Joan Youngman,
Lincoln Institute of Land Policy

Conservation restrictions are the most significant and fastest-growing means of protecting environmentally sensitive land, and Massachusetts has been a leader in their development. It is 44 th among states in terms of land area, but 10 th in terms of acres preserved for conservation. It has more land trusts than any other state except California, and it was the first state in the nation to amend its statutes to recognize this new property right. [1][1] Its pioneering legislation described this as a, "conservation restriction." Later states and a model federal Uniform Act have called this same instrument a, "conservation easement."

A conservation easement limits future development by transferring some rights in property, such as the right to construct new buildings, from the landowner to a nonprofit organization or a governmental entity for conservation purposes. Conservation easements are enormously popular because they are the only means of permanently restricting development while allowing property to remain in private ownership. This has a number of important advantages over a completely public model of preservation, where a government agency or conservation organization might purchase property outright in order to maintain it as open space. Many owners who care deeply for their land do not want to sell it and move away but may be pleased to donate or sell the development rights to insure that their property is protected in the future. These owners may well be better able to maintain the property than hard-pressed public agencies or nonprofit organizations. Owners who cannot afford to donate the development rights may offer them for sale, which would be less costly to the conservation organization acquiring the rights than a purchase of the entire property. Continued private ownership generally also means that some portion of the property value will remain on the local tax rolls.

Easements, Conservation Easements, and Conservation Restrictions

Although "conservation easement" has become the standard term for this type of restriction on future development, it differs so fundamentally from traditional easements that new legislation was required to establish its effectiveness as a matter of property law [2]. The most familiar easements involve permission to use another's property, such as a right of way over neighboring land to allow access to a road. These easements are generally held by owners of adjacent parcels. This is far different from conveying to a conservation organization or government agency the right to block some or all future development of the parcel. A conservation easement is a prohibition on some or all development, rather than a positive right. It is not necessarily held by a neighboring landowner, and it may be intended to exist in perpetuity. Traditional property law could not guarantee that such a conveyance could be enforced, that it would be durable, or that it would be effective after a change in landownership.

Model legislation establishing this new instrument, the Uniform Conservation Easement Act, was drafted in 1981 by the National Conference of Commissioners on Uniform State Laws. The drafters explained that their use of the term "easement" was somewhat arbitrary, and chosen in part because "lawyers and courts are most comfortable with easements and easement doctrine," and could "be expected to experience severe confusion" if confronted with an entirely new name. But Massachusetts legislation predated the Uniform Act by twelve years, and conservation easements had become known as conservation restrictions in the Commonwealth. In Louisiana, they are often called "equitable servitudes" or "conservation servitudes." This article will refer to them as conservation easements, since that term is used in federal law and in most other states.

The Effect of Federal Tax Law

A series of amendments to the Internal Revenue Code in the 1970s provided the most significant incentive for expanded use of conservation easements by allowing the donation of a qualified conservation easement to be treated as a charitable gift. This is an exception to the general rule that does not allow tax deductions for gifts of partial interests, to prevent abuse by donors receiving tax benefits but retaining most benefits of property ownership. After that change, the use of conservation easements saw enormous growth that still continues to increase. The 2005 National Land Trust Census Report [3] published by the Land Trust Alliance found that the annual number of new acres protected by private land conservation tripled between 1995 and 2000. Total acres under conservation easements held by local and state land trusts rose from 2.5 million in 2000 to 6.2 million in 2005.

The availability of a federal tax deduction for the gift of a conservation easement has also played a major role in shaping easement provisions, since most donors seek to meet the tax code's criteria for deductibility. These criteria are subject to many complications and exceptions, but in the most basic terms, they require that the easement constitute a perpetual restriction on the use of land, conveyed to a qualified organization in perpetuity for a qualified conservation purpose. A "qualified organization" is generally a governmental entity or a tax-exempt organization committed to conservation purposes. The most common recipients of conservation easements are land trusts, nonprofit organizations committed to conserving land through conservation easements. [4]

The requirement that the easement be perpetual is a source of controversy among policy analysts. Initially, the federal deduction only required that the easement have a duration of at least thirty years. This was later changed to require that the easement exist in perpetuity. A perpetual easement offers maximum protection against development, but raises difficult issues as to whether this allows appropriate flexibility to adjust to changed conditions many years hence. A lively policy debate questions whether, in the words of University of Virginia Professor Julia Mahoney, "we lack the technical competence to make land-use decisions for future generations." [5]

The Commonwealth's role in pioneering the use of conservation easements also involved its establishment of a unique system of public participation that requires both state and local approval for easements. In many other states, the completely private nature of an easement can be a major attraction for landowners who need not deal with government officials but can still receive public subsidies for their donation through tax deductions. Land trusts and landowners can privately agree to perpetual restrictions that may not be consistent with regional growth plans or optimal development patterns. Restrictions on land within metropolitan regions already served by transportation and infrastructure networks may lead to "leapfrog" growth in rural areas, accelerating the consumption of open space and increasing sprawl. The Massachusetts model for public approval has been cited as "a starting point for other states to consider" [6] in this respect. "[L]est one believe that such a system deters conservation easements, Massachusetts has reviewed and approved an estimated 3,000 easements under its system, and many have benefited from public review." [7]

Federal deductibility does not carry any general requirement of public access to the conservation land. If the land is preserved for the protection of fragile plant life or as a habitat for an endangered species, public access might be contrary to the conservation purpose. But in many cases lack of public access simply protects the privacy of the landowners. The Massachusetts Appellate Tax Board has focused on the absence of public access in a number of cases where owners of conservation land have sought an outright exemption for the property. The Board has noted that "absence of public access to land has consistently proven fatal to a landowner's claim of charitable exemption." [8]

It has proven extremely difficult for the Internal Revenue Service, the Treasury and the courts to develop objective procedures for determining the market value of an easement for purposes of actually setting the amount of the charitable deduction. Because easements themselves are rarely bought and sold as separate interests in private market transactions, the most direct method of estimating value, an analysis of comparable sales, is generally not available. Similarly, the cost of construction and the capitalized annual rental value almost never assist in the valuation of an easement. In the absence of comparable sales, Treasury regulations direct that the easement be valued for purposes of the federal income tax deduction as the difference between the market price of the property before and after imposition of the restriction: the unencumbered value minus the encumbered value. [9] In the absence of comparable sales, an estimate of encumbered value can be a challenging task in itself.

These valuations for income tax purposes may be of limited value to a local assessor. A donation of property valued at more than $5,000 must be substantiated by a "qualified appraisal," a written explanation of the valuation process by a, "qualified appraiser." [10] Although there have been recommendations that they be made public in order to discourage abusive overvaluations, [11] these appraisals are private documents. The organization receiving a qualified appraisal with a value above $5,000 must sign an appraisal summary for the gift to be deductible, but, "[t]he signature of the donee on the appraisal summary does not represent concurrence in the appraised value of the contributed property." [12] An assessor asked to reduce the property tax valuation of land subject to a conservation easement could request a copy of any appraisal prepared for federal tax purposes - knowing that it may estimate a "before" value far above the assessor's estimated pre-easement property tax valuation, and an "after" value far below it. The federal tax deduction is maximized by the greatest possible difference between the before and after values, whatever their amounts; the post-easement property tax is minimized by the lowest possible after value.

Success, Challenges, and Controversy

The explosive growth in conservation easements has brought some potential for abuse, with large numbers of complex transactions subject to review and later monitoring by relatively few public officials and land trust staff. Unscrupulous taxpayers may claim inflated deductions for easements that produce very little reduction in the market value of their property. In other cases, taxpayers may claim a deduction for restrictions that merely reiterate existing public limitations on development. The Washington Post examined a well-organized commercial effort to impose (for a fee) restrictions on changes to homes in historic districts where such changes were already prohibited by zoning regulations. [13]

Perhaps the most egregious example uncovered by the Post concerned two-part transactions by conservation organizations that placed conservation easements on property and then sold them for a reduced amount to wealthy donors who agreed to make a corresponding contribution to the organization for the remainder. Although the total sum was in effect the purchase price, the donor could claim a charitable deduction for the donation without substantiating any reduction in value by reason of the easement.

Finally, lack of capacity in the part of nonprofit conservation organizations may leave restrictions unmonitored and even forgotten. Many conservation organizations are challenged to keep track of the condition of the property on which they hold easements, or even to document the terms of the easements themselves.

Conservation Easements and Property Taxation

The emergence of a new form of property rights such as a conservation easement is a rare occurrence, and its impact on property assessment and taxation was generally left unaddressed in the legislation recognizing this new interest. In fact, the drafters of the Uniform Conservation Easement Act explicitly declined to clarify this. The commentary to the Uniform Act states, "The Act does not address a number of issues which, though of conceded importance, are considered extraneous to its primary objective…. The relationship between the Act and local real property and taxation practices is not dealt with; for example, the effect of an easement upon the valuation of burdened real property presents issues which are left to the state and local taxation system." In a few states, legislation explicitly details the tax treatment of encumbered land. But Massachusetts, like most states, does not provide direct statutory guidance on the treatment of easements in the assessment process. Courts in the Commonwealth, again like those in most other states, have made it clear that the easement's effect on market value should be reflected in its property tax assessment. For example, in the 1986 case of Parkinson v. Board of Assessors, the court concluded its consideration of the validity of the easement by stating, "A majority of the court having concluded that the conservation restriction is valid, the remaining issue is the fair cash value of the taxpayer's land as encumbered by the restriction." [14]

Valuation Issues

Establishing that easements are to be taken into account in the assessment process leaves open the vexing question of how they are to be taken into account. Because Massachusetts bases its property taxes on market value, the assessor must judge the actual arm's-length sale value of the encumbered property in light of the easement. At some future time this task may be facilitated by extensive data on sales of comparable property subject to similar easements, and repeat sales of the subject property after imposition of the easement. Until then, assessors face a challenging valuation puzzle, made more complex by a number of considerations.

An easement is not a standard document whose effects can be estimated as an abstract matter. A conservation easement is a unique agreement negotiated between the property owner (the donor or seller of the easement) and the recipient governmental entity or nonprofit agency (the holder of the easement). Depending on the conservation purpose of the easement and the goals of the donor, the document may block all future development, block development of a particular type, or block development on particular portions of the property. It may allow public access, limit public access, or deny public access. It may permit or deny agricultural use, installation of roads, and extension of utilities. The Washington Post examined conservation restrictions placed on land sold to wealthy donors. One authorized "construction of a single-family house of unrestricted size, garages, a swimming pool, a tennis court, a home office, a guest cottage and a writer's cabin. It allows relocation of an access road, installation of septic facilities, construction of foot trails and related excavating, filling and bulldozing. It permits outside benches, tables, chairs, gazebos, birdbaths and screened tents." [15] It would clearly be a mistake to analyze this easement as depriving the property of all future development rights. The Post also criticized The Nature Conservancy for its sale of lots on 215 acres of rare open sandplain on Martha's Vineyard. The Conservancy, "placed restrictions limiting some development on the newly purchased land and then immediately resold half of it to others, paving the way for Gatsbyesque vacation houses on pristine beach and grasslands. Those buyers included a pair of Oracle software tycoons, a retired Goldman Sachs executive and comedian David Letterman." [16]

The uniqueness of the restrictions, and the uniqueness of each parcel of real property, together insures that no formula can predict the loss in market value that will accompany any particular easement. An easement that prohibits any building on land that is under development pressure could deprive the property of the greater part of its market value. On the other hand, an easement that blocks subdivision of land whose highest and best use is as a single-family estate may not have a measurable effect on its market price. The effect of the easement on market value depends on the terms of the easement, the characteristics of the property, and the nature of the local land market. The Post noted, "Some academic researchers believe easements can increase property values by making neighborhoods more exclusive and scenic, with less density. Real estate ads sometimes tout easements as a selling point." [17] The best evidence of value for a lot encumbered by a conservation easement may be the sale price of a similar lot whose topography restricts its building potential.

Easements can also have an effect on the value of neighboring parcels. The real estate advertisements that feature property "adjoining protected land" are highlighting the benefits of privacy and insurance against future development as well as the amenity value of scenic open space. For that reason, the federal tax regulations reduce the charitable deduction for donation of an easement by the amount that it enhances the value of adjoining property owned by the donor or by related parties. [18]

Preservation and a Changing Legal Landscape

Conservation easements are an example of a new and successful property rights instrument - a phenomenon akin in the legal realm to an astronomer's discovery of a new star. The field of property law by its nature has a long time horizon and is slow to change. Conservation easements have rapidly proliferated by meeting a social need, providing a means for preserving land without a change in ownership. Landowners who treasure their property can now insure its protection without the need to relinquish it to public organizations that may be hard-pressed to maintain even the land for which they are already responsible.

This innovation brings with it challenges for conservation organizations, planning officials, and local governments. The spectacular growth of easements over the past two decades means that many land trusts must extend themselves to monitor the easements they hold, even if they are not responsible for the landownership itself. Planning agencies must identify these new perpetual development restrictions and incorporate them into future regional patterns. Local officials must develop accurate measures for assessing properties subject to conservation easements in order to integrate them within the Commonwealth's system of taxable property values.

Further Lincoln Institute Resources:

The Lincoln Institute website offers a ten-module online course, " Valuing Land Affected by Conservation Easements." It is available without charge at http://www.lincolninst.edu/education/online-education/.

The Policy Focus Report by Jeff Pidot, Reinventing Conservation Easements: A Critical Examination and Ideas for Reform (2005), is also available at the Lincoln Institute website at http://www.lincolninst.edu/pubs/1051_Reinventing-Conservation-Easements.

Editor's note: this article represents the opinions and conclusions of the author and not those of the Department of Revenue.


[1][1] The conservation restriction was introduced to Massachusetts by Chapter 666, Acts of 1969, which created new sections 31-33 of M.G.L. c. 184.

[2] Black's Law Dictionary (2 nd Pocket ed., 2001) defines an easement as an "interest in land owned by another person, consisting in the right to use or control the land, or an area above or below it, for a specific limited purpose (such as to cross it for access to a public road)."

[3] Land Trust Alliance, 2005 National Land Trust Census Report, http://www.landtrustalliance.org/about-us/land-trust-census/2005-report.pdf.

[4] The Land Trust Alliance defines a land trust in this way: "A land trust is a nonprofit organization that, as all or part of its mission, actively works to conserve land by undertaking or assisting in land or conservation easement acquisition, or by its stewardship of such land or easements." 2005 National Land Trust Census Report, above, at p. 5.

[5] Julia D. Mahoney, "Perpetual Restrictions on Land and the Problem of the Future," 88 Virginia Law Review 739, 758 (2002).

[6] Jeff Pidot, Reinventing Conservation Easements: A Critical Examination and Ideas for Reform, Lincoln Institute of Land Policy, 2005, p. 11, http://www.lincolninst.edu/pubs/1051_Reinventing-Conservation-Easements.

[7] Id.

[8] Wing's Neck Conservation Foundation, Inc. v. Board of Assessors of the Town of Bourne, (Mass. App. Tax Bd. 2003). There, the foundation owning the property argued that public access would undermine its goal of preserving wildlife habitat, but the Board found any public benefit merely incidental to the primary purpose of benefiting the neighboring homeowners.

[9] Treasury Regs. sec. 1.170A-14(h)(3).

[10] Treasury Regs. sec. 1.170A-13(c)(2) and (3) detail the requirements for a "qualified appraiser" and a "qualified appraisal."

[11] "Even if nothing else were changed in the laws affecting easement appraisals, subjecting them to public scrutiny would have a significant effect in curtailing abuses, since appraisers would know that their work would be subject to public and peer review." Jeff Pidot, n. 6, above, at 30-31.

[12] Treas. Reg. §1.170A-13(c)(4)(iii). In fact, the donee may sign the appraisal summary before the appraiser supplies an estimate of fair market value. Treas. Reg. §§1.170A-13(c)(4)(ii)(J); 1.170A-13(c)(4)(iv)(D).

[13] The Post reported, "The increase in easements has been driven by the emergence of for-profit 'facilitators' - businesses that market the program and process the paperwork for homeowners, making the procedure quick and painless. In recent years, such companies and the nonprofit preservation groups that hold the easements have taken in millions of dollars for processing paperwork and monitoring the easements." Joe Stephens, "For Owners of Upscale Homes, Loophole Pays; Pledging to Retain the Facade Affords a Charitable Deduction," The Washington Post, December 12, 2004, p. A1.

[14] 398 Mass. 112, at 116 (1986).

[15] Joe Stephens and David B. Ottaway, "Nonprofit Sells Scenic Acreage to Allies at a Loss; Buyers Gain Tax Breaks With Few Curbs on Land Use" The Washington Post, May 6, 2003, p. A1.

[16] David B. Ottaway and Joe Stephens, Landing a Big One: Preservation, Private Development, The Washington Post, May 6, 2003, p. A9.

[17] David B. Ottaway and Joe Stephens, "Land-Trust Boom A Boon for Habitat," The Washington Post, December 21, 2003, p. A20.

[18] Treasury Regs. sec. 1.170A-14(h)(3).