Buy/Sell Considerations for Properties with Conservation Easements
Northern Michigan is blessed with unmatched environmental beauty and abundant natural resources. Landowners hoping to protect properties for future generations to enjoy often work with regional land conservancies on strategies. A conservation easement is a common tool which often benefits all parties. However, there are considerations if the original property owner decides to sell.
What is a conversation easement?
A conservation easement is a voluntary agreement that permanently restricts the way land is used in order to protect its conservation values. It is a permanent legal agreement between the landowner and a conservancy (or other easement holder, if an area is not served by a conservancy), with language that specifically outlines rights, restrictions and expectations for the property itself as well as landowners and conservancy, and continues in perpetuity regardless of future ownership.
Easements have been used in northern Michigan to protect working farms, working and natural forests, wildlife habitats, properties that protect water quality and properties with scenic views. Most people who place an easement on their land do so because they want to know it will remain protected from development long after they’re gone.
There are close to 600 northwest Michigan properties with conservation easements. Most average 40-80 acres, but some are as large as 1,000 acres. The number has steadily grown since the Little Traverse Conservancy formed in 1972, followed by the Leelanau Conservancy in 1988 and the Grand Traverse Regional Land Conservancy (GTRLC) in 1991. They collectively oversee nine northern counties.
The GTRLC manages more than 19,000 acres in easement for 224 properties within its five-county service area.
Conservation easements offer a win-win scenario that allows owners to continue using land. Owners also may receive tax benefits through charitable donation deductions and potential property and estate tax benefits, and are still able to sell the property or pass it on to heirs.
Selling Land with Easements
If the current owner or a subsequent generation chooses to sell land, it’s important for prospective buyers to understand that all easement restrictions remain in place and will continue to be monitored and enforced by the conservancy. The original agreement is perpetual and binding to all future owners.
Another key factor in reselling is proper valuation. Generally, land with a conservation easement is appraised at a lower value because the easement restricts what can be done with the property. When it’s time to sell, it’s very important that the buyer and seller are aware of the easement and restricted value.
Okma noted that problems can arise if the property is priced at full market value without taking into account the easement, which can lead to misunderstandings with the buyer or agent.
“The buyer should know what the easement and its restrictions are,” Okma said, noting allowable activities are unique to each property and will be defined in the easement.
Additionally, new owners should understand the monitoring requirement that calls for annual on-site visit to review the property and assure that the easement land is being used according to the agreement.
Okma usually learns when easement property is up for sale when he starts getting phone calls asking questions as to what one can do on easement property. Although the conservancy is not involved in the sale of conservation easement properties, Okma encourages inquiries and urges buyers and agents to consider conservancies as a resource when doing their research. The conservancy has informational packets available for those interested in buying or selling land with conservation easements.
He also stressed the positive aspects, including ability to purchase more land at less cost and protection from development.
Ideal buyers are those interested in retaining unmarred natural spaces and protecting the ecological or agricultural character of their property. Easement and other protected properties are prohibited from future subdividing or development, so the purchase is not appropriate for developers or those hoping to make substantial changes.
Coldwell Schmidt realtor Mark Nadolski in Traverse City has been an environmental advocate throughout a career dating back to the conservancy’s earliest days. He notes such properties might be on the market longer than unrestricted lands, as buyers can be leery of development restrictions until they learn more.
“(Buyers) can also be very excited,” he said. “Many buyers are moving here for the beauty of our area…and want to protect it.”
Nadolski recommends sellers prepare some history about their property and related information that can help prospective buyers understand the land, its heritage and why preservation was important in establishing the original easement.
Nadolski’s personal commitment to environmental protection has dovetailed well with his professional life. He has been active with the conservancies and currently serves as president of Protect the Peninsula in Traverse City. He has also sold more than 4,000 acres of easement property in the region during his real estate career.
“I’ve felt strongly that certain lands can and should be protected,” he said, noting the conservancies offer a conduit to doing so, with benefits for all involved. “It has been very rewarding.”
Buying Protected Land: What to Look For
- Title: Understand the history of the property’s ownership and uses. The conservation easement will also be recorded in the title policy.
- Conservation Easement: Be sure to review the conservation easement to understand the allowable and prohibited uses of the property, as well as the ecological or agricultural value of the land. Be sure to check for pre-existing violations of the easement so that they can be resolved before you assume responsibility over the property.
- Baseline Documentation Report: The Baseline Report covers the original condition of the property when the easement was put in place. This documentation allows for consistency in future monitoring and will help inform what the Conservancy will be checking.
- Easement Holder: Since the easement will be monitored annually by the easement holder, learn what organization is responsible, as well as their mission, policies and procedures. (In northwest Michigan, this is primarily the Grand Traverse Regional Land Conservancy, Leelanau Conservancy and Little Traverse Conservancy.)
- Bank Lender: Some lenders are more familiar with easements than others. Be sure to look for a lender that is familiar with conservation easements to ensure an easier mortgage and transaction.