Understanding Conservation Easements

By Pete Bauman

Conservation easements are a common, yet often misunderstood, real estate transaction tool. This article is intended to provide factual information regarding the rules and regulations that govern the use of conservation easements in South Dakota. Source citations include references to both direct sources and compilations that include additional references to law, case law, and easement publications. Resources utilized focus on objective evaluations of rules governing easements in South Dakota. SDSU Extension takes no formal position on conservation easements; rather our goal is to provide the reader with verifiable, fact-based information regarding conservation easements in South Dakota.

South Dakota Law on Conservation Easements

Conservation easements in South Dakota are generally defined and regulated by SD Codified Law 1-19B-56 through 1-19B-60. Within state law, conservation easements are defined as a “nonpossessory interest of a holder in real property imposing limitations or affirming obligations the purposes of which include retaining or protecting natural or open-space values of real property, assuring its availability for agricultural, forest, recreational, or open-space use, protecting natural resources, maintaining or enhancing air or water quality, or preserving the historical, architectural, archaeological, paleontological or cultural aspects of real property….” (SDCL 1-19B-56)1.

In plain language, conservation easements are “created when a landowner grants all or portions of his or her property to a grantee (holder) for conservation purposes”2. The holder of the easement can be either a government body empowered to hold an interest in real property or a charitable corporation, charitable association or charitable trust…. of which also holds the right to enforcement or transfer of the right to enforce the terms of the easement (SDCL 1-19B-56)1,3.

Establishment of Conservation Easements

Conservation easements are established under a voluntary agreement between the landowner and the entity holding the easement. Easements are conveyed either by sale or donation, and can be eligible for various tax incentives. Conservation easements have been utilized in South Dakota since the 1930’s2, and according to the South Dakota Legislative Research Council, the authority for a landowner to convey a conservation easement to a qualified entity is a “well established property transaction mechanism that plays a fundamental role in the real estate industry” as well as “a traditional real property tool that allows a landowner to specify how he will handle his property”1. The document also addresses the inherent constitutional rights associated with ownership of private property and the authority to voluntarily make decisions regarding property, stating that “any attempt to restrict how an individual handles his property could be considered……a violation of constitutional rights”3.

Conservation easements are tied to the land and the terms of such can be: 1) recorded directly in a deed, 2) recorded as a reference in a deed to a supporting easement document; or 3) recorded as a stand-alone easement document. Conservation easements do not limit a landowner’s ability to sell, mortgage or transfer their property at any time, but the conservation easement is attached to the title of the property.

Terms of Conservation Easements

The terms and conditions of a conservation easement are not restricted and are subject to the mutual agreement of the grantor (the landowner) and the grantee (holder). The terms of conservation easements can be tailored to meet the needs of the individual. Since conservations easements are voluntary a landowner can decline entering into the agreement if he/she is not satisfied with the terms governing use, longevity, compensation, or other factors.

Generally, conservation easements are categorized as ‘negative easements’. Legally, the term negative is used because a landowner who enters into a conservation easement voluntarily restricts, prohibits, or ‘negates’ a use or action in order to preserve certain characteristics of the land2,3. Examples of conservation easements in South Dakota can range from protection of cultural resources to restrictions of development of farmland to protection of certain wildlife habitats.

Longevity

In 2004, South Dakota’s law governing establishment of conservation easements was clarified by adding language stating “The term of the conservation easement shall be established by the parties to the easement” (SDCL 1-19B-57)1.There are no restrictions regarding the minimum or maximum number of years of a conservation easement in South Dakota. However, easement programs offered by conservation agencies or organizations are often fairly structured and may only offer certain options regarding longevity. Some government agencies offer 30 year options while other agencies and non-government organizations (NGO’s) focus their conservation easement programs on perpetual (forever) conservation easements.

Tax Incentives

Under certain circumstances, grantors of conservation easements are eligible for significant federal tax incentives. Section 170(h) of the federal Internal Revenue Service Tax Code requires a conservation easement to be donated and perpetual for the landowner to receive federal income tax benefits. In addition to income tax incentives, perpetual easements are also eligible for certain estate tax considerations2, 3. The federal tax code is complex. Landowners interested in income tax and estate planning implications should consult with appropriate legal and financial advisors.

Access

As stated previously, terms of conservation easements are negotiated between the interested parties. Public access, while certainly negotiable, is not required by state or federal law and is not an inherent component of a conservation easement. However, the easement holder may retain certain access rights for monitoring easement compliance. Landowners should be proactive in understanding the terms and conditions of access related to the needs of the easement holder.