CONSERVATION EASEMENTS ON RANCH PROPERTIES--
HOW DOES A CONSERVATION EASEMENT WORK?
By Gary Hubbell, ALC
Colorado Ranch Broker and Auctioneer
United Country Colorado Brokers & Auctioneers
Ranch real estate is a specialty niche in real estate, there’s no doubt. Ask any real estate broker, and you’ll find that large acreage sales take a lot more expertise than selling a regular home in town. Of all the farms, ranches, and large properties, however, only a small percentage of them have conservation easements involved with them. Conservation easements can have large ramifications for the properties involved and must be studied carefully before buying a property with an easement or placing one on a property. As a Colorado farm and ranch broker, I’ve transacted eight or nine conservation easement properties, which is a small percentage of my overall farm, ranch, and land sales. I have also placed a conservation easement on my own property, which was a great learning experience for me to advise other property owners.
What is a conservation easement?
A conservation easement is an agreement between a conservation group and a landowner that places certain restrictions on the use of the property. Generally speaking, the purpose of an easement is to prevent future development of the property. The easement is perpetual in nature and cannot be easily removed.
Why put a conservation easement on a property?
In most cases, it’s a financial decision, but many landowners also want to preserve their properties from development. A landowner can gain very beneficial tax credits and even cash payments for placing a property in a conservation easement. Sometimes the landowner has had the property in the family for generations and doesn’t want to see it turned into strip malls or housing developments. On other occasions, new buyers see an opportunity to create tax strategies and end up owning the property at a significant discount, once the tax credits and cash payments are taken into account. The payments and benefits involved can be very significant—as much as 50% of the value of the property.
Why do governments sponsor conservation easements? What properties are the best candidates for a conservation easement?
People don’t want to see subdivisions and strip malls everywhere. Governments have set aside some of your tax dollars to compensate landowners for agreeing to spare their lands from development. Some of the critical elements for a conservation easement include:
· Protecting scenic viewsheds for the traveling public—in other words, if a property is highly visible, scenic, and can be viewed from a well-traveled roadway, it has a higher conservation easement value
· Protecting critical wildlife habitat, particularly for endangered species—the property could be an elk migration corridor, habitat for an endangered bird such as a yellow-billed cuckoo, a rookery for blue herons, or a resting stop for migrating sandhill cranes. A higher value is placed on properties with critical wildlife needs.
· Agricultural value—working farms and ranches are valued for conservation purposes.
· Development potential—properties in areas with high development pressure will always get more interest from conservation organizations than properties in very remote settings.
Does a conservation easement mean that other people can trespass on my property?
It all depends on the easement, but in most cases, the answer is a solid “NO!” The property owner retains most, but not all, of the rights to the property. The simple point of most conservation easements is to keep a farm or ranch open and green, as wildlife habitat, farm ground, and a pretty view. It’s not an open invitation for the public to trespass on the property.
What kind of uses are permitted in a conservation easement?
Generally speaking, the existing use of the property is kept intact. A large farm or ranch can keep operating as it has historically been run. We all know that different uses can come into play. For example, hemp farming became popular in Colorado, and many hay farms and ranches were converted to hemp farms. Most conservation groups didn’t have a problem with it. However, certain uses are almost always denied on conserved properties, such as dirt bike tracks, racetracks, gravel mining, oil & gas drilling, or other very intrusive, noisy, and dusty operations. Hunting is generally allowed on conserved properties, but I’ve seen properties that had “No Hunting!” easements on them.
How does a conservation easement affect the value of a property?
There’s no doubt that the value of a property changes once it’s been placed in a conservation easement. The development “play” has been removed from the playbook. A 350-acre ranch can no longer be carved up into 10 35-acre ranchettes. It has to stay a ranch. A 60-acre farm can’t be split into subdivision lots. That profit potential is gone forever. Accordingly, the farm or ranch is worth less on the open market than a property that has no easement on it. As a rule of thumb, as brokers we typically value conserved properties at a lower value than non-conserved properties. Depending on the property, that value can be anywhere from 15-50% lower than a property that has no conservation easement on it.
Can an easement make it difficult to sell a property?
It depends on the easement! Conservation easements can create more difficult marketing scenarios than properties that are not encumbered with an easement. A page has literally been taken out of the playbook for that property. If an easement has been written with logical goals in mind, anticipating the uses of future owners, the salability of a property is not greatly affected if the property is priced accordingly and marketed well. We listed a waterfowl hunting property that had a very strictly written conservation easement, one that even denied a single building envelope on the property. Our marketing attracted several very interested buyers, all of whom were very well qualified to purchase the property. Every one of the buyers would have made an offer, except for the conservation easement. It was a “no go” for every single buyer, all of whom wanted to build a small hunting lodge on the property. I know of another property, located in an area known for trophy mule deer hunting, that has a strict no-hunting easement on it. Trust me, that property will need a buyer with the exact same sensibilities of the owner who put the easement on it, and value will be significantly diminished.
When buying a conservation easement property, what should buyers look for?
If an easement has been written with multiple uses in mind, it will seem reasonable to most buyers. A well-written easement is rather like a homeowner’s association (HOA) set of covenants. Can you live with these rules? Don’t leave junk cars in the driveway, don’t have loud parties at all hours of the night, keep your lawn mowed, and don’t run a hopping business out of your home. With a conservation easement, the rules are different, but similar. Don’t chop it up into smaller parcels, don’t cut down all the trees, don’t tear up the land with mining and extraction industries. Look into the spirit of the agreement. Does it seem overly restrictive? Can you live with what they require? Sometimes easements aren’t enforced very effectively, and the owner of a property will say, “Aw, sure, we have some noxious weeds on the property, but no one has ever been out to check on them. They don’t care.” That may have been true for the past 30 years, but as soon as the administration of the conservation organization changes, it may be an entirely different story. A buyer should take a very careful look at any conservation easement, and should likely have an attorney research it. For example, who is responsible for maintaining the easement, controlling weeds, keeping up the fences? Does it allow grazing? What about hunting? What about guiding hunters or using the property for commercial purposes? Can you build new roads? How many building envelopes are there?
Can I build what I want on a property with a conservation easement?
Again, it depends on the easement. Some easements are placed with several building sites that have been reserved for future development. For example, if a buyer wants a recreational retreat property for his grown children and their families, they might want to build two or three more residences on the property. Or perhaps the property is intended as a small resort with limited commercial capability. In that event, it may be possible to build more homes or cabins on the property, but it’s unlikely that these homes could be built with separate deeds. A buyer who is considering purchasing a conservation easement property should analyze the easement very carefully to make sure that their future plans can be accommodated.
Who holds the easement and administers conservation easements? How do I choose which organization to work with?
There are many different organizations that administer conservation easements. Almost all are non-profits, but they do have annual budgets and fees that they charge to administer properties in their portfolios. Some land trusts are local or regional, specializing in conserving properties in a fairly narrow geographic area. Others specialize in certain types of properties. Organizations such as Ducks Unlimited and Rocky Mountain Elk Foundation come to mind. If you’re a property owner and you’re considering conserving a property, my advice is to shop around. See which organization is a fit for you—they’re definitely not “one size fits all” organizations. Do your shopping, because you may find that one organization has a vision and strategy that is incompatible with your goals, while a different organization may match exactly with your land use philosophies. For example, when negotiating with Black Canyon Land Trust to place an easement on my own property, their document used the phrase “de minimis hunting”. I have been a dog trainer and hunting outfitter for many years and had the idea to use my property for released-bird pheasant hunts on a commercial basis. I don’t speak Latin, but it didn’t take me long to realize that “de minimis” means “not very much”. I asked the folks at the land trust if that was true, and they confirmed that no guiding or commercial hunting would be allowed, and also no dog training for commercial purposes. So I contacted Colorado Open Lands and made the same request to them, and they said, “No problem! Hunt it all you want!” Needless to say, Colorado Open Lands got the job.
In short, conservation easements can be a great tool for land management, tax strategies, and conservation, but they restrict the uses and future of a property, and sometimes in ways that you may not anticipate. We have significant experience with conservation easements. When buying or selling conservation easement properties, it pays to have advice and counsel from a brokerage team that understands the particular intricacies of conservation easement properties.
Gary Hubbell, ALC, is the broker/owner and auctioneer with United Country Colorado Brokers & Auctioneers and Western Real Estate & Auctions. Licensed in Colorado and Utah, Gary has sold ranches, farms, resorts, outfitting businesses, luxury homes, hunting land, horse properties, country homes, and mountain cabins across the West. He is a proud member of the Realtors Land Institute, where he has earned the coveted designation of Accredited Land Consultant. You can reach him through his website, www.uccoloradobrokers.com