Capturing the Value of Appreciated Development Rights on Conservation Easement TerminationEnvirons Law and Policy Journal (2006)
AbstractThis article explores conservation easement drafting strategies responsive to global warming and climate change. As a starting point, the article proposes the development of a new form of conservation easement, described in the article as an "Ark" easement. Unlike traditional, perpetual easements (referred to as "Park" easements in the article), the Ark conservation easement is not intended to exist in perpetuity and, instead, is terminable by the holder without resort to a judicial proceeding. The merit of the Ark easement is that if global warming caused changes such as species extirpation render the conservation purposes of the easement impossible or impractical, the easement holder can terminate the easement and use the proceeds for other conservation purposes similar to those of the now terminated easement. For this strategy to succeed, however, the easement holder must be able to recover the full, appreciated value of the development rights formerly held in abeyance by the now terminated easement. The same valuation principle holds for judicially terminated "Park" easements as well. Accordingly, the article recommends a "hybrid" valuation on termination provision which captures the full, appreciated value of the newly released development rights. This hybrid valuation method assigns to the easement holder the greater of the ratio-based value of the conservation easement from the Treasury Regulations (i.e., the ratio of the value of the conservation easement to the eased land at the time of easement creation is applied to the proceeds from the sale or exchange of the land subsequent to easement termination) or the fair market value of the conservation easement as of the date of termination. As there are currently approximately 1,500 land trusts in the United States which collectively hold approximately 18,000 conservation easements covering over 5 million acres, the amount of money at stake in easement terminations is enormous. This article seeks to provide means by which careful land trusts can avoid landowner windfalls from the appreciated value of these easements and instead capture the appreciated value to be re-deployed to further the social good of land and resource conservation.
Citation InformationJames L. Olmsted, Capturing the Value of Appreciated Development Rights on Conservation Easement Termination, 30(1) Environs Environmental Law & Policy Journal 39 (2006)