Conservation Drafting and Documentation Pennsylvania Land Conservation Conference

Conservation Drafting and Documentation Pennsylvania Land Conservation Conference: Working Together to Protect Land, Water and Communities May 8, 2009

Presenters Patricia L. Pregmon Lauren Pregmon Tetreault Dawn Gorham, Ph. D

What is a Conservation Easement? • Owner declares covenants – Subdivision – Improvements – Activities and Uses • Conservation Organization commits to enforce in perpetuity

SAMPLE DEED COVENANT And the Grantee, by acceptance of this Deed, covenants to and with the Grantor that the following covenants shall be binding upon the abovedescribed premises granted herein in perpetuity as covenants running with the land: 1. That the premises shall never be subdivided. 2. That there shall be no building or other improvement erected or constructed within 50 -feet of Winding Creek. 3. That the premises shall be used only for residential and agricultural purposes.

DEED COVENANT ADVANTAGES • Inexpensive • Fast • • • DISADVANTAGES Black and white – no grey Who’s going to enforce? Who’s going to pay for enforcement? Who is going to monitor? And how? Whose consent needed to amend? What happens when conditions change?

Pennsylvania Land Trust Association Model documents available online at: www. conserveland. org Model Conservation Easement Commentary Regular Updates

Conservation Easements Protect Natural Resources • Water • Soil Biologic Resources • Trees, plants and vegetation • Animal, bird and aquatic habitat Scenic View • Nature appreciation • Outdoor recreation

Three Levels of Protection Highest Protection Area • Few Improvements (fence, trail) • Little or no activity (walking, removal invasives) Standard Protection Area • Wide range of outdoor activities • Limited improvements Minimal Protection Area • Little or no limitations on activities • Residential Improvements

Aerial photo of Ohner Farm 350 acres owned Mary Ohner bounded by Sycamore St. and Fairview Ave. in Growing Township, Progressive County, PA. 135 acres farmland; 215 acres woodland; traversed by Winding Creek. Has been in Ohner family for 100 years.

Perspectives on Conservation Mary Ohner Widow Age 65 Lives on Property Betty Ohner Age 40 Married, three children Albert Ohner Age 35 Married, no children Lives on Property Lives in Seattle Your Land. Trust

Preparation for Interview • CLC Conservation Easement Checklist (p. 72 -74 Workbook) • Aerial - GPS • Zoning – Subdivision/Development Approvals • Property tax records • Title records – liens, last deed • Google - Networking

Morning Break

Breakout Session • Interviewing Mary Ohner – What are her conservation objectives? – Are they feasible for Land Trust to enforce? – How will preparation and long term enforcement be funded? • Proposal for Conservation Easement – – Subdivision Location of HPA (if any) Location and number of MPA(s) Number and size of buildings permitted within SPA; Impervious Coverage limit • Recommendations to Board for approval

Conservation Plan for Ohner Farm Conservation Objectives Land Planning Objectives Estate and Tax Planning Objectives

Charitable Contribution • Conservation Tax Outline • Course Workbook pp. 26 -33 • Section 1. 06 of Pennsylvania Conservation Easement and Commentary • Lindstrom, Tax Guide to Conservation Easements • Small, Preserving Family Lands

Exclusively for Conservation Purposes Relatively Natural Environment Preservation of Open Space Scenic views from public access points Public Access In furtherance of public policies

Enforceable in Perpetuity Qualified Organization • Non-profit recognized as charitable under 501(c)(3) • Governmental authority Commitment to Enforce • Funding • Organizational mission Perpetuity • No outstanding interests to cut-off • Subordination of all mortgages

Potential Income Tax Benefits Fair Market Value of Property: $2, 000 Donation of a Conservation Easement on the Property to a Qualified Conservation Organization Fair Market Value of Property with Conservation Easement: $1, 000 Owner has a $1, 000 charitable income tax deduction for donating the conservation easement (equal to the diminution in value of the Property). Generally, Owner can take the income tax deduction up to 30% of her adjusted gross income for the year of the gift (50% if donated in 2008 or 2009), with a 5 -year carry-forward of any unused amount (15 years if donated in 2008 or 2009).

With a $1, 000 Deduction. . . Without the Donation Income: $100, 000 Tax Due: $ 33, 000 With the Donation Income: $100, 000 Deduction: $ 50, 000 Tax Due: $ 16, 500 Tax Savings: $ 16, 500 *Tax Savings over 15 years: $264, 000 *Assumes 2007 federal tax incentives are made permanent.

Estate Tax Benefits Land subject to IRC 2031(c) Exclusion Conservation Easement • Exclude up to 40% of is valued as restricted value for Estate Tax purposes • Must be owned 3 years preceding death • CE granted by decedent or family member • Maximum $500, 000 • CARRY OVER BASIS

Lunch Break 12: 00 -1: 00 pm

Summary of Objectives for First Draft Conservation Easement Land Personal Financial • HPA – riparian buffer; habitat • Minimal Protection Area(s) - Subdivision • Improvements within Standard Protection Area • Maintain integrity of Property • Treat children equally • Buffer working farm from MPAs and vice versa • Reduce value for estate tax • Qualify for federal income tax benefit • Possible estate tax exclusion

Drafting the Conservation Easement based on the Pennsylvania Model Articles; Sections; Definitions Using the Commentary

Parties; Property • “Undersigned Owner or Owners” and “Owners” (8. 30) • Property; Conservation Area • Conservation Plan

Conservation Objectives; Baseline Documentation • 1. 03 Select and apply to Property • 1. 04 Support with Baseline Documentation – Sources of information – Photographic documentation – Descriptions of Native, endangered or threatened resources found on or about; use as corridors; connection to larger landscape – Support for IRC public benefit test

Section 1. 06 and other legal requirements • Tax Requirements – 1. 06 Federal Tax items – 1. 04 Baseline Documentation – 5. 01 Grant in Perpetuity; Superior to all Liens – 5. 02 Duty to enforce in perpetuity – 7. 03 Assignment only to Qualified Organization • Conservation Easement Act – Coal Rights notice

Structure Articles II, III and IV No Yes Maybe • No Subdivision • No Improvements • No activities and uses • Permitted as a matter of right • No approvals • Permitted subject to Review • Procedure for Review 5. 04

Article II Subdivision • Broad definition in 8. 44 – Transfer of Existing Lot – Condominium and HOA units • Option to add other “Permitted Subdivisions” per Commentary • Option to add, delete or move “subject to Review” (procedure in 5. 04)

Article II – Future MPAs • Option to establish MPAs in future – Within Designation Area – By ruling out certain areas • “Floating” MPA can jeopardize charitable contribution

Afternoon Break

Article III Improvements Site Improvements Utility Improvements Additional Improvements Agricultural Improvements Residential Improvements Existing Improvements Expansion or Relocated

Improvements in HPA • Highest Protection Area – Fences and signage - Owner concerns re security, trespassing, etc. vs. protection of scenic views – Trails – Impervious Coverage (8. 20) – Other access subject to Review to protect Conservation Objectives for protection of habitat, water resources – Extraction Improvements (may be deleted)

Improvements within SPA • Agricultural • Utility Improvements and Site Improvements for agricultural and recreational uses • Limitations to preserve Conservation Objectives re: scenic views, open space preservation and water resource preservation • Numbers in model for illustrative purposes only • Option to permit Renewable Energy Improvements

Improvements within MPA • • Adds Residential Improvements Option to limit Habitable Improvements Option to limit Impervious Coverage Option to permit Extraction Improvements

Article IV Activities, Uses; Disturbance of Resources • Prohibition (4. 01) broader than Article II and III • Zoning and TDR issues (4. 02) • Important definitions – Native Species (8. 29) – Wet Area (8. 48) – Best Management Practices (8. 08) – Sustainable (8. 45) – Resource Management Plan (8. 38) • Soil conservation plan (8. 42) • Agricultural management plan (Commentary) • Forest management plan (Commentary)

Activities within HPA • Existing Agreements – check whether need subordination or surface use agreement • Disturbance of Resources – (i) Liability issues – (iv) Vehicular – ATV issues (also (d)) – (v) Removal of downed trees, cutting live trees – (ix) Accommodates possibility of change

Working Landscape within SPA • Sustainable Agriculture – No plan required for grazing, hayfield – Soil Conservation Plan for field crops – Option: Agricultural Management Plan (Commentary) • Sustainable Forestry – Resource Management Plan – Option: Forest Management Plan (Commentary) – Certified Sustainable or compliance with requirements • No conversion of woodland to agriculture

Recreational within SPA • Any kind of outdoor recreation activity subject to overall prohibition on frequency and intensity of use (4. 01) and availability of improvement for that use under Article III • Motor vehicle issue

Activities and Uses within MPA • No limits on planting or removal of vegetation (other than introduction of Invasive) • No limit on uses or activities within Improvements (Residential and Agricultural) permitted within MPA • Residential and Agricultural uses

Articles V Rights and Duties • 5. 01 Rights AND duties of Holder • 5. 02 Rights but NOT duties of Holder • Option: add selected rights NOT duties for Beneficiaries • 5. 04 Procedure for Review – Option: Add Alternative Dispute Resolution • Option: add Public Access

Article VI Enforcement Violation • Notice and Opportunity to Cure • Exception for Imminent Harm (6. 02(c)) • Compulsory Relief – Injunction or Specific Performance • Damages Remedies • Self Help • SODDI (some other dude did it) 6. 07 • SOODI (some other Owner did it) 6. 09 Defenses • SLODI (some later Owner did it) 6. 10

Closing • Satisfying title requirements – Subordination of liens – Existing Agreements • 3 -4 originals CE and Baseline Documentation – Acknowledgment by Notary Public • Recording

Post-Closing • Written acknowledgment • Appraisal/IRS Form 8283 – Qualified Appraisal if over $5000 (1. 170 A-13(c)(2)) – Summary of conservation purposes – No quid pro quo – Disclosure of related person’s property in vicinity • Policy on signing 8283