Designing a Conservation Easement Amendment Policy

By:

Preface
How to can a land trust official identify and comply with legal restraints to amendment?  How can necessary flexibility be built into the easement document?  This paper reflects the earnest desire of an ardent conservationist to take full advantage of opportunities for flexibility that can be found within the law, recognizing that the needs of land ownership and the land itself, are by their nature subject to continual change.  Any effective land conservation and stewardship program must respond to this change with integrity, love of the land, and genuine respect for the ultimate steward, the landowner.  

The Need for Amendments

Conservation easements have become a well accepted and commonly used method of protecting important natural places during the last twenty years.  As easements age and property changes hands, land trusts are faced with unforeseen challenges.  In the most straightforward situation, changes may have occurred that make it impossible to accomplish the conservation purposes of the grant.  In such a case, termination may be warranted.  But there are shades of grey that may warrant minor modification of the easement.  For instance, the terms of the easement may be vague or inconsistent, leaving the land vulnerable to misuse or the land trust vulnerable to dispute.  The easement may expressly permit a use that was once thought to be compatible with the conservation purposes, but which with new technology can be exercised in a manner or to an extent that threatens the purposes of the easement.  An easement might prohibit an activity that would actually have a beneficial impact on the conservation of the land (selective cutting, for instance.)  Often a new owner wants to do something that would have no negative impact on the land, and is willing to give up one right to get another.  Perhaps the terms of the easement permit a particular use, but include restrictions that inadvertently make the use impossible.  There can be drafting errors, or mutual misunderstandings.

What rights do easement holders have to modify the terms of an easement?  While the answer to this question differs from state to state, and indeed from easement to easement, there are some basic considerations that can help guide land trust officials.  

General Considerations

In almost every jurisdiction, the laws that apply to the amendment of conservation easements are conflicting or unsettled.  Whatever the law, the amendment of an easement is a serious step and must be approached with respect and consideration.  It is, in effect, the termination of a part of the easement, albeit in exchange for an alternate restriction, clarity, or stronger conservation protection.  Because of this, some policy makers apply the same procedural rules to amendments that apply to termination.  As a matter of policy though, amendment should be distinguished from termination, and be provided with clear limits and less onerous procedures.  It is presumptuous in the extreme to think that a written document that, for instance, broadly prohibits "all activities not specifically permitted," can anticipate all future possibilities.  Moreover, it is possible to amend an easement to remedy an unforeseen problem with no net loss to the conservation of the land.  Easements can only be an effective conservation tool insofar as they are reasonably flexible.  To require court or government involvement for every modification, however minor or routine, is to unnecessarily burden and thwart a program with an excellent record for integrity. 

Many easement holders report that the amendment requests they have faced could have been avoided if sufficient care had been taken in drafting.  Careful drafting is an imperative, and case studies can reveal common problems and ways to avoid them.  But even the most carefully drafted easement might warrant amendment.  The easement document itself is an ideal place to state the case for and provide flexibility.  Guidance to future administrators and safeguards against inappropriate amendment can be built into the document.  For example, easements to municipalities or entities subject to political or fiscal pressures may warrant a cumbersome amendment procedure, such as requiring the consent of a third party, unanimous vote requirements, or other safeguard.

The following are legal and policy considerations that a land trust must address when facing an amendment request.  Although the considerations are analyzed in the spirit of making the most of opportunities for flexibility, it must be stressed that the integrity of the easement program requires scrupulous adherence to the conservation purposes of an easement.  In other words, no "sweetheart deals!"   Failure to act in good faith or abide by clearly required procedural or ethical limits puts the land trust, and ultimately its directors, at risk.  It also puts private land conservation in jeopardy as a whole.  A successful legal challenge of an amendment could result in the imposition of financial penalties, reversal of the amendment, restoration orders, loss of "qualified holder" IRS status, loss of tax-exempt status, or, at the very least (and perhaps worse), loss of community trust and damage to the land conservation movement.  If a land trust loses respect as a protector of land, easement grantors and donors will look elsewhere.  By the same token, if a land trust gets a reputation for being unnecessarily inflexible and bureaucratic, the result is the same.  The key is to strike a balance.

The following issues must be considered by land trust officials when faced with an easement request.  These often complex question are best answered with the advice of an attorney.

Deed of Easement

Are you certain that an amendment is necessary?

It may be that the deed gives the easement holder the discretion to permit certain activities not expressly reserved to the owner.  This can be found in language such as "no building may be conducted without the prior written consent of the Holder, however the grantor reserves the following express rights...".   An easement with this kind of language usually has either expressed or implied limits on the Holder's right to consent.  (The Holder's right to consent is generally limited to activities that do not impair the conservation of the land, nor materially increase the adverse effect of expressly permitted acts, nor add value to the land without compensation.)  This kind of consent language allows the Holder to make many of the kinds of decisions that would otherwise have to be reduced to an amendment.  Flexibility of this sort is essential in jurisdictions that clearly require governmental approval for actual changes to the document. (See attached discretionary consent clauses).

Assuming an amendment is necessary, what does the easement document say about amendment?  

While an agreement to permit amendment can't supersede more restrictive law, many potential legal restraints on amendment can be effectively eliminated by careful drafting.  For instance, the rights of the original grantor can be expressly limited to the duration of his or her ownership in the property.  That eliminates the original grantor as an otherwise necessary party to an amendment.  (See below, contract law.)   The rights of any unintended third-party beneficiaries, with standing to sue or intervene under general real estate and contract law, can be avoided or expressly cut off by careful drafting.  For example, if the easement contains the words "for the benefit of (an identified parcel owned by someone else)"  the owner of that parcel must consent to any amendment.  (See below, contract law.)   Does the easement say, "for the benefit of the public"?  The expectations of the public, which might be protected by the doctrine of public trust or the charitable trust law (see below) can be expressly limited by an amendment clause that sets out the rights of the parties to make changes.  This clause will also set limits that identify and protect the ultimate purpose of the easement.  If the easement was the subject of an income tax deduction, the limitations imposed by the Internal Revenue Service must be addressed.  It is well worth including in an amendment clause the scope of the concerns expressed by treasury regulations. (See below, IRS law.)  

Land Trust Policy

Does the land trust have a policy with regard to amendments?

A land trust's internal policy can guide it in what kinds of change it will support and what procedures it will require to finalize an amendment.  However, the "policy", like an amendment clause in the easement, can not eliminate any specific controls on amendment imposed by law.  It is advisable to incorporate into the policy any procedures that are required by law, or by common sense, so that land trust officials can't be pressured by a "friend" to the trust to overlook these considerations.   In addition, the land trust should consider whether it wants to voluntarily involve certain parties in their deliberations, such as the local conservation commission or the original grantor of the easement, even if it has determined that those parties have no legal right to be consulted.  (It can be vitally important for the future of the trust's easement program to avoid political controversy or the alienation of the person who chose them to steward the land).  On occasion, the need for amendment comes to light when a potential buyer, or a planning board, has had a chance to scrutinize the document.  For this reason, the policy should be flexible enough to give the land trust an opportunity to act quickly and efficiently.  Report of land sales frustrated by unnecessary easement terms will certainly deter future easement donors. 

State Law

Are there review or consent requirements imposed by the state enabling legislation for conservation easements? 

A minority of states have conservation easement enabling legislation that expressly requires the consent of the court, a state agency, municipality, or some public entity for accepting, modifying, and/or terminating conservation easements. Massachusetts, Louisiana and New Jersey come to mind.  If this is the case, amendment will require the consent of the named entity.  Failure to follow this procedure could result in a void amendment and liability to the overseeing entity and the landowner.  In States with governmental consent policies, it is worth drafting flexibility into the easement document.  This can be done, as discussed above, by giving the holder certain discretionary rights that avoid the need for a change in the document.  This sort of flexibility would be sanctioned by the initial approval of the easement document by the government agency.

If legislation doesn't address amendment specifically, but does require approval for termination, be aware that a court or a government official might interpret an amendment as a partial "termination", requiring approval.  Find out if the state's attorney general has issued an opinion, or if a state court has addressed the issue.  In states with this more ambiguous situation, it might be worth including an amendment clause like the one discussed above, in addition to giving the Holder providing limited discretionary consent rights.

Where governmental approval is required, even if the statute doesn't expressly limit their discretion, the governmental entity has to abide by certain principles.  If the overseeing agency is a municipality, some state laws permit a number of aggrieved taxpayers to get together to challenge acts which might have an impact on property taxes.  In addition, under the "doctrine of public trust," the misuse of important public resources by government officials is subject to attack by the public.  Public officials charged with easement oversight and land trust officials should justify their decisions in writing to demonstrate that the public interest in environmental preservation will not be harmed.

Most states' enabling legislation does not expressly require governmental oversight for termination or modification, but leaves intact other laws that confer rights on government and other parties. The original Uniform Conservation Easement Act, adopted in one form or other by several states, provides that a conservation easement may be "created, conveyed, recorded, assigned, released, modified, terminated or otherwise altered or affected in the same manner as other easements created by written instrument."   This appears to give free rein to the landowner and holder - since in most jurisdictions the parties to a private easement can terminate or modify at will, subject to any contract rights in the deed. However, the original Uniform Act goes on to expressly recognize the rights of other parties.  It gives legal standing to initiate or intervene in a lawsuit affecting an easement to 1.) the owner of the affected land; 2.) the holder of the easement; 3.) the named third party with rights of enforcement; and 4.) "a person authorized by another law."  These other laws are considered below.

Maine stands alone among those states to adopt the UCEA in expressly disenfranchising this fourth category of claimant.  With the expressed legislative intention of assuring that grantors of easements can choose with whom they deal and avoid cumbersome involvement by the public or government, the Maine legislature departed from the original Uniform Act.  It deleted the fourth category of persons with standing to sue.  It gave the state and municipality only the right to intervene in a lawsuit commenced by the owner, holder or named third-party.  This change effectively cuts off the right of the original grantor under general contract law and common law, (unless the easement document is drafted to preserve these rights).  It effectively preempts the common law of "charitable trusts", for statutory easements made after the effective date of the law, by preventing the state Attorney General's from initiating a lawsuit to oppose amendments, (unless the easement contains specific language that elevates it to the level of a charitable trust. See charitable trust law, below.)   However, this does not give the land trust carte-blanche.  A non-profit that disposes of its assets without regard to the principles of charitable trust law, state non-profit law and IRS tax exempt organization law, does so at its peril.   

Charitable Trust Law

Can the easement be construed as a charitable trust?  A charitable trust is a creature of the common law; that body of law created over the years by court opinion.  Charitable trusts are subject to oversight by the Attorney General of the state, as supervisor of charitable trusts and representative of the public beneficiaries of the trust.  The overriding principle of charitable trust law is that the grantor's expressed and implied intent be honored.

An easement can contain specific language invoking an "express charitable trust".  This can be accomplished in some states simply by invoking the words "in trust" in the words of conveyance of the deed.  If this is the case, the Attorney General must approve of any change that would require, under common law, the consent of all beneficiaries of the trust.  The question then becomes how much discretion the Land Trust as trustee, and even the Attorney General, can exercise without court supervision, or without running the risk of having the public trust doctrine invoked by an irate public.  In arriving at consent, the parties must be guided by the principles of the common law of charitable trusts as construed by the courts of that state.  A modification that has a net adverse affect on the accomplishment of the purpose of the trust requires court approval, even if all the parties (including the Attorney General) agree. (see Cy Pres Doctrine, below.)  This means that the easement may be modified by consent of the parties, only to the extent that it continues to accomplish the purposes for which it was given.  Even in jurisdictions that permit amendment with the consent of the government, including the Attorney General, it is the exclusive province of the courts to terminate or redesign the purposes of an express charitable trust. 

Even if the easement deed does not create an express charitable trust, (for instance, it is granted as a statutory easement or a simple property interest and there are no express restrictions on the use of the gift,) it is difficult to eliminate the implication of a quasi-trust or public trust.  Often the words, "for the benefit of the public" are included.  Moreover, it is unlikely that a conservation easement was granted with the expectation that the land trust might at its pleasure dispose of the easement and apply the proceeds to its general conservation purposes, as with trade lands.  It is implicit in a perpetual easement that the purposes of the gift, the preservation of that particular parcel of land, will be honored barring unforeseeable or extremely improbable circumstances.  State enabling legislation can usually be found to support the notion that the public is the intended beneficiary of conservation easements.  Quasi-trusts should be treated in the same manner as express charitable trusts unless applicable case law distinguishes them.  The Maryland court supported the Attorney General's argument that conservation easements are trusts in the consent decree that settled the now famous Myrtle Grove case, in which a land trust was sued for refusing to grant an amendment it had originally approved.

Remember, however, in trust law, the easement donor's intent is the operative principle.  It is generally understood by the grantor that conservation land management is subject to varied and unforeseeable influences.  Grantors generally intend to give the land trust the power to use its discretion to make modifications, without the consent of the public, provided the easement continues to accomplish the stated and implied conservation purposes. This is akin, in express trusts, to the grant of broad and exclusive discretion given the trustee to manage the trust corpus to accomplish the general purposes of the trust.  This type of grant of discretionary authority can be made in the easement deed. (See Sample Amendment Language, attached, and See Model Conservation Easement and Historic Preservation Easement, 1996, Revised Easement and Commentary from The Conservation Easement Handbook Land Trust Alliance, 1996, p.22, 82)  This may effectively limit the public interest in the details of the easement, leaving the land trust at risk only if it fails to seek the consent of the Attorney General (or indeed the court) for changes which have a net negative impact on the conservation of the land.   

Cy Pres Doctrine and Doctrine of Changed Conditions

Cy Pres is the court developed doctrine for responding to changed conditions that prevent the purposes of a charitable trust from being carried out.  It is generally invoked to terminate or redesign a trust and to reallocate the assets to another purpose related to the general charitable intent of the trust.  Where a trustee can no longer accomplish a stated or implied purpose of a gift in trust, it must appeal to the court.  There is case law that describes this power as being in the exclusive province of the judiciary, and not one that can be delegated by legislation to another branch. 

The Doctrine of Changed Conditions is a related doctrine applicable specifically to privately created real covenants and equitable servitude, and perhaps conservation easement depending on state law.  Under this doctrine the court has the power to terminate or limit a restriction, and to require conditions to assure an equitable resolution, when due to changed conditions the purpose of the restrictions can no longer substantially be achieved.

While these doctrines can be invoked to ask a court to amend an easement, as with trusts in general, they are generally avenues of last resort after the trustees discretionary powers have been exhausted.  A grantor can draft into the trust document a general purpose and grant the trustee (holder) the power to modify specific terms to allow the accomplishment of the ultimate purpose. 

Tax Law

Was the easement the subject of an income tax deduction? 

If so, Treasury Regulations regarding conservation easement donations have an impact on the right to amend an easement.    Deductible easements must be perpetual.  Treasury regulations do not address amendments specifically, but require court extinguishment of a deductible easement if "a subsequent unexpected change in the conditions surrounding the property that is the subject of a donation ... can make impossible or impractical the continued use of the property for conservation purposes."  [26 CFR 1.170A-14(g)(6)]

In his treatise, The Federal Tax Law of Conservation Easements, Stephen Small says that the requirement of court extinguishment is more in the nature of a reassurance to donees that "perpetual" isn't considered by the IRS to be an absolute.  He notes that there is a question whether IRS authority extends so far into the future, but supports the concept of requiring court approval for the termination of something intended to be perpetual. (p.16-4)  However, amendment isn't mentioned.  It may be that the IRS understood that flexibility is necessary for the permanent protection of conservation land, as long as the donor doesn't recover any of the monetary value used as a charitable deduction.  Certainly there is no record of the IRS contesting easements which give the holder the right to consent to certain activities beyond those expressly reserved.  The appraisal would have considered the value to the donor of such flexibility, albeit at the discretion of the holder.

IRS has questioned the inclusion of language in pre-1986 easements which purported to give the owner and the holder the right to "mutually agree to alter the limitations of this easement at any time" if the "purpose and intent of the grant can no longer be fulfilled...or fulfillment would no longer be appropriate".  However, this language was probably too broad.  The problem may have been that the clause was couched in terms usually associated with the justification for termination, and there was no limit on how much alteration was allowed.

A land trust's "qualified holder" status is at risk if it demonstrates a lack of "commitment to protect the conservation purposes" of gifts made to it.  As long as the conservation purposes are preserved, and the donee gets full and fair compensation and applies it to conservation, or the modification doesn't increase the value of the encumbered parcel, the IRS should be satisfied. 

Did the easement qualify the land for preferential property tax treatment?

Make sure that the proposed amendment won't disqualify the land from a special current use taxation program, or worse yet, trigger a penalty.  Relationships with town officials can become counterproductive if they adopt the mistaken position that conservation easements are easily disposed of by amendment. 

Non Profit Law

Do the state laws controlling the activities of non-profit corporations or trusts have anything to say about the disposition of the assets of the organization? 

Most states have laws that control the activities of non-profits, in the absence of contrary by-laws.  A decision by a land trust to release, sell or exchange a restriction may require a vote of the Board of Directors. 

Do the IRS laws regarding tax exempt non-profits have anything to say about the disposition of the assets of the organization? 

In general, the assets of the tax exempt organization must be used to further its charitable purposes.  A tax exempt entity cannot use its assets to benefit a private party.  To do so is to engage in "private inurement", the penalty for which is loss of exempt status.  Alternate restrictions or cash payment given in return for a release of restrictions should be equivalent in value, and ideally supported by appraisal.   

Contract Law

Are there any other parties whose consent to an amendment must be secured?

It must not be forgotten that the conservation easement is not only a deed.  In most jurisdictions, it is also an indenture or contract.  The original grantor has the right to be heard on any proposed change to the document, unless the grantor's rights are specifically limited.  The party to a contract may have the right to rescission (termination) or reformation (modification) if it was procured by fraud or contains elements of mutual mistake or a drafting error.  It is important for these reasons to keep a dated record of concessions or changes made during easement negotiations.

In addition, under general contract law and the real property law of "appurtenant" easements, those which benefit other parcels, there may be parties who are intended (or inadvertent) beneficiaries.  If the deed identifies a particular parcel, park, citizenry, or other identifiable beneficiary of the conservation of the easement land, the owner or representative of that "third-party beneficiary" ("benefited parcel" in real estate law) has a right to contest any change that might affect its interest.

Another source of "interested parties" is created in the Uniform Conservation Easement Act, which gives standing to sue to any person "with an interest in the real property burdened by the easement".  So if the original easement parcel is divided, all owners should be consulted.

Public Trust Law

If the proposed amendment requires a governmental entity's approval or the holder is a governmental entity, is there any chance that the public interest in the easement might be prejudiced?

The Doctrine of Public Trust raises the same concerns as the laws of charitable uses.  The principles that must guide a trustee in its use of charitable assets must also guide public officials in their discretionary acts that affect public trust resources.  The right of the public to see that natural resources are not wasted and that the environment is protected has been determined by courts as being within the public trust.  This doctrine has been the basis of much environmental litigation instituted by the public against governmental actions that allegedly compromise the resource.  Once again, in a public trust matter, the Attorney General may need to consent on behalf of the public.  However, even the Attorney General's decision may not be final if a court determines that the public's interest in a public trust resource has been misused.  As with all amendment questions, land trusts act at their peril if the changes they approve do not fully protect the conservation purposes of the grant.

QUESTIONS TO ANSWER

WHEN CONSIDERING AMENDMENT

1.   Does the requested change fit in with the original general intent of the easement?

2. Is there any detriment to the conservation values on the land that is not contemplated in the uses already permitted?  (A change that might be appropriate on a homestead might be completely inappropriate on a forever wild property.)

3. Is there any "value" to the use requested?  This means money, not emotional value.  Even if there was no income tax deduction taken for the original easement, the restrictions of an easement are "assets" of the land trust, and cannot be given away to a private party.  This is private inurement...

(IF THERE IS VALUE, there must be an exchange of equal or better value.  This can be land, money or additional restrictions.  It will require an appraisal, or an exchange in which what is received by the land trust is obviously worth more than the right given away.)

4. Does the proposed change pass the straight face test, or will it cause controversy in the community, or erosion of the trust or high regard held by the public for the land trust?   GOOD BOARD FUNCTION!

5. Would you do this for any landowner?  Are you stretching because the person involved is very important or very confrontational?   Are you resisting because the person involved is hostile?  

(My opinion is that you treat everyone as VERY IMPORTANT... and be as diplomatic and reasonable, but also as firm in your responsibility and ethics with everyone.  This is not simply idealism ... it's the domino effect.  Every friend of the land trust is a friend of conservation, and friends are essential for accomplishing our work in the future.  Every enemy forecloses an opportunity for new conservation.)

6. Are there any other parties involved that need to be consulted, or that need to grant their approval?  We know that the land trust needs to get authorization from Board? President? Committee?  WHO ELSE MUST APPROVE?  (See Following)

WHO MUST APPROVE AMENDMENTS?

THE BOARD OF THE GRANTEE, THE OWNERS OF THE LAND, AND: 

a.  Third Parties with rights of enforcement must sign on.

b. The original owner may have a contract right to approve.

      c. Other owners in a subdivision established on the easement land may have a right to be heard about any change their neighbor and the land trust wants to make...(check easement).

      d. Was the easement granted "in trust"?  There may be a legal obligation to go to court for approval, if it cannot be accomplished with a discretionary approval.

      e. Was the easement granted for the benefit of another piece of land?  There may be a legal or at least an ethical obligation to get consent from the owners of that land.

      f. Was the easement part of a regulatory approval or did it generate a tax break?  Will the amendment affect these conditions?  Govt. approval?  Consider talking with the assessor.

      g. Is there a mortgage on the property?  Notice and maybe approval may be necessary, especially if greater restrictions are imposed or traded.  In a foreclosure, the bank is entitled to all of the bundles of rights that went with the land at the date of the loan.

 

SAMPLE AMENDMENT POLICIES

SAMPLE 1

AMENDMENT POLICIES AND PROCEDURES OF LAND TRUST

     Amendment to existing easements held by the land trust are encouraged if they significantly strengthen the conservation provisions of the easement or extend these provisions to other eligible property.

     The following policies and procedures will be generally followed by the land trust in considering applications for amendments:

1.  Easement amendment requests shall be made in writing to the Director, accompanied by appropriate property descriptions and documentation;

2. The land trust staff shall conduct a preliminary review of such requests, and may submit a recommendation to the Trustees to accept the request if:

      a. The request is consistent and compatible with the intent and purpose of the original easement;

      b. The request is in compliance with local comprehensive plans or zoning ordinances for the property;

      c. The owner can demonstrate to the satisfaction of the staff that the amendment will enhance or have a neutral effect on the conservation values of the property or the immediate area; and

      d. The owner offers additional conservation measured on the same or adjacent properties that will offset any reduction of conservation values of the easement property, and equivalent value in money or restrictions to offset any increase in value to the easement property.

3. The Director shall present to the Board of Trustees all recommendations for final approval of amendments.  No amendment will be executed without the prior approval of the Board of Trustees.  Amendments that reduce or expand the area covered by the original easement agreement may require ratification/consent of the (governmental entity originally granting approval, if any).

4. The director shall notify the owner in writing of any action taken by the board of Trustees (or govt. entity) to approve, reject, or modify the proposed amendment.

5. The Trustees may require, as a condition of amendment, that the owner notify the Internal Revenue Service and State Comptroller once the amendment has been executed.

6. All easement amendments will take the form of a legal deed and will be recorded in the land records of the local jurisdiction in which the affected property is located.  

SAMPLE 2

AMEND WITH EXTREME CAUTION:  Requests for development outside of mapped acceptable development areas on easements already held by the land trust cannot be entertained unless this option is written into the easement.  Such requests will be analyzed thoroughly, and input from neighbors will be considered prior to a decision.

The Land Trust will take seriously any request for easement amendment, and the full Board of Directors should vote on any amendment.  The party making the request must conclusively demonstrate that any such amendment will not impair the conservation values of the property for which the easement was original sought.  Amendments will be made only by legal instrument to be recorded in the County Clerk's office.