Best Practices for Private Land Conservation
Below are best practices that members of the Partnership for Conservation (P4C) believe should be followed when using private funding to advance conservation efforts in the United States. Most of these best practices apply regardless of the form of the landowner, whether they are a real estate investment partnership or an individual. Many P4C members have already implemented these practices as standard procedure, and we encourage land trusts and other qualified recipients to accept conservation easement donations that adhere to these guidelines.
Property Title Thoroughly Examined. Title to the subject property should be examined meticulously back at least 50 years, if not further back to “patent” (that is, initial and exclusive land grant from a sovereign entity such as the United States of America). Be sure to review both surface and sub-surface property rights. Sometimes sub-surface rights have been severed from the landowner’s property, which could compromise the underlying conservation easement donation.
Property Surveyed. The survey should clearly identify the property so that the qualified real property interest requirement, as set forth in the statute and related regulations, is met and ensure that all parties are aware of the area to be protected in the event of a conservation easement donation.
Building Sites Verified with Precision. Building envelopes allowing for future home sites of any kind should be determined with GPS-coordinate precision and are not permitted to relocate following the completion of a conservation easement donation. If these building sites cannot be identified precisely, they should be omitted from the project.
Subdivision Rights Specified. If the donor intends to retain the right to subdivide the tract, the exact terms applicable to this right must be agreed upon between the land owner and the land trust, incorporated into the conservation easement contract and communicated to the appraiser.
Appraiser Credentials Verified. Appraisers should be interviewed at length about their qualifications to ensure all elements required to be a “qualified appraiser” are met and verified. Choose appraisers with relevant experience who have taken specific classes on valuing conservation easements and conducting highest-and-best-use valuation analysis. Finally, confirm that the appraiser is licensed in the subject property’s state, obtain an updated resume and verify that the appraiser’s insurance information is current.
Appraisal Value Confirmed. The value of a conservation easement donation should be informed by more than one expert opinion. Land owners should either:
- Order two qualified appraisals of the property from two different appraisers and use the lower of the appraised values; or
- Commission a qualified appraisal and hire a separate, independent appraiser to review and confirm that appraisal’s findings.
Any appraisal submitted to the IRS for a conservation easement donation should be subject to scrutiny by at least three parties: (1) the landowner or landowner’s representative; (2) attorneys with substantial experience and familiarity with the Uniform Standards of Professional Appraisal Practice (USPAP); and (3) another appraiser who specializes within the geographic area where the property is located and is hired for the express purpose of confirming that the appraisal was conducted in accordance with USPAP and other applicable appraisal standards and all Federal requirements (including, but not limited to, IRS Notice 2006-96, IRS Regs 1.170A-13 and 14, IRS Publications 526, 561 and 1771).
Highest and Best Use Substantiated. A third-party business expert should conduct a market feasibility study and independently authenticate the market and business assumptions being used to value the highest and best use of the property. Examples of such studies could include, but are not limited to, development feasibility analysis, mineral market examinations and subdivision analysis studies.
Land Trust Examined. Confirm that the land trust or other intended recipient is qualified to accept conservation easement donations and has adequate resources to monitor the donation in perpetuity. On an annual basis, examine the organization’s financial records and IRS Form 990, verify its insurance coverage and confirm appropriate staff resources.
Conservation Values Verified. Scrutinize the baseline documentation report and deed of conservation easement to confirm that the specified and statutory conservation values are present on the property. Question assumptions and clarify ambiguities. Ensure that the baseline preparers, who must be qualified personnel, personally visit and physically inspect the property in its entirety to substantiate the general environmental attributes discussed in the baseline documentation report and the deed of conservation easement. Consult state and local natural resource officials with questions about assertions made in reports and documents. Draft the conservation deed carefully to preserve and protect the specific conservation values established by the baseline documentation.
Third-Party Due Diligence Utilized. A third-party law firm, accounting firm, and/or other professional services firm with no prior exposure to the potential conservation easement donation should be retained to complete a thorough compliance review.
Entities Appropriately Structured. If the land is to be held in a partnership or other type of entity, all legal and operating documents should be drafted and reviewed by appropriate professionals to confirm full compliance with applicable state and federal laws. Ensure proper reporting of the entity’s existence to the Internal Revenue Service (IRS) and Security and Exchange Commission (SEC).
These best practices are intended as a guide and not a complete list of all possible factors that land owners and land trusts may need to consider. Each conservation easement is unique, and the participants involved must be prepared to address the peculiar circumstances and challenges of their project.