Amending Conservation Easements

Since its inception, the land trust movement has been primarily concerned with the acquisition of conservation easements or fee title in order to protect as much of land trusts is broadening to include issues that arise from the ownership of protected lands and conservation easements.  Among the issues facing owners of conservation easements are stewardship obligations, unintentional or intentional easement violations, granting or condemnation of utility easements and road rights of way, and amendments to conservation easements.

The need to amend a conservation easement can result from several situations, from the simple need to correct a typographical error that affects the legal description of the property or the meaning of a provision, to a request by a landowner to relocate building envelopes, or to permit additional commercial uses after a reserved agricultural use is no longer economically viable.  Requests to amend conservation easements can come from landowners, a land trust, or even a local or state government, for example, that proposes to acquire an additional right of way for a highway not permitted by the easement.

Virtually all conservation easements are written as perpetual restrictions on the use of land.  It is very important to land conservation efforts to honor the permanence of these restrictions. If conservation easements are not treated as essentially unchangeable, there will be little reason for landowners to entrust protection of their property to land trusts, and little reason for the public to support legislation that funds easement acquisitions or authorizes tax benefits for easements donations.

However, it is not realistic to expect that conservation easements will or should always preclude amendment.  It is not possible for the drafters of a conservation easement to foresee and record, for all time, the best and sole permitted uses of a property.  As a result, land trusts and landowners should recognize that amendments to easements are necessary on occasion. Even so, the amendment of a conservation easement raises a number of concerns.  Governed by a number of state and federal laws and regulations, easement amendments must be approached with great care.

Can the easement be amended?  In Colorado, a conservation easement is a contractual and real property interest authorized under state law.  See C.R.S. Sec. 38-30.5-101 et seq.  Although the Colorado conservation easement statutes do not provide for amendment, other rules of contract and real estate law clearly allow amendments, subject to possible exceptions.  Although it is probably not required to authorize easement amendments, a provision recognizing the ability of the parties to amend the document should be included in each easement.  This leaves no question that the parties contemplated the possibility of amendment, and makes clear appropriate limitations on amendments.  In some states, it might even be necessary to explicitly allow a modification to amend the easement be made without court supervision. A typical amendment provision might include the following:

“If circumstances arise under which an amendment to or modification of this instrument would be appropriate to promote the purpose of this Easement and the protection of the Conservation Values of the Property, Grantor and the Land Trust are free to jointly amend this instrument; provided that no amendment to this Easement shall be allowed that will affect the qualifications of this instrument or the status of the Land Trust under any applicable law, including C.R.S. Sec. 38-30.5-101 et seq, or Section 170(h) of the Internal Revenue Code.   Any amendment must be consistent with the conservation purposes of this instrument and may not affect its perpetual duration.  Any amend­ment must be in writing, and signed by both parties, and recorded in the records of the Clerk and Recorder of _______ County, Colorado.”

This provision recognizes the possibility of amending the easement, while clearly stating that an amendment must promote the conservation values of the property.  It clearly demonstrates that an amendment that affects the qualification of the easement under state or federal law is allowed.  Importantly, it also provides that no amendment that will affect the non-profit, tax-exempt or other status, of the land trust is permissible.

Impact on qualification under federal tax laws.  Many easements are written to qualify under the Internal Revenue Code and Treasury Regulations for income and estate tax benefits that flow from a landowner’s donation or bargain sale of the easement.  Any amendment that materially changes a conservation easement to the benefit of the landowner may impact the qualification of the landowner’s donation for tax benefits, and may require payment of additional taxes and penalties.  Under an extreme circumstance, an amendment to a conservation easement resulting in a benefit to the landowner who claimed a charitable deduction from the donation could result in a claim of tax fraud.  At the other end of the spectrum, an amendment that materially changes a conservation easement such that the landowner is giving up additional valuable development or other rights, may qualify for additional tax benefits.

Impact on land trust’s legal status and avoiding private benefit.  The land trust’s qualification as a tax-exempt organization may also be impacted when an amendment is made to a conservation easement. In order to qualify to be the holder of a conservation easement under Colorado law, a land trust must be a charitable organization exempt under Section 501(c)(3) of the Internal Revenue Code.  C.R.S. Sec. 38-30.5-104.  As a charitable organization, a land trust is prohibited from giving “private benefit” by selling or distributing its assets for less than their fair market value.  If a land trust agrees to an amendment to a conservation easement that returns valuable development rights to a landowner, for example (even assuming this might be consistent with the conservation purposes of the easement), without receiving payment from the landowner for the fair market value of the returned rights, then the land trust has given an improper private benefit.  There are a wide variety of possible sanctions for the giving of improper private benefit, including tax penalties against the benefited individual, the land trust and its directors, and revocation of the tax-exempt status of the land trust.

Public policy considerations.  Protection of land through the use of conservation easements is a relatively new idea that is not widely known or understood by the public.  Although polls indicate strong support for land preservation efforts, this support should not be taken for granted.  Poor management and stewardship of conservation easements, or ill-advised amendments of easements, could result in a re-thinking of the use of land trusts and the viability of conservation easements as a land protection tool.  One high-profile amendment of an easement that gives up a significant land protection or a substantial benefit to a private individual could cause an erosion of public confidence in land trusts, lead to unpredictable legislative changes, and result in a sharp curtailment of easement donations and land conservation efforts in general.

Is it a good idea to amend the easement?  In deciding whether to agree to an amendment of a conservation easement, a land trust must be guided by two principal concerns:  (A) The amendment, on balance, must not harm the conservation values of the property, nor be in conflict with the conservation purposes of the conservation easement; and (B) The amendment, on balance, must not give financial benefit to the landowner.  Ideally, in most situations, the land trust should be able to conclude that the amendment increases protection of the conservation values of the property.

Considerations in various types of proposed amendments.  Most amendments to conservation easements will fall within one of the following categories:

1.  Correction of a Typographical Error or Other Minor Mistake.  Occasionally an easement is recorded with a typographical error or other minor mistake that the landowner and land trust agree should be corrected.  This type of amendment is consistent with good land stewardship practices and should be made so that the easement reflects the intentions of the parties, and to avoid confusion or conflict in the future.

2.   Amendments contemplated in the original conservation easement.  An example of this would be an easement that allows a landowner to select one of three designated building sites for construction of a house.  The easement requires an amendment to extinguish the two unused potential building sites.  This type of amendment is consistent with the original intentions of the parties and should be made, unless an unforeseen circumstance has arisen.

3.   Addition of land to the conservation easement, without additional reserved rights.  Sometimes amendments are proposed to bring additional land under the terms of an easement.  This might be done because there are no other changes being proposed and a simple amendment to the legal description can be made, rather than preparing an entire new easement.  Administratively, it may be preferable to the landowner and the land trust to have all of the land under one easement.  This type of amendment should be acceptable, although the landowner should consider granting a separate conservation easement so that the IRS does not confuse the two gifts, if an additional tax benefit is being claimed.

4.   Minor boundary adjustments.  Amendments are sometimes proposed to adjust boundary lines, perhaps because the parties misunderstood the location of some important physical feature of the property.  If the boundary adjustment only involves a small amount of land, with little or no economic value, this type of amendment ordinarily should be made.

5.   Substitution of one tract of land for another.  Another type of boundary adjustment, but on a larger scale, is the substitution of a tract of land lying outside of the original easement boundaries for a tract within the easement. If an equal or greater amount of substitute acreage having at least an equivalent conservation and dollar value were given to the land trust, then this type of amendment may be acceptable.  However, the land trust must consider whether undue benefit is being given to the landowner and how the public will perceive the substitution of one tract for another.

6.  Clarification of provisions in dispute.  Despite our best efforts disputes can and will arise concerning the meaning of provisions in easements.  In order to avoid continuing conflict and uncertainty, it may be best for a land trust and a landowner to negotiate an amendment to an easement that resolves the provision in dispute.  If the dispute is legitimate, and a reasonable compromise is made, then this type of amendment should be acceptable.  The land trust should assure itself that the amendment is in its best interest and does not unnecessarily comprise the protection of the property nor give improper private benefit.

7.   Amendment to address potential condemnation of a right of way or other partial taking of land encumbered by a conservation easement.  Land that is subject to an easement can be condemned by a proper authority for the widening of a road, location of a utility easement or other public purposes.  In such a case, the easement in effect would be amended or extinguished in part by the action of the condemning authority.  However, recognizing that condemnation can occur, a landowner and land trust may best be advised to negotiate with the condemning authority to amend the conservation easement so as to permit the condemnation under terms more favorable to the landowner and land trust.  By negotiating an amendment, the land trust might achieve additional protection for the land and recognition of its right to receive certain proceeds, and avoid expensive legal proceedings.

8.   Relocation of a building envelope or location for a reserved use.  On occasion a landowner decides that the conservation easement does not reflect the best location for a building envelope or other permitted use and proposes to relocate the building envelope or use.  The land trust must satisfy itself that the amendment is consistent with the purposes for which the land is being protected before agreeing to the proposal.

9.  Amendments to allow uses or technology not in existence at the time of granting of the easement.  Conservation easements are drafted with current and foreseeable technology and uses of the land in mind.  In the future, technologies will become available and uses will be proposed that were not contemplated when the easement was written.  For example, there will be advances in our understanding of the relationship between wildlife habitat protection and agricultural activities, and changes will occur in agricultural practices.  Land trusts must be prepared to consider appropriate amendments that are consistent with the conservation purposes of the easement.

10.   Addressing conflicts with local subdivision, zoning and land use laws.  Easements contain restrictions that are different than local subdivision, zoning and land use laws.  Occasionally it may be appropriate to amend an easement to relocate or change the size of a building parcel, for example, to make possible under local land use law a use that was contemplated in the easement.   The land trust must still be sure that the amendment is consistent with protection of the conservation values of the land.

11.   Adding restrictions to the conservation easement.  Sometimes a landowner proposes to give up additional development rights or impose new restrictions on his property.  This could happen because the landowner intended to spread out his donation, or because his personal circumstances have changed.  Amendments that add restrictions to a conservation easement ordinarily should be acceptable to a land trust.  If the landowner plans to claim a deduction based upon the amendment to the easement, the amendment must qualify under the rules then in place for a charitable donation.

12.  Amendments that allow additional subdivision.  On its surface, an amendment that proposes to allow additional subdivision of the property may seem ill advised or impermissible.  However, a distinction between subdivision and development should be made.  For example, if a landowner proposes to divide his large ranch so that he can sell a pasture to a neighboring rancher, subject to the provisions of the existing easement that permit only agricultural uses, such an amendment may be a good idea. If the uses allowed are not changed, then an amendment that permits a different ownership configuration may be permissible.

13.   Amendments that allow additional development. This is probably the most difficult type of amendment for a land trust to consider. The amendment must be consistent with the protection of the conservation values of the property.  The landowner must pay fair value for the rights being received.  The landowner must revisit any previous tax benefit that is claimed and appropriate amendments must be made to tax returns.  Careful consideration must be given to the public perception of the amendment.  Without compelling reasons, this type of amendment should not be made.

All amendments to conservation easements should be recorded in the same county or counties where the original easement was recorded and should reference the recording information of the original easement and any previous amendments.  All amendments should recite the reason for the amendment.  Land trusts should consider adopting policies and procedures governing the amendment of conservation easements. The policies should include provisions addressing how costs incurred, in reviewing and approving the amendment, will be paid and when the landowner will be required to provide an appraisal in support of a proposed amendment.  While amendment policies necessarily must retain some flexibility, easement amendments should be made in a consistent manner so that landowners and the public can predict what type of amendments will be allowed, and to assure that there will be a general perception of impartial treatment.

It will be necessary on occasion for conservation easements to be amended.  However, amendments must be approached very carefully to preserve public confidence in land trusts and conservation easements in general, and to avoid potential problems for landowners and land trusts alike.  Amendments should strengthen the protection of the conservation values of the property, if at all possible. Amendments to conservation easements must not harm the conservation values of the property, nor give financial benefit to the landowner.