What is a Conservation Easement?
A conservation easement is a legal agreement negotiated between a landowner and a land trust.
The easement is registered on the title of the land in perpetuity and identifies restrictions around the future use of the land. These restrictions are intended to preserve the “conservation values” of the land into the future.
These conservations values may include native prairie, native forests, riparian areas, and the wildlife habitat and watershed values they support. The easement can also help to keep the land in bigger parcels so it remains more viable for ranching. The preservation of aesthetic and cultural values is also a positive outcome of conservation easements.
A positive aspect of conservation easements versus other forms of protection is that the landowner continues to own and manage the land, and can sell or transfer the land when they want. SALTS is just involved to make sure that the current and future owners uphold the terms of the agreement. A conservation easement does not give SALTS the right to be involved in the day to day management of the land.
Why consider a Conservation Easement?
A conservation easement needs to be consistent with the landowner’s long term vision for their land. It is also important for the landowner to consider whether it makes sense for them financially and for their family.
A landowner may choose to pursue a conservations easement for one or several of the reasons below:
You may have a profound appreciation for the plants and animals on your land and want to see them preserved.
You may see development occurring around them and decide that you that don’t want the same outcome for your land, regardless of future ownership.
You may want to see your land stay as agriculture and not be converted to non-agricultural uses when you sell.
You may not have plans to pass your land onto a family member and intend to sell the land but want to see it remain intact after it’s sold.
You would like to pass the land onto family but require some of the equity tied up in the land to retire. A conservation easement can allow the owner to extract some value from the land and still pass it on to family without having to sell part of it.
You would like to pass the land onto family but the transfer is going to trigger significant capital gains tax or pass a significant liability to the next generation. A conservation easement can offset part of the capital gains tax as well as provide a charitable receipt to help offset part or all of the additional tax when the land is transferred.
What are the key restrictions in a conservation agreement?
SALTS views ranching and certain recreational and tourism uses as compatible with the preservation of conservation values. The key restrictions in the agreement are meant to limit fragmentation or degradation of the land.
They include restrictions on things like:
- Surface mining including commercial gravel pits
- Cultivation of native prairie
- Subdivision (unless negotiated in the agreement)
- New roads or trails (unless negotiated in the agreement)
- New residential development (unless negotiated in the agreement)
- Commercial wind energy development
What are the key decisions for a landowner regarding the easement?
Some conservation easements are incredibly simple while others are more complex. A few of the key things for a landowner to consider are:
- Do you want to retain a future building site(s)/farmstead(s) somewhere on the property?
- If yes, roughly where do you want this farmstead(s) to be and where will the access road to it be?
- If you are doing an easement on several parcels of land, do you want to see some or all of them sold or transferred as a block in the future?
- If you intend to sell or transfer some of the parcels separately in the future, are there issues around access that need to be addressed prior to the easement being completed?
What are the financial incentives associated with a conservation easement?
When a landowner does a conservation easement they are giving up some or all of the development rights associated with their land. Before a landowner proceeds with an easement, SALTS hires a certified third party appraiser who looks at the current fair market value of the land and then looks at what the land could be sold for with the easement in place. This difference between the fair market value and the value with an easement is what we call the conservation easement value.
Depending on the size of the land, the location of the land, and the restrictions in the easement, the conservation easement value can range from between 15% and 60% of the fair market value. It is more commonly between 30% and 50% for most ranch properties in southern Alberta.
The value of the easement is basically a function of how much the landowner is giving up. If the landowner has a very large piece of property with good access to multiple parcels and they agree to keep it all natural, the value of the easement will be very high. If they have a small parcel and wish to retain a building site or a parcel with no reasonable access for development, the value of the easement will be lower.
SALTS can compensate the landowner for the conservation easement value through either a charitable receipt or a combination of a charitable receipt and some cash. The type of compensation and the amount of cash versus charitable receipt depends on whether the property qualifies for certain funding sources available to SALTS.
In order for SALTS to provide a charitable receipt the property must qualify for the federal Ecological Gifts Program administered by Environment Canada. This essentially means that the property must be ecologically significant which typically means native landscapes, riparian areas, or important wildlife habitat.
The charitable receipt issued by SALTS under the Ecological Gifts Program can be used by a landowner for up to 10 years. In addition, the capital gains on the donated (charitable receipt value) of the conservation easement are forgiven. This can be very advantageous in situations where a transfer of the land to a family member is going to trigger significant capital gains because the property was purchase a long time ago.
Who does the work to put the conservation easement in place?
SALTS’ job is to help the landowner through all of the steps of a conservation easement. Accordingly, SALTS will coordinate and in most cases cover the cost of:
- Any grant applications required to fund the easement
- The appraisal to determine the value of the easement
- The application to the Ecological Gifts Program
- Any field work required to document the ecological features of the property
- The execution of the easement agreement with a lawyer or commissioner and the registration with land titles
The activities and the costs involved for the landowner may include:
- The time to meet with SALTS on a number of occasions to review the easement agreement and complete other steps involved in the process
- Potential costs associated with having an accountant review the tax and financial benefits/implications of doing and easement
- The costs of legal advice if the landowner chooses to seek an independent opinion on the conservation easement agreement
Can easements be changed or bought back in the future?
Because the easement agreement cannot foresee all activities and issues in the future there is a provision that allows changes to be made to the agreement. However, it must be shown that this “change of use” will not have any negative impacts to the conservation values of the property and the landowner and SALTS must apply to Environment Canada to have this change approved.
An easement cannot be bought back from a land trust in the future. Once SALTS has issued a charitable receipt, the government has foregone this tax revenue and there is no mechanism in place to give it back.