By Gary Hubbell, ALC
Accredited Land Consultant
Broker/Owner, United Country Colorado Brokers & Auctioneers
When speaking about rural lands, whether in Colorado or across the country, the issue of conservation easements is one of the most misunderstood land use practices that we work with. Property owners, buyers, developers, and most real estate agents operate from a hazy idea of the concept with many inaccurate interpretations. I’ll do my best here to explain conservation easements, their limitations, the advantages and disadvantages, and how to work with them, particularly as a landowner. In future articles, I’ll look at them from the perspective of buyers and investors.
You have questions about conservation easements—we have answers
People have many questions about conservation easements, and I’ll do my best to answer them one by one. I speak from experience. Not only have I sold 13 conservation easement properties as a ranch real estate broker, I’ve also put a conservation easement on my own ranch. I’ve been through the process and I know how it goes.
First, let’s define a conservation easement, or “CE” as I’ll refer to it from time to time. A conservation easement is a legal tool to place deed restrictions on the use of a property to preserve it from development. According to the National Conservation Easement Database, “A conservation easement is a voluntary, legally binding agreement between a landowner and a qualified organization, such as a land trust or a government organization, that permanently restricts certain uses of the land to protect its environmental, agricultural, or cultural value.”
What is the intent of a conservation
easement?
A CE forbids subdivision and development of a property. If there’s a likelihood that the property could be cut up into home lots, commercial space, or even a data center, a conservation easement will prevent that from happening. State, federal, and local governments have enacted tax deductions to encourage keeping lands open and free from development because people like seeing open lands.
Why would a landowner put a property into a conservation easement?
A landowner might consider a CE for many reasons. When we did it on our property, I just felt like putting my money where my mouth is. I’m generally not a fan of subdivisions and overdevelopment, and I never wanted to see our land cut up into smaller parcels. The fact that there were cash incentives was a huge bonus for us. For other landowners, it’s a way to keep a ranch going. I attended a seminar on ranch legacy planning and succession taught by Dr. Jeff Tranel, a PhD economist from Colorado State University. He stated that the average Colorado ranch is worth $4 million, yet the family running that ranch is getting by on $68,000 a year net income. A large cash infusion from a conservation easement could keep a ranch going for several more decades, if managed properly. Other landowners look at it with a more critical eye, seeing that they can use a CE to diminish the cost of their initial investment and still keep the property and enjoy it.
Which
properties are good candidates for a conservation easement?
Simply put, a conservation easement is intended to keep open lands, ranches, farms, pastures, and wetlands free from development. Most important are those tracts of land that have the following values:
- Viewable by the traveling public—if a property is pretty and comprises the viewshed of a scenic area, it has a higher value for a CE than a property that is rarely seen.
- Critical wildlife habitat—in Colorado, winter is the time of year when animals are forced down onto private lands at lower elevation and they are most vulnerable to predators, vehicle collisions, and stress. A property that provides good cover and wildlife habitat will have a high value for a conservation easement. Other factors, such as a property that is favorite elk calving habitat or mule deer fawning habitat, are highly desirable CE properties. Properties that support other species such aswintering waterfowl, nesting habitat, raptors, rare species such as the yellow-billed cuckoo, or salamanders or boreal toads will also make great candidates for a CE.
- Agricultural properties—people bemoan the loss of farms to development, and the goal of a conservation easement is to keep these properties as farmland in the traditional sense. Properties with prime productive soils, excellent water rights, and a strong production history, combined with imminent development pressure, make excellent conservation easement properties. However, properties must be sizeable enough to matter—in most cases, at least 40 acres.
- Historic or cultural significance—a historic mining camp, an old townsite, and archaeological sites, such as Native American campsites, are highly sought after by conservation easement organizations.
Which properties are not good candidates for a conservation easement?
Some properties are just not good candidates for a CE. Just because someone has a big piece of land doesn’t mean some organization is going to spend a lot of dollars to preserve it. There are many thousands of acres in Colorado where nobody will ever want to site a housing development. If it’s not good farm ground, it doesn’t have good water rights, it’s not near a town of any size, it’s not located near a well-traveled highway with a lot of people seeing it, and it doesn’t have any real archaeological or historical significance, and there are no particularly special wildlife resources, there’s really no incentive for anyone to invest large sums in protecting it from development.
What is a landowner’s incentive? Do landowners get paid to place a conservation easement on a property?
Yes. Landowners get paid to put easements on their properties, and it can be a significant amount of money. Here’s how it works: In Colorado, the legislature has budgeted funds to conserve properties. Landowners are offered a tax credit against the loss in the property’s value by putting it in an easement. In the event that the landowner does not need a large tax credit, which can be several hundred thousand or millions of dollars, the credit can be sold to someone who does. Think about large corporations, actors, sports figures, and other high-net-worth individuals who pay a high amount of state income taxes. There are several well-known brokers who work with both landowners and buyers to transact the tax credits. Brokers typically take a 10-15% cut for putting the deal together. There are also federal tax credits, and sometimes targeted interest groups, such as Ducks Unlimited, the Rocky Mountain Elk Foundation, or The Nature Conservancy contribute money towards land preservation from their own funds. Most states have money available for conservation easements. We have two excellent consultants here in Colorado that work in this space every day and are familiar with all the sources of money. If you’re in another state, find a good local Accredited Land Consultant, who will likely know who is involved in conservation easements.
Do I have to allow public access on my land if it has a conservation easement?
NO—unless you give up that right. The intent of a CE is to keep using the property as it traditionally been used—as a cattle ranch, alfalfa farm, horse property, hunting land, etc. Just because it’s in a CE doesn’t mean it’s in public ownership, and anyone trespassing on it can suffer legal consequences.
Who manages a conservation easement, and who should I go through?
Many geographic areas have local land trusts that manage conservation easements. Here in Western Colorado, there is the Mesa Land Trust in the Grand Junction area, the Aspen Valley Land Trust in the Aspen/Glenwood Springs area, and the Yampa Valley Land Trust in Steamboat Springs. There’s probably a local land trust near you. However, there are many other organizations, such as Colorado Open Lands, the Colorado Cattlemen’s Agricultural Land Trust, The Nature Conservancy, Rocky Mountain Elk Foundation, and Ducks Unlimited, to name a few. Some county and state government organizations also manage conservation easements. The State of Colorado’s Division of Conservation has 36 different entities that manage conservation easements. A quick search of several states—Iowa, Ohio, and Maine—shows that they have similar organizations.
Is a conservation easement permanent?
YES. One of the most popular internet searches about conservation easements is from developers who see a very attractive property, find out it’s in a conservation easement, and start figuring out ways to break it. Conservation easements are for perpetuity and cannot be easily broken. Each CE outfit has very good lawyers who write 40-page documents with strong language about what you’re giving up, so don’t think it’s a lark. It’s serious business, and a CE will encumber your property forever. It is also binding on future owners.
Easement holders can vary widely in their approach—not a “one size fits all” proposition!
Conservation easements are definitely NOT a “one size fits all” proposition. For example, when I was seeking out an entity to work with to put a CE on my property, hunting was important to me. We actually have wild pheasants on our property, and the habitat is ideal for released-bird pheasant hunting. I can put out a few birds, take a couple of guys on a half-day hunt, and generate several hundred dollars of income for a few hours’ work. Just because I was somewhat familiar with a local land trust, I contacted them first. They said, “Well, you can do de minimis hunting with our easement.” I don’t speak Latin, but I understood that to mean “not very much”. I asked if I could do commercial hunts, setting out a few birds and guiding hunters. They said, “No way.” Well, that crossed them off the list. I then contact Colorado Open Lands with the same request, and they said, “No problem! Have a ball!” Guess who got my easement? If you have a property that’s a great candidate for a CE, you should know that you’re in a position of strength. If certain conditions are important to you, stand firm. Once you mention that you’re going to look at other options, the people you’re working with might well change their tune.
Can I still build a home on a conservation easement property? What if I want a homesite or two for my kids and grandkids?
This is one of the major issues with a CE. People want to be able to plan for their legacy. Limiting development to just one or two homesites can be onerous, and of course it depends on the size of the property. You can usually negotiate at least one or two, and possibly several building envelopes on your property. On my 116-acre property, I negotiated three separate building sites. However, in almost all cases, whether you have separate parcels or not, property lines for different parcels are dissolved and the property is considered one large parcel for purposes of the easement. Any homes built on the property will be put all under the same deed and cannot be subdivided off in the future. You may have several homes on a large conserved property, but they will all be on the same deed. If your son or daughter wants to come back and live on the ranch, they need to be committed to the long term if they build, because they won’t be able to sell the new home they’ve built without selling the whole ranch. When negotiating the number of homesites on a property, this is where your negotiation skills come into play. Some CE organizations play serious hardball regarding building envelopes. If the organization you’re working with becomes too stubborn and unyielding for your needs, seek out someone else and see what they have to say. You may be pleasantly surprised.
Question: Will I still be able to hunt on my property?
Yes—unless you sign away that right. Some organizations like the Rocky Mountain Elk
Foundation and Ducks Unlimited actively encourage hunting. However, we’ve seen easements that expressly forbid hunting. Most often those restrictions were enacted at the request of the landowner, who was a committed anti-hunting activist. As discussed, some organizations will expressly forbid guided hunting as a commercial activity. We listed an awesome waterfowl property with a DU easement that strictly forbade guided hunting. It was such a cool property that I would have bought it myself, but the “no guiding” clause made it unattractive to me. In fact, the owner of the property was very likely violating the easement because he routinely offered guided hunts as auction items at charity banquets, then took a tax write-off for the amount that the hunt brought at the event. Is that a commercial hunt? It could definitely be argued that yes, it was.
Question: What about other activities are allowed, such as mining or drilling?
If an economic activity is likely to be noisy, dusty, and create a significant disturbance on your property, it will likely be forbidden by a conservation easement. A dirt bike track, a gravel pit, or a gas drilling pad will probably not be allowed. As stated, however, every easement is different.
Question: Will a conservation easement devalue my property?
Yes—and that’s why you’re getting paid to do it. When I put the easement on my ranch back in 2008, it appraised close to a million dollars in a theoretical “highest and best use” scenario of splitting it into 10-acre country lots. After the easement, it appraised for exactly half that amount. However, between the direct cash payment and the federal tax credit that I gained, I was compensated well. It turned out to be just about as much as the calculated diminution in value. As brokers who see a lot of CE properties, we reckon on a diminution in value of at least 20%, and for properties with an extremely restrictive easement, as much as 50%. Most often, our calculation is a 25-30% diminution in value for a CE property compared to other unconserved properties.
Question: Does a CE make a property harder to sell?
Yes. It takes particular marketing and skill to sell a CE property. Many buyers won’t touch them. Once they learn a property is conserved, they refuse to go any further. Some buyers actually appreciate a CE because it aligns with their own sentiments. Other buyers see an opportunity to buy a property at a good price for its traditional use, such as cattle ranching or farming. They get a discounted price from inflated land values and put the land to work in a traditional manner. When listing a CE property, we caution sellers that their duration on market can be twice as long as a similar unconserved property. You’re marketing to a smaller pool of buyers. Incredibly, we’ve heard of people who bought conserved properties whereby neither the buyer’s agent or listing agent ever disclosed the easement, which is a huge breach of disclosure duties and a red-hot invitation to a lawsuit.
How do I sell my conservation easement property?
If you have made the decision to sell your property with a conservation easement in place, you should very carefully select the broker to sell it for you. Not many agents have experience with CE’s, and hiring the wrong agent can cause all kinds of problems. Establishing the proper value for the property and marketing it accurately are major considerations. Imagine selling your conserved property, moving on to the next phase in your life, and getting a subpoena because someone is suing you because the CE was not adequately disclosed. This can happen with the wrong representation. Personally, I have sold 13 conserved properties at last count, and I have an easement on my own property. I know my way around conservation easement properties, and our marketing can’t be beat. If you’re in a different part of the country than Colorado or Utah, call me and I’ll research the right Accredited Land Consultant professional to work with. Brokers who have the ALC designation through the Realtors Land Institute (www.rliland.com) have a much higher skill set in selling land, especially properties with uncommon situations such as a conservation easement.
How long does it take to get a conservation easement put in place?
If you’re wondering if you can buy a property and then have funds from a conservation easement wired to your account in a couple of months, you’re mistaken. The process takes considerable time, and you may not see any results for 2-3 years. It’s a political process as well as an economic process, and often CE funds are tied up in the legislative calendar for months or years at a time. The money flow is not consistent, as funds are used up and then re-allocated through the budget process and compromises are made.
Conservation easements are a complicated process, but for many landowners, they provide a needed source of funding to complete other projects, protect a property’s legacy, provide income to the owners, and keep open lands safe from the developer’s bulldozer. Landowners considering an easement should carefully study their options and map out a strategy to achieve the maximum goals for both the landowner and the land trust.
Gary Hubbell, ALC, is a Colorado ranch broker and the founder of United Country Colorado Brokers & Auctioneers. Gary has brokered farms, ranches, hunting land, recreation properties, country homes, and income properties across Colorado and Utah, including 13 conservation easement properties at last count. Based in Hotchkiss, Colorado, Gary is recognized as an Accredited Land Consultant by the Realtors Land Institute.