Conservation easements have become increasingly popular with landowners and government agencies over the last 20 years in Florida.
Landowners should consider obtaining representation when granting a conservation easement on their property. There are many parties trying to represent landowners in conservation easement transactions such as real estate brokers and nonprofit organizations, but only an attorney will be able to represent you in an attorney-client relationship with the expertise required in these complex, highly negotiable, real estate instruments that are usually granted in perpetuity and run with the land to subsequent owners.
Landowners seeking to claim a charitable contribution on their federal income tax return for the donation or bargain-sale of a conservation easement should retain knowledgeable legal counsel if they plan to do so, particularly if dealing with a government agency. Most agencies, including those administering Florida’s premiere conservation programs, Florida Forever and Rural and Family Lands Protection Program, utilize conservation easements that are not compliant with the IRS Code and Treasury regulations. State easements have provisions that contradict at least three IRS notices published since 2020, and these provisions could easily result in the disallowance of the charitable contribution if the easement transaction is audited. Perhaps the most egregious deficiencies in many agency conservation easements are a very weak provision regarding the amendment of the easement and no provision preventing the extinguishment of the conservation easement by the doctrine of merger in the event the agency subsequently acquires the fee simple interest in the property—both of which violate the IRS requirements that the easement be granted in perpetuity and protect the conservation values in perpetuity.
What is a conservation easement?
It is a real estate instrument whereby a landowner conveys (grants) many, but not all, rights (interest) attributable to their property to (usually) a government agency or nonprofit organization. The property rights that may be stripped from the property include the rights to pursue commercial development, industrial activities, large-scale residential development and other rights contrary to the conservation and agricultural values of the property.
Conservation easements can be donated, sold for the full value of the easement, or sold for only a portion of the value of the easement (a “bargain-sale” transaction). If a conservation easement is properly drafted, the landowner may (subject to the guidance of their tax advisers) be able to claim a charitable contribution on their federal income tax return for that portion of the value of the conservation easement not compensated by the easement purchaser.
Reasons landowners pursue the donation, sale or bargain-sale of a conservation easement:
The protection of plant and animal habitats and water resources in perpetuity
To secure money to pay off debt associated with the property, including mortgages
To secure money to buy out family members or shareholders no longer interested in the family or agricultural business
For estate planning purposes, whether to reduce the basis of an estate or to obtain cash for the property rights extinguished by the easement that can then be used for other estate planning strategies (or both)
To protect family lands from development and ownership fragmentation