A conservation restriction (CR), also known as a conservation easement, is a legally binding agreement between a landowner and an agency or organization. The landowner retains title to the property, but extinguishes certain development rights to the property.
Easements typically restrict dumping, mining, paving and development of houses, while allowing traditional family uses of the property. The restricted land can be sold, but the restriction runs with the land to the new owner.
Tax authorities recognize the fact that the landowner has relinquished a significant portion of the property’s economic value by extinguishing his or her right to develop the property to the fullest extent. The Internal Revenue Service may grant income tax deductions and estate tax reductions equal to the value of the land forgone by donating a permanent conservation easement. The landowner must conduct an appraisal of the extinguished value to justify the deduction.
Lands with conservation easements are often granted local property tax relief. Cape Cod towns typically offer a practice of property tax reductions to landowners who place conservation easements on their land. These reductions can be generous, ranging from 75 to 95 percent, reflecting the diminution in value caused by extinguishing certain development rights. Some towns offer extra tax reductions if public access, such as for trail use, is allowed.
Conservation easements have been used effectively on Cape Cod to protect significant parcels of land. To date, more than 4,500 acres have been protected in this manner. Types of land that have been protected by conservation easements include salt marshes, barrier beaches, islands, dunes, pine barrens, shrub swamps, meadows, pond shores, and freshwater streams.
About a dozen properties are preserved by conservation easement each year on the Cape. A recent example on Cape Cod found that 5.5 acres of buildable land were worth $295,000 before the conservation easement was donated, and $85,000 after the restriction. The landowner was entitled to a $210,000 charitable deduction for income taxes and estate taxes. The town reduced the land’s assessment by 85 percent as well.
Deed restrictions guiding the future use of property may be placed in the deed at the time the property is transferred. Deed restrictions differ from conservation easements in that there is not a third party that assumes responsibility for monitoring and enforcing the restrictions placed on the land. The seller is responsible for enforcing restrictions placed on a parcel of land before it is sold. If the seller has placed restrictions in the deed, and retains no land nearby, he or she may not be able to enforce the restrictions against the subsequent owners of the land. Under Massachusetts common law, most deed restrictions expire after 30 years.
Deed restrictions will usually affect the market value of the land if they significantly limit development potential. The presence of a restriction may lower the price if the property is sold, or lower the value of the gift if the land is donated to a conservation agency. The IRS does not allow a claim for a loss in value resulting from deed restrictions as a charitable deduction. A donation of land to a conservation agency, in which the agency inserts the deed restrictions, does allow a claim of the full fair market value of the land as a charitable contribution.