterways on her property but retains ownership of the land and continues to live on it.
The arrangement is a serious commitment, full of long-term pros and cons. The upside largely benefits the public: the land remains as open space, wildlife habitats are undisturbed, streams and rivers are protected, views are preserved. The property cannot be divided or developed, ever. Giving up the development rights on the property represents a significant loss of value to the landowner, and that is how the monetary value of the easement is measured—as the difference between the market value of the land “before” versus “after” the restrictions are placed on it.
“In this area, based on appraisals, typically there’s a 20 to 40 percent reduction in the value of the land when a conservation easement is placed on it,” said Rex Linville, a land conservation expert who covers Albemarle and Greene Counties for the Piedmont Environmental Council (PEC). “It’s a significant gift.”
The landowner is compensated for this loss by receiving federal and state tax benefits if the easement is donated, or by receiving payment directly from the land trust if sold. The land usually remains private with no public access, and may continue to be used for farming or ranching consistent with open space provisions. Notably, the easement is legally bound to the property deed and is permanent, passing down through any property transfers in the future.
The permanence of an easement is a feature, not a bug. “Landowners don’t need to protect the land from themselves,” said Linville. “They are worried about the next owner, the next generation. They want to protect the land from the future.” Forever seems like a long time to exclude building rights, but Linville points out that development decisions often have the same effect. “Building a set of houses or a shopping center on a piece of property is also a long-term use of the land, but people don’t always think about it that way.”
As a means of land preservation, the use of easements in the U.S. has been around since the 1800s. The earliest conservation easements were issued by local governments to create public parks in Boston and to provide scenic views along the Blue Ridge Parkway. In the mid-1900s they helped land-rich but cash-poor farmers, pressured by rising land values and property and estate taxes, to be able to keep their land and lower their tax burden. It was not until the 1990s, when conservationists began to recognize the value of easements in curbing out-of-control development, that the number of land trusts in the U.S. exploded, increasing four-fold between 1985 and 2000 to over 1,600 agencies.
Over the same period, the tax treatment of easements has turned strongly favorable, giving the landowner of a donated easement a charitable deduction of 50 percent of the easement’s value (100 percent for farmers) with generous carryover terms, a 40 percent state tax credit, an estate tax exclusion, and a property tax basis reduction.
While these benefits are meaningful, so too are the constraints for the landowner. The market value decline makes future loans potentially harder to obtain and lowers the value of the estate for the owner’s descendants. Restrictions on the use of the property can be severe, including limitations on building any other residences on the land for family members and on activities such as selling crops at a farm stand.
David King, founder and owner of King Family Vineyards, believes the motivation for an owner to put land under easement has to be preservation, not economics. “Why would you put an easement on a tract of land when you might be able to sell it for a fortune?” is the question he anticipates, before laying out his view. “Our intent was not to buy it as an investment. The easement allowed us to preserve it for future use by keeping it as a larger tract.”
The family put all 327 acres of their farm under easement in 2000, just as they planted their first grapevines without knowing the future viability of the operation or how the local area would change. As growth has progressed westward from Charlottesville over the years, the value of the property has only increased. In their easement agreement, the family bargained for the rights to operate the winery, and for three additional parcels on the land should their descendants wish to live there in the future.
In King’s view, the tax credits are a negligible inducement for working farmers. “There were 27 division rights on this land,” he said. “If you wanted to sell them off today, that would dwarf the tax benefit. I expect that many people who put their land in easement must by definition have the ability to give up opportunity and economic value for the purpose of preserving the land.”
While most land trusts such as The Nature Conservancy and the Piedmont Environmental Council are private agencies, Virginia’s easement landscape is dominated by a public entity called the Virginia Outdoors Foundation (VOF). Created by the Virginia General Assembly in 1966, the VOF is the only state-mandated land trust in the country, and its funding by state budget appropriation and grants means it doesn’t have to rely on donations or outside fundraising as private land trusts do.
According to its website, the VOF’s 800,000-acre portfolio of conserved land is larger than the state of Rhode Island, accounting for 80 percent of all open-space easement acreage in Virginia. Prior to the year 2000, the VOF conserved fewer than 10,000 acres per year; after 2000, when the state tax credit provision was instituted, that rate jumped to over 40,000 acres per year. The state issued over $250 million in tax credits for easements in 2006 alone, during which the VOF received over 70,000 donated easement acres.
“The difference is that while other land trusts do many things, from transportation to county issues to nature trails, we do largely one thing, which is easements,” said Sherry Buttrick, VOF Assistant Director of Easements for the region. “We are a vehicle to further private philanthropy for public benefit. Most people come to us because they want to make sure the property stays the way it is beyond their tenure on this earth.”
Albemarle County contains over 500 conservation easements covering almost 100,000 acres, 72 percent of which are held by VOF. Because it is a public foundation, the VOF’s funding is subject to budgetary constraints, and it counts on the advocacy of state legislators in each new cycle to avoid cuts. Rex Linville of the PEC worries about the continuation of the state conservation tax credits, currently capped at $75 million per year, for the same reasons. “You never know when circumstances might change and the tax credit program may be altered or drastically reduced,” he said.
Whether the current rate of land conservation can be sustained is an open question. The pace may slow as the number of landowners in a position to donate easements dwindles, or the boom may be just beginning. Future funding will certainly play a key role. When the conservation tax credit was established by Virginia legislators in 2000, did taxpayers expect to contribute $1.5 billion (the value of credits issued through 2015) to land conservation, and can that level be maintained?
Conservationists hope so, but time will tell. As Mark Twain said of investing in land, “They’re not making any more.”