Thursday, June 26, 2014

Whitehouse v. CIR. 5th Circuit Upholds Major Deduction in Conservation Easement Valuation

No one is more surprised than I with how much time I spend reading about tax law these days, but I wanted to alert folks to another case regarding the valuation of historic conservation easements. This time, we are talking about Maison Blanche - a fancy former department store now an even fancier Ritz Carlton on Canal Street in New Orleans.

In 1997, the Whitehouse Hotel Ltd. (owner of the property) donated an historic preservation conservation easement to protect the facade to the Preservation Resource Center. Whitehouse's appraiser estimated the value of the conservation easement at $7.445 million (not $7,445 million as the 5th Circuit opinion mistates). The IRS cried foul and valued the conservation easement at $1.15 million and also dinged Whitehouse for an extra 40% for underpaying by more than 400%.

Unsurprisingly, litigation ensued. Whitehouse v. CIR,  2014 WL 2609866 (5th Cir. 2014), decided on June 11th is the second time the case has made it up to the 5th Circuit. The disputes have generally been battles of appraisals and valuation methods. I am not going to express any opinion about the appraisal methods but thought I'd point out a few things.

What does the conservation easement allow?

There was a big dispute here as to whether the conservation easement actually had any value. One of the appraisers suggested that because the conservation easement would not actually prevent Ritz Carlton from building what it want to build, the value should be zero. The highest and best use of the property is unchanged by the conservation easement. This conclusion turned in part on the language of the conservation easement and whether it actually prohibited the potential building of 60 additional rooms on part of the hotel complex. The Tax Court agreed with the appraiser that the conservation easement did not have such a prohibition. Whitehouse I, 131 T.C. 112 (Tax Ct. 2010). The Fifth Circuit disagreed. Whitehouse II, 615 F.3d 321 (5th Cir. 2010). On remand to the same judge, the Tax Court reviewed Louisiana servitude law and again stated its belief that the conservation easement did not restrict the additional building and should not have value BUT the Tax Court acknowledged that it was bound by the 5th Circuit's precedent and estimated the conservation easement value based on that assumption (coming up with as the 5th Circuit said "merely $1,867,716"). Whitehouse III, 139 T.C. 304 (Tax Ct. 2012).

Undoubtedly feeling that it got a raw deal from an unbiased judge, Whitehouse appealed but the 5th Circuit upheld the Tax Court stating that even though the Tax Court went out of its way to voice its disagreement with the 5th Circuit that was allowed as long as it actually followed the 5th Circuit.

Can you rely on tax professionals' assessments of your conservation easements?

Well, at first blush the answer to this question looks like "no" because the appraiser was so wrong. But the key question to consider for this case is whether Whitehouse's reliance on its appraiser and other professional should protect it from the penalty for gross underpayment (the 400% thing I mention above). There is a reasonable cause exception that allows taxpayers to get out from under this rather steep penalty. This issue is important for people interested in conservation easements because we see over and over again how far apart the private appraisals can be from those the IRS calculates. How much should we penalize landowners for their underpayments made in reliance on qualified professionals? The Tax Court imposed a 40% gross underpayment penalty, holding that Whitehouse had not done enough to demonstrate that it had reasonable cause to believe the appraisal. The court may have been particularly persuaded by the fact that the appraisal of the conservation easement exceeded the price actually paid for the property. The 5th Circuit reversed on this issue because Whitehouse had consulted with more than one appraiser and consulted other tax professionals. The 5th Circuit found this to be adequate.

I am really torn on this one. We want landowners to be able to rely on qualified appraisers and to impose a 40% tax penalty could be particularly painful to small landowners. But there have been repeated examples of bad appraisals around and it seems like there has got to be some type of smell test. Where a conservation easement is valued so much higher than the purchase price of the property, I hesitate too. Of course, I understand that the purchase price doesn't really tell you the value of the property and the value of what an entity like Ritz Carlton can get out of a property, but at the end of the day as a taxpayer, I don't even like the fact that the landowners here got a $1.8 million dollar charitable tax credit to build a big fancy hotel and condo complex that will make them oodles of dollars. Arguing that they lost $1.8 million because they couldn't make it as absolutely big as they might have just leaves a bad taste in my mouth.

June 26, 2014 in Architecture, Caselaw, Conservation Easements, Development, Economic Development, Federal Government, Historic Preservation, Land Trust, Real Estate Transactions | Permalink | Comments (1)

Monday, June 23, 2014

Tax Deductible Exacted Conservation Easements: That's an oxymoron isn't it?

As long-time readers know, I have an obsession with interest in conservation easements. In particular, I have been intrigued with a category I call "exacted conservation easements," which I view as any conservation easements that have been created in exchange for some type of land-use permit or development benefit.

Many conservation easements are donated to land trusts and government entities. Those landowners are then able to seek deductions for charitable contributions on their federal tax returns based on the fair market value of the conservation easement. Of course, calculating the fair market value of a conservation easement may not be a simple task, but we can leave that discussion for another day. Today, I want to talk about the potential for tax deductions on exacted conservation easements.

Exacted conservation easements exist because a landowner is seeking the right to develop or change her land in a way currently restricted by law. For example, where a landowner wants to convert endangered species habitat into a residential development, the landowner often agrees to burden other land with conservation easements in exchange for an incidental take permit. Now, in what I hope is an uncontroversial statement, I often assert that such conservation easements should not garner landowners any charitable tax benefits. Unfortunately, I heard many stories of landowners seeking and obtaining tax deductions for such properties.

In a recent tax court opinion, we see an example from Colorado. In Seventeen Seventy Sherman Street, LLC [SSSS] v. CIR, T.C. Memo 2014-124, the Tax Court examined the deductibility of historic facade and interior conservation easements. SSSS wanted to develop an historic site (the Mosque of the El Jebel Shrine of the Ancient Arabic Order of Nobles of the Mystic Shrine) in Denver into condos. Because the property is a designated landmark, the architect proposed building in the parking lot and preserving the shrine "as leverage to induce the city of Denver to modify the zoning restrictions governing the use and development of the [property,]" which at that time was not zoned for residential development (T.C. Memo at 5-6). SSSS then entered into negotiations with the city's Community Planning and Development Agency regarding changes to the Planned Unit Development (PUD) for the area, the conservation easements, height variance, etc. The Agency asserted that it would not recommend any changes to the PUD or granting of the height variances without the conservation easements.

Hopefully, you see quickly why I label these exacted conservation easements (or I sometimes call them "coerced conservation easements") and why they differ from the vision most folks have of conservation easements protecting the family homestead and helping farmers keep the property in the family. Here, we have a developer with no emotional connection to the property simply making a deal to obtain the development rights that the developer sets as its goal. This doesn't mean that the developer doesn't value the historic, scenic, and cultural benefits of this property. Indeed, a developer may purchase an important or beautiful site exactly because it believes those features are important, BUT we may not have the same ideas of freedom of contract or donative intent involved. We might want to view such conservation easements differently, more critically.

So what kind of tax break should SSSS be able to get here? My initial take on these has always just been zero. The conservation easements were exchanged for a varaince and favorable development measures; they are not donations. But as the Tax Court points out, we may be able to find some instances where some of an exacted conservation easement was done in exchange for a permit or some other benefit, but the value of the restriction actually exceeds the value of the permit. Frankly, while I agree generally with that sentiment, I have trouble picturing where that might occur. How do we calculate that? Without the conservation easements here, we know there would have been no permit. So can we really say that the value of the conservation easements exceeds the value of the permit? If so, are there ways to confine the conservation easement to bring it in line with the value of the permit? They have to be perpetual, so we could only change other characteristics. Suddenly I feel like we are immersed in some Dolan-like analysis of value and proportionality.

The conservation easements in this case were first valued at over $7 million. On its tax forms, SSSS did not indicate that it had received anything of value in exchange for the conveyance of the conservation easements (to Historic Denver). The IRS responded that SSSS had failed to meet some filing and appraisal requirements and asserted that the conservation easements should only be valued at a little over $2 million but claimed that the interior CEs were not deductible at all, leaving the potentially deductible amount at $400,000. Here, the Tax Court did not need to determine the value of the conservation easements or the value of the development benefits SSSS received in exchange for them because SSSS failed to identify that it received consideration for the CEs as required by the Tax Code. The court continued to explain that the exchange sure looked like a quid pro quo one with SSSS agreeing to the CEs (whatever their value) in exchange for the Planning Agency's support (whatever its value).

I am glad to see the IRS taking a careful look at these conservation easements. Generally, I think we should be wary of any conservation easements emerging from development schemes.

June 23, 2014 in Architecture, Caselaw, Conservation Easements, Development, Federal Government, Historic Preservation, Land Trust, Zoning | Permalink | Comments (0)

Thursday, June 19, 2014

No Per Se Deduction for Conservation Easements

Many of the exciting conservation easement cases (yes I did say "exciting conservation easement cases") come up in the context of facade easements. I think facade easements just sound sketchy questionable to many of us. Someone with a beautiful historic building gets a tax deduction for agreeing not to destroy the facade of that beautiful home. My gut reaction is to object that the landowners unlikely had any plan to mar one of the aspects that likely drew them to purchasing the building. In fact, I have heard more than one landowner brag that they just got a tax deduction for doing what they were already doing. On further consideration though, we can see that there might be value to the public here. This is particularly so in an area where (1) landowner are having trouble affording the upkeep on the homes or (2) where economic pressures or a lack of other protection mechanisms put the buildings at risk. Some have argued that such restrictions always have value. That is, even if we have a landowner who was already planning to protect the building and the home is in a district where local laws prevent destruction (or require upkeep), you never know what the future holds in terms of other landowners or changing government whims so a facade easement may end up saying the parcel one day. Personally, such speculative value doesn't seem the best use of public funds when we can confidently identify so many places where conservation yields immediate results.

Scheidelman v. C.I.R. (2014 WL 2748623) decided yesterday by the Second Circuit is the latest in a saga over the deduction of a Brooklyn townhouse. In 1997, Huda Scheidelman paid $255,000 for this house in the designated Fort Greene Historic District. The district is designated as a historic district by the National Park Service and by NYC's Landmarks Preservation Commission. Under these protections, it is illegal to alter the facade without the consent of the Landmarks Preservation Commission.

In 2003, Scheidelman donated a facade conservation easement to the National Arhcitectural Trust, now renamed the Trust for Architectural Easements. The Trust's recommended appraiser valued the conservation easement at $115,000 and Scheidelman claimed a charitable deduction for that amount on her 2004 tax return.

After an audit the IRS rejected her claimed deduction as not being accompanied by a "qualified appraisal" as required by statute. The Tax Court agreed, but the Second Circuit vacated and sent the case back for a de novo review of the fair market value of the conservation easement. After doing so, the Tax Court determined that the value of the conservation easement should be $0 because it did not diminish the property value of Scheidelman's townhouse. Using the standard before and after method of appraisal, this calculation makes sense. Because other laws already restrict the property, the presence of the conservation easement doesn't change the value of the property. Of course, some may argue that the before and after method isn't appropriate and perhaps instead we should do some calculation based on value to the public but well... that's a harder number to crunch and more open to abuse. The Second Circuit just upheld the tax court's finding that the deduction had no value.

My favorite line of the Second Circuit (per curiam) opinion is the statement that conservation easements do not represent a per se reduction in fair market value and in fact may even serve to enhance property value.

June 19, 2014 in Architecture, Caselaw, Conservation Easements, Land Trust, New York, Property Rights, Servitudes | Permalink | Comments (1)

Wednesday, April 2, 2014

The Glass Case Saga

Some conservation easements in Michigan have been the subject of dispute for over 20 years. In 1992 and 1993, the Glasses donated conservation easements to the Little Traverse Conversancy to protect the shore of Lake Michigan. Charles and Susan Glass then sought a tax deduction for these donations. The IRS was skeptical. These were two conservation easements over a 10-acre parcel and the real conservation value of them seemed seems questionable.

The IRS challenged the Glass’ contention that the conservation easements should qualify for a deduction under § 170(h)(1). Specifically, the IRS felt that the conservation easements did not meet the requirement of being “exclusively for conservation purposes.” The Tax Court disagreed with the IRS holding that the conservation easements qualified because they protected a relatively natural habitat or plant or wildlife (§ 170(h)(4)(A)(ii)) and because the Conservancy had to hold the conservation easements exclusively for conservation purposes (§ 170(h)(5). [Yes there are days when I wish I had taken Tax.] The 6th Circuit upheld the tax court's ruling.

Despite these rulings of the Tax Court and the 6th Circuit, the conservation easements in this case appear to be of questionable value. One of the conservation easements (from 1990) is for a greenbelt along a state scenic highway. The other two conservation easements prohibit development along the lakefront. The parcels they encumber are small, the area would be hard to develop, and development would likely be undesirable. These are plots with vacation homes along the shore of Lake Michigan that are bordered by a bluff. Some parcels in the area however have larger homes and the Conservancy saw a need to seek out and protect shoreline parcels. The proceedings regarding the conservation value of these conservation easements illuminated some inconsistencies in the deeds and questionable appraisals of the value of the conservation easements. The litigation described above indicated that the appraised value of the conservation easements ($340,800) was too high, but it didn't resolve what the value should have been set at.

The Glasses ultimately acknowledged that the value had been assessed incorrectly and that therefore the Glasses had underpaid their federal income taxes. This left the Glasses with substantial tax debt and they looked for a way to make some money. Thus, the Glasses sought to sell the southern portion of their property to their neighbors (the Van Lokerens). Once the neighbors saw an accurate survey detailing the property lines and any servitudes, they decided they were no longer interested in purchasing just the southern portion but indicated that they might consider buying the entire 10 acres. The Glasses then listed just the southern parcel for sale.

The Van Lokerens then reached out to the Conservancy to complain that the proposed sale of just the southern parcel appeared to violate the conservation easements in place. The Glasses were then forced to withdraw the listing. Next, the Glasses developed a plan to subdivide the parcel into condos but keep the conservation easement areas in place to serve as common area. Again, the Van Lokerens complained to the Conservancy (notably Mary Ann Van Lokeren was a member of the Conservancy's Board). After attempts at amicable settlement with the Glasses, the Conservancy ended up suing the Glasses and seek reform of the conservation easements based on the theory that there had been a mutual mistake in the earlier conservation easement description. The Glasses counterclaimed arguing that the Conservancy (and the Van Lokerens) had engaged in some shady practices including “threatening meritless litigation.”

In unpublished decision, the Michigan Appellate Court found against the Glasses, explaining that the Conservancy was not out of line in seeking to ensure its conservation easement was complied with.

As the Glasses were foreclosed on and the parcel is now in other hands, it seems likely possible that we have reached the end of this saga.

 

April 2, 2014 in Beaches, Caselaw, Conservation Easements, Land Trust, Servitudes | Permalink | Comments (0) | TrackBack (0)

Monday, March 10, 2014

Conservation easements and charitable trusts

There has long been debate fluttering around about whether conservation easements are charitable trusts. A recent opinion from Wyoming has me thinking about charitable trusts and conservation easements from a different viewpoint.

In Davis Foundation v. Colorado State University Research Foundation, the Supreme Court of Wyoming examined a transfer of property from the Davis Foundation and family jointly to CSU and University of Wyoming. The working ranchland was donated to the school as a way to provide a living laboratory for students to learn ranching and to provide revenue for the programs (through ranching revenues). In the process of conveying the land, the Davis Foundation also conveyed a conservation easement over  the property to The Nature Conservancy. The conservation easement purports to protect the scenic and historical resources of the property and restricts possible property uses to ranching, farming, and education.

Putting aside whether the conservation easement itself was a charitable trust (and without information about whether it was sold or donated to TNC I am not gonna make a call on that one), the court found the existence of the conservation easement integral in its analysis of whether the Davis Foundation created a trust when donating the property to the educational institutions. Basically, the schools now want to sell the land (subject to the conservation easement). If the donation was a gift to the schools, they have the ability to do with the land as they see fit (within their limits as state organizations or non-profits) BUT if it is a charitable trust, the schools actions with respect to the land are more limited. The Wyoming Supreme Court held that no trust was created. It reached that conclusion in part because of the existence of the conservation easements. The court explained that the conservation easement limited what the land would be used for, not the gift to the schools. Structures of donations like this are not unusual. We see examples in many states of landowners donating fee to one entity and a conservation easement to another. This may be particularly common where the fee is donated to a government entity. This case indicates that the presence of the conservation easement may serve as evidence that the donation did not create a trust. Of course, there are no blanket rules here and one would have to look at each conveyance to determine whether a trust was intended. I find this fascinating. If you donate parkland to a city but also put a conservation easement on the land because you don't totally trust the city, you may have made the donation look more like a gift than a trust (which may not have been your intention!).

 

March 10, 2014 in Agriculture, Caselaw, Conservation Easements, Land Trust, Property, Property Rights | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 28, 2014

Takings and Conservation Easements

Like many nerds tech-savvy people, I have an alert set up with WestLaw to send me any new law review article or case that even mentions the phrase "conservation easement." It sends me a lot of fluff, but every now and then I find a gem that seems to have eluded the 5,000 SSRN lists I get. When I saw an article entitled "Environmental Preservation and the Fifth Amendment: The Use and Limits of Conservation Easements by Regulatory Takings and Eminent Domain," I just couldn't resist dropping everything and reading it immediately.

I was surprised that I didn't know the author (Beckett Cantley of Atlanta's John Marshall Law School) because well the conservation easement crew is a small one. Turns out that Cantley is an interesting combination of a tax law prof who also teaches property. As the title suggests, the article focus on standard 5th Amendment  takings analysis. Unsurprisingly, this involves a large focus on exacted conservation easements. As I am sure all none of you know, my 2005 dissertation was entitled Exacted Conservation Easements, and I have a small obsession with the phenomenon.

Cantley has an interesting take on the issue.

First, he asks whether there is a market for conservation easements. He contends that a landowner's ability to voluntarily sell a conservation easement constitutes an "economic use for regulated land that could help avoid a regulatory taking by lessening the economic impact of environmental and land use regulations." I assume the argument goes this way: The government entity enacts a land-use law that restricts development. The landowner argues that this violates the 5th amendment under a Lucas-style total deprivation of value argument. The government entity says no we haven't totally deprived you of value because you could still donate or sell a conservation easement on your land. Of course, it would be pretty tricky to find a willing buyer for such a conservation easement but probably not impossible to find someone willing to accept the donation (depending on the features of that parcel). But what would be the value of the donation? Would it be zero? Well the current regulations do not allow development, but conservation easements can extend regulations (making them more stringent, giving them certainty, extending the restriction in perpetuity). So the value of the conservation easement while low, is probably  not zero. Cantley suggests that such a conservation easement market would be so speculative that it would not be enough to defeat a Lucas-style takings claim.

Second, Cantley analyzes the ability of a government agency to create a conservation easement with eminent domain. This is a tricky issue. As a threshold, it would only work where the government entity had eminent domain power. Some states prohibit creation of CEs via eminent domain explicitly. In other places, it is just politically sensitive (not to mention potentially hard to calculate). The best example of this phenomenon was when the Highway Commission in Wisconsin exercised eminent domain over holdouts for scenic easements along the Great River Road. One of the confusing points for me here has to do with the fact that when a parcel encumbered by CE is condemned, most jurisdictions acknowledge the CE is compensable and they pay the CE holder for their lost property interest when they pay the underlying landowner just compensation for her property interest. Do such payment policies mean that the jurisdictions recognize CEs as something one could take via eminent domain without taking the fee title? Just an interesting way to do parcel by parcel regulation? Spot zoning with compensation? Something several folks have speculated about but few governments seem interested in pursuing just to amuse us academics.

Now, on the exacted CE front, Cantley notes that generally Nollan and Dolan analysis apply but in some places there is a bit of trickiness with what constitutes an "exaction" meriting Nollan/Dolan analysis (i.e., nexus + rough proportionality) versus just a regulatory act with the less demanding Penn Central balancing test. I have written about this weirdness before in New York where the case of Smith v. Town of Mendon held that conservation easements are not actually "exactions" even where they are er... exacted. As I speculated in a recent piece for the Environmental Section of the New York Bar Association, I think the broad definition of exaction in Koontz overrules Smith v. Town of Mendon and makes it pretty hard to argue that you can't exact conservation easements. One bone I have to pick with Cantley is his description of exacted conservation easements as being required donations. I think we really need to remove the donation language from our talk about such CEs. Landowners are sometime surprised that they can't (or well at least they shouldn't) get tax benefits from these exactions because they associate all CEs with tax breaks. It also looks to me like Cantley must have written his article pre-Koontz (unsurprising considering the pace of law review publication). I think that case may change his assessment that failed exactions are not cognizable takings... or maybe it depends on how/when we assess failure.

Interesting stuff! The artcle doesn't appear to be available for free on SSRN or elsewhere, but those of you with access to various legal databases can find it at

Beckett G. Cantley, Environmental Preservation and the Fifth Amendment: The Use and Limits of Conservation Easmeents by Regulatory Taking and Eminent Domain, 20 Hastings W.-N.W. J. Envtl. L. & Pol'y 215 (2014).

 

January 28, 2014 in Caselaw, Conservation Easements, Eminent Domain, New York, Scholarship, Servitudes, Supreme Court, Takings | Permalink | Comments (1) | TrackBack (0)

Thursday, January 23, 2014

Is a Right-of-Way an Easement?

Turning old railroad lines into parks and bike paths seems like a great idea. When it results in things like NYC's Highline Park who can complain, but not everyone is happy about these rail to trail projects. In fact, it is the subject of a case currently pending before the Supreme Court. (This is not a case under the Rails-to-Trails Act but implicated perhaps thousands of miles of trails that came from rails).

Marvin Brandt is upset about the bike trail built by the Forest Service on an abandoned railway through his land. Brandt argues that the when the railroad abandoned the government-issued right-of-way, the feds did not have the right to create a new right-of-way in the form of the trail.

The tricky issue here is determining what exactly a railroad right-of-way is. When I hear the term ROW, I envision an easement. But as we all know there are some things out there that sound like easements but aren’t actually easements. The government argues here that these railroad ROWs were not easements in the traditional sense. However, nor were they fee simple strips of land given to the railroad. Instead they are some third category of property law that no one can quite figure out how to define. A surface defeasible fee subject to a reverter perhaps? Let’s break it down.

If it’s an easement: The federal government gives the railroad an easement through public land. The common law rules of easements apply. This means that when the railroad abandons the track in the 1980s (or whenever it was), the easement is extinguished and full unencumbered fee simple title goes back to the underlying landowner. This particular parcel is no longer federal land because the Forest Service swapped it with the Brandt family. Traditional run of the mill easement law tells us that the Brandt family (owner of the servient estate) should have this land with no dominant easement holder left around to bug them (or ride bikes through their property). This is what Brandt’s attorney argues. Not argued, but hinted at by Justice Sotomayor is that the easement holder was really the US and it temporarily transferred its easement rights to the railroad. Now that the railroad is done, it can keep using the easement for similar (transportation) uses through the Forest Service bike trail.

If it was a patent (i.e., fee simple absolute): The federal government gave the railroad a strip of land and the railroad owned that strip (or spaghetti noodle as the court seemed to like envisioning it). This would mean that the railroad owns the land for any purpose and once it stops using the railroad tracks for trains, it could use them for something else or it could sell them to the underlying landowner (or lose ownership via adverse possession if it stands by and does nothing while the forest service or underlying landowner makes use of the land). No one actually argues that the railroad had an unrestricted fee simple though. Instead, it might be that they had a type of defeasible fee (starting to give you flashbacks of your 1L property class yet?). That’s right, the railroad had a fee interest subject to the possibility of reverter. That is, the federal government had a reversionary interest and would get the land back if the railroad stopped using it for railroad purposes.

Now of course, it is not as simple as just reading over the grant to the railroad and figuring out what it said. Instead, we have several wrinkles. For example, there is an 1922 Act (postdating the grant to the railroad) explaining that when the railroad stops using the land for railroad purposes and it reverts to the feds, the feds should first use the land for roads and streets, then consider giving to municipalities, and if that doesn’t pan out give the land to neighboring landowners. There is a more recent statute adjusting that order of priority, but these statutes sure make it sound like the US had a reversionary interest. Of course, Justice Scalia pointed out that he doesn’t care very much about how a subsequent Congress interpreted the railroad’s property right. He is only interest in looking at the 1875 Act enabling grants of ROWs the railroad to try and figure out the property right.

There are some cases muddying the water including a 1942 case interpreting the 1875 Act, concluding that the railroad in question there had not gotten subsurface rights and instead had gotten something akin to an easement.  

There is also the tricky part of the land conveyance to the Brandts. The Forest Service swapped some land with Brandt’s father back in 1976. While the land conveyance noted the railroad’s ROW, it did not mention any reversionary interest. Leading the Brandts (quite reasonably) to believe that the ROW was just a standard run of the mill easement. Can an underlying federal law be in trouble where the forest service neglected to mention it in a land conveyance? Perhaps Brandt’s property lawyer should have researched more and tried to determine what was really going on…

The oral argument in this case is fun for land geeks, especially those of us who teach or study property and/or federal lands. The Court seemed particularly interested in figuring out how much lands the feds own and how much has been converted to other uses -- and what the implications of allowing such reversions would be. Several justices pushed the parties to try and explain how many acres or how many landowners were at stake. No one dared to put forth an estimate. I actually laughed out loud when the justices were shocked that the federal government didn’t keep good track of its land holdings and dispersals. They are so cute sometimes.

 

January 23, 2014 in Caselaw, Constitutional Law, Federal Government, Property, Servitudes, Supreme Court, Takings | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 18, 2013

Conservation Easements and Fracking

One of the tricky things about conservation easements is that most of purport to protect land in perpetuity but the original parties to conservations easements are probably not going to have thought of every possible future circumstance or land use. Fracking is a great example. Many conservation easements cover property that now appears desirable for fracking. The potential for fracking on these properties may not have been contemplated by the folks who drafted the conservation easements just a few short years ago. An example of this appears in the recent case of Stockport Mountain Corp. v. Norcross Wildlife Foundation, 2013 WL 4538822 (M.D. Penn. Aug 27, 2013) (Munley, J.)

A 2002 conservation easement burdens some property in Pennsylvania that now appears quite attractive for shale gas development. Although the parties involved in crafting the conservation easement discussed it over the course of several years and went through multiple drafts, no one mentioned the words shale, natural gas, or fracking.  After being approached by two different companies seeking natural gas leases, the landowner sought a declaratory judgment that the conservation easement permitted fracking because ... er... because it doesn't expressly prohibit it....

Court said no go in this case based on a provision prohibiting commercial and industrial uses on the property (except for those specifically permitted). Good news for the many conservation easement holders that commonly include such language in their agreements. One interesting thing is that the CE did allow some quarrying, which the court seemed to view as even more environmentally destructive than fracking... but the court prohibited the fracking because it wasn't mentioned in the savings clause of the commercial prohibition. What the court did not reach is whether fracking would have been at odds with the conservation values of the property. That might have been a trickier one.

This is a nice example of cases we should continue to see with conservation easements as landowners seek to engage in uncontemplated activities like erecting windmills and cell phone towers.. oh yeah and probably more fracking.

Jessie Owley

September 18, 2013 in Caselaw, Conservation Easements | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 17, 2013

Hardberger on Groundwater in Texas Courts & Legislature

Amy Hardberger (St. Mary's) has posted World's Worst Game of Telephone: Attempting to Understand the Conversation between Texas's Legislature and Courts on Groundwater, forthcoming in the Texas Environmental Law Review.  The abstract:

Groundwater is a critical component of Texas water resources. Currently, groundwater accounts for 60% of all water withdrawn in the state. Historically, the largest groundwater user was the agricultural sector; however, Texas cities are also increasingly reliant on these water sources. State water demands are projected to increase 22% in the next fifty years. Many of these demands will be in the groundwater sector. In addition to increasing demand, periodic and sometimes severe droughts challenge an already stressed system. Texas’s ability to provide sufficient resources depends in large part on their effective management. 

This paper evaluates the Day decision through the lens of past court decisions and legislation in an effort to understand why the court ruled as it did. Part II introduces Texas’s groundwater resources, current uses of that water, and present concerns regarding sustainability. Part III chronicles the line of cases that established capture as the common law rule in Texas. Part IV traces the history of groundwater legislation after courts established rule of capture. This legislation created a regulatory overlay on the common law rule of capture through localized groundwater conservation districts and the statewide planning process. Part V describes the process through which the Edwards Aquifer Authority came into existence and why it is different from other groundwater districts in the state in that its strict pumping cap immediately raised property rights concerns. Part VI explains how groundwater litigation shifted from right of capture limitations to questions of when ownership vests. This change was a product of increased pressure on groundwater resources caused by additional regulations and growing population demands. 

Finally, Part VII presents three hypotheses regarding why the court came to its decision in the Day case despite the case law history. The first theory is that delineation of property interests is an issue reserved for courts’ authority. Another alternative is that the holding in Day was a result of a statewide shift towards the protection of private property rights above other concerns. The final proposed alternative is that the Day holding was actually an effort to define the property right in such a way as to encourage more regulation or at least limit takings claims through the expansive of correlative rights to groundwater.

Interesting and important--Texas is a huge state with a growing economy and population and an energy boom, and water is going to be a critical issue in the immediate and long-term future.  

Matt Festa

July 17, 2013 in Caselaw, Environmentalism, Local Government, Oil & Gas, Planning, Property Rights, Scholarship, State Government, Sustainability, Texas, Water | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 9, 2013

Professor's Corner on Koontz

This month's ABA Real Property "Professors' Corner" teleconference will focus on Koontz, the end-of-Term exactions that is one of the most significant Supreme Court property-rights cases in recent years.  (Jessie Owley has discussed it here, and Tim Mulvaney and others have weighed in around the net).  This Professor's Corner session should be a good one with several leading scholars participating.  Here's the announcement:

Professors’ Corner:  Wednesday, July 10, 2013:  Koontz v. St. John’s River Water Management District:  A Significant Victory for Property Rights?

Professors’ Corner is a monthly free teleconference sponsored by the ABA Real Property, Trust and Estate Law Section's Legal Education and Uniform Laws Group. Each month’s call features a panel of law professors who discuss recent cases or issues of interest to real estate practitioners and scholars.   Members of the AALS Property Section are invited to participate in the call (as well as to join and become involved in the ABA Real Property, Trust and Estate Law Section).

Wednesday, July 10, 2013

12:30 p.m. Eastern time (11:30 a.m. Central, 9:30 a.m. Pacific). Call is ONE HOUR in length.

Call-in number: 866-646-6488

Passcode: 5577419753

This program will feature a roundtable discussion breaking down the Supreme Court’s important June 25 decision in Koontz v. St. John’s River Water Management District. If “monetary exactions” have always seemed a little untamed to you, you’re not alone. The 5-4 decision in Koontz leaves a lot of room for analysis, and this month’s panel is prepared to guide you through it by parsing the decision and the dissent.  Our distinguished panel will include Professor Jonathan H. Adler, who is the Johan Verheij Memorial Professor of Law and Director of the Center for Business Law and Regulation at Case Western Reserve University School of Law; John D. Echeverria, Professor of Law at Vermont Law School; and David L. Callies, who is the Benjamin A. Kudo Professor of Law at the University of Hawai’i. 

For those that haven’t already seen it, here’s a link to the opinion:

http://www.supremecourt.gov/opinions/12pdf/11-1447_4e46.pdf

Please join us Wednesday for this great program!

Matt Festa

July 9, 2013 in Caselaw, Conferences, Conservation Easements, Constitutional Law, Environmental Law, Federal Government, Property Rights, Scholarship, Supreme Court, Sustainability, Takings, Wetlands | Permalink | Comments (0) | TrackBack (0)

Monday, July 1, 2013

Late to the Game: Koontz and whether you can have a takings claim without an actual takings

The past few weeks have been exciting ones for Supreme Court opinions. Busily finishing a book chapter, I did not have time to read Koontz carefully until Friday and of course by that time, I also had a stack of blog postings and news articles to peruse as well by then (Note to self: Post earlier next time so I don't have to read everyone else's posts first and try to avoid repeating them). As so much has already been said (and said better than I could), I am going to highlight the way the case could affect New York law (particularly conservation easements in NY). I get giddy anytime we here the Supreme Court mention conservation easements even when well they aren't really talking about conservation easements.

As we all know by now, there are two intriguing topics in Koontz.

(1) Timing. I like to think of this as when does a takings become a takings even if that is a bit inartfully said. On this point, I think both the majority and the dissent get it right. In thinking about the life of a permit and associated takings case, we generally see a landowner trying to get a permit to build on her property. In exchange for the permit, the permit-issuing agency requires something of the applicant. For example, let's say you want to build on your 10-acre property that is mostly wetlands. The local governement may allow you to build on 2 acres as long as you restrict building on the rest of the property with a conservation easement. Nollan tells us that the government's demand must have a significant nexus with the harm. For example, where the landowner converts wetlands, the exaction should be aboout protecting wetlands or the ecosystem services provided by wetlands. Dolan tells is that the government demand must be roughly proportional to the harm caused. If the property owner is converting 2-acres of wetland to dry land, you need to make sure the exaction compensates for those 2-acres -- requiring creation of a 100-acre wetland park would likely be considered disporportionate (unless you could show that those were some amazing super wetlands that were being destroyed). Okay, so far so good. This has been the established analysis for takings in the exaction context for some years now. This case now says, what if the governement tells the landowner that in return for developing 2-acres, she needs to protect 8 acres and the landowner thinks that is not proportional (i.e., violative of Dolan's rough proportionality rule).

Could our hypothetical landowner challenge this as a takings? Note, nothing has actually been taken at this point. She had not actually given over the 8 acres.

I actually  think that Justice Alito gets it right (not sure I have ever written that phrase before) here when he says, yes. It simply doesn't make sense to go forward with the project and then seek compensation for the 8 acres. This is especially true in the context of exacted conservation easements because they are perpetual. What would we do afterward if a court held that the exaction was too much? It would be pretty hard to change the perpetual conservation easement at that point and compensation can be challenging to calculate. Although I agree with Alito on this principle though, I think Justice Kagan has a better read on the facts in Koontz. Here, it looked like the Water District (the permit agency) and the landowner were in negotiations over what type of exaction might be appropriate. Koontz made an offer. The Water District made a counteroffer, but said it was interested in further negotiations. Instead of more back and forth though, Koontz jumped straight to the lawsuit. I am not sure how to figure out at what point we would say that we have the final word from the agancy and its decision is ripe for review, but it doesn't seem like this should be it. The agency was still in discussions.

It also seems that Alito and Kagan both agree that Koontz doesn't get compensation here, as again nothing was actually taken. Does he get his permit issued though? That doesn't seem quite right to me either. It seems like we should go back to the agency to get another round of negotiations and a chance to impose a proper exaction.

(2) Definitional. Now, this is a question that has been intriguing me particularly since I moved to New York. What constistutes an exaction and therefore requires Nollan/Dolan analysis versus just run-o-the mill Penn Central style inquiry. I have had severeal conversations during my brief academic career on what constitutes an exaction (with Tim Mulvaney almost convincing me that requirements to paint your house a certain color should qualify). Logically, it makes sense that anything we are demanding of the landowner in exchange for a permit is an exaction. Thus, anything that is not the permit application fee or something already required by another law should qualify. Some courts and commentaters assert however that exactions are only interests in land. This has been an interesting issue in New York because of a case called Smith v. Town of Mendon from New York's highest court. In that case, the court confusingly held that a conservation restriction was not an exaction because it there was no public access but because it was bound by precedent the court acknowledged that you could have monetary exactions. In a short piece written between oral argument and the issuance of the opinion in Koontz (for the Environmental Law Section of the NY Bar Association), I discuss the meaning of exactions in New York and ponder the potential implications of Koontz on New York's rules. It seems hard to swallow New York's definition excluding conservation easements in light of this opinion, which seems to read exactions so broadly.

Overall, it is hard not to agree with commenters who believe this decision just makes things messier for courts and complicates land use planning. Tim Mulvaney has a great summary of course, with links to others chiming in.

Jessie Owley

 

July 1, 2013 in Caselaw, Conservation Easements, New York, Supreme Court, Takings, Wetlands | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 11, 2013

Professors' Corner, June 12

It's time once again for the "Professors' Corner" teleconference sponsored by the ABA's Real Property, Trusts, & Estates section.  This month's call features different recent cases to be discussed by John Orth (North Carolina), Tanya Marsh (Wake Forest), and yours truly (South Texas).  See the writeup below for details on the call-in and the cases.  Also, if you're a property or land use prof who might be interested in participating in future calls (I recommend it), get in touch with Tanya.

Matt Festa

Professors’ Corner:  Wednesday, June 12, 2013

Professors’ Corner is a monthly free teleconference sponsored by the ABA Real Property, Trust and Estate Law Section's Legal Education and Uniform Laws Group. Each month’s call features a panel of law professors who discuss recent cases or issues of interest to real estate practitioners and scholars.   Members of the AALS Property Section are invited to participate in the call (as well as to join and become involved in the ABA Real Property, Trust and Estate Law Section).

Wednesday, June 12, 2013

12:30 p.m. Eastern time (11:30 a.m. Central, 9:30 a.m. Pacific). Call is ONE HOUR in length.

Call-in number: 866-646-6488

Passcode: 5577419753

This month’s program involves some recent case developments on issues of interest to both Real Property and Trust and Estate practitioners.  Our featured speakers will be Professors John Orth, Tanya Marsh, and Matt Festa.

John Orth is the William Rand Kenan Jr. Professor of Law at the University of North Carolina School of Law in Chapel Hill, NC, where he has taught since 1978. He teaches Property, Advanced Property, Trusts and Estates, and Legal History. He has published extensively on the subjects of property, legal history, and state constitutional law. Prof. Orth is a contributing author to the treatise Thompson on Real Property for the subject of concurrent estates, and has served as an Associate Editor and a contributor to the American National Biography series.  Prof. Orth will be discussing Reicherter v. McCauley, a Kansas appellate decision addressing whether one joint tenant can effect a “secret severance” of a joint tenancy via a quitclaim deed to himself via a deed executed in anticipation of death.  Time permitting, he will also discussBridgeview Bank Group v. Callaghan, a recent Florida appellate decision addressing whether a creditor may introduce evidence to rebut the presumption that a deed to a married couple was intended to create a tenancy by the entirety.  Here’s a link to Reicherter:  http://www.kscourts.org/cases-and-opinions/Opinions/CtApp/2012/20120713/106622.pdf

And to Callaghan:  http://www.flprobatelitigation.com/uploads/file/4D11-631_op[1].pdf

Tanya Marsh is an Associate Professor of Law at the Wake Forest University School of Law in Winston-Salem, NC, where she began teaching in 2010, following ten years practicing real estate and corporate law in Indianapolis, Indiana. She teaches Property and Real Estate Transactions, and is a contributing editor to the Property Prof Blog. Prof. Marsh is the incoming Chair of the Real Property Division Legal Education Committee for the ABA Real Property, Trust & Estate Law Section.  She will be discussing In re Estate of Whalen, a recent Iowa Supreme Court decision addressing whether Iowa’s Final Disposition Act allows a surviving spouse to disregard the deceased spouse’s written burial instructions.  Here’s a link to the Whalen decision: http://www.iowacourts.gov/Supreme_Court/Recent_Opinions/20130222/12-1927.pdf

Matt Festa is a Professor of Law at the South Texas College of Law in Houston, TX, where he has taught since 2007. He teaches and researches in the areas of property law and land use, state & local government, energy & environmental law, trusts & estates, legal history, and national security law. He is the editor of the Land Use Prof blog.  Matt will be discussing a Texas Supreme Court decision, Texas Rice Land Partners, Ltd. v. Denbury Green  Pipeline — Texas, LLC, in which the Court addressed whether a “common carrier” pipeline company with statutory authority to exercise eminent domain may do so for the construction of a private pipeline.  Here’s a link to the decision: http://www.supreme.courts.state.tx.us/historical/2012/mar/090901rh.pdf

June 11, 2013 in Caselaw, Conferences, Eminent Domain, Oil & Gas, Property, Property Theory, Scholarship | Permalink | Comments (0) | TrackBack (0)

Saturday, May 18, 2013

Stern on State Legislative Checks and Judicial Takings

Here's another recently-posted paper from Stephanie Stern (Chicago-Kent): Protecting Property Through Politics: State Legislative Checks and Judicial Takings, forthcoming in the Minnesota Law Review.  The abstract:

In the 2010 Supreme Court case Stop the Beach Renourishment v. Florida Department of Environmental Protection, a plurality of the Court launched judicial takings in political and scholarly debate and laid the groundwork for expanding the Fifth Amendment to encompass court decisions. This Article explores a neglected institution in the debate over judicial takings — state legislatures. In the comparatively rare instances when state courts overreach, state legislatures can revise state court decisions and restore private property rights. Through case studies of state legislative checks of judicial activism, I examine the comparative institutional advantages, and the potential gaps, of situating primary responsibility for state court revision in state legislatures. In view of takings federalism and the costs of judicial takings, I contend that the existing balance of state legislative checks and state court restraint works well enough to police against state court property activism.

Matt Festa

May 18, 2013 in Caselaw, Constitutional Law, Eminent Domain, Judicial Review, Politics, Property Rights, Property Theory, Scholarship, State Government, Supreme Court, Takings | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 7, 2013

Professors' Corner May 8--Commercial Leasing

As many of you know, the ABA hosts a free "Professors' Corner" teleconference each month, where we have the chance to discuss recent cases and hot topics with scholars and practitioners.  Courtesy of Julie Forrester, here is the info on this month's discussion, which focuses on commercial leasing:

Professors’ Corner is a monthly free teleconference sponsored by the ABA Real Property, Trust and Estate Law Section's Legal Education and Uniform Laws Group. Each month’s call features a panel of law professors who discuss recent cases or issues of interest to real estate practitioners and scholars.   Members of the AALS Real Estate Transactions Section are invited to participate in the call (as well as to join and become involved in the ABA Real Property, Trust and Estate Law Section).

Wednesday, May 8, 2013

12:30 p.m. Eastern time (11:30 a.m. Central, 9:30 a.m. Pacific). Call is ONE HOUR in length.

Call-in number: 866-646-6488

Passcode: 5577419753

This month’s program, moderated by Professor Jim Durham of the University of Dayton School of Law, features a roundtable on Commercial Leasing.  Our two featured speakers will be Professors Celeste Hammond and Professor Daniel B. Bogart, who are co-authors of Commercial Leasing: A Transactional Primer, now in its Second Edition and published by Carolina Academic Press.

Professor Hammond is a Professor of Law and the Director of the Center for Real Estate Law at the John Marshall Law School in Chicago.  Professor Hammond will be discussing “Green” issues in commercial leasing and the implications of this “greening” for landlords, tenants, and their attorneys.  Here is a copy (for your download and preview) of a Powerpoint presentation that will accompany Professor Hammond’s comments:  http://law.missouri.edu/freyermuth/hammondgreenleasing.pptx

Professor Bogart is the Daniel and Marjorie Bollinger Chair in Real Estate Law at Chapman University School of Law, where he serves as both the Associate Dean for Academic Affairs and as the Director of the Center for Land Resources.  Professor Bogart will be discussing some recent leasing decisions of note, including (click on the link for a copy of each decision):

J-Star Holdings, LLC v. The Pantry (Tenn. Ct. App. January 2013) (whether a commercial lease agreement requires the tenant to pay excise taxes imposed on the landlord):  http://www.tncourts.gov/sites/default/files/j-star_opn.pdf

Maida Vale, Inc. v. Abbey Road Plaza Corp., 96 So.3d 1027 (Fla. Ct. App. 2012) (whether a tenant who withheld payment of disputed CAM charges may be evicted for nonpayment of rent): http://www.4dca.org/opinions/August%202012/08-22-12/4D10-2203.op.pdf

Fairfax Portfolio, LLC v. Owens Corning Insulating Systems, 2013 WL 440726 (10th Cir. 2013) (whether a tenant that surrendered the premises without repairing significant property damage as required by the lease can be deemed to have held over while landlord effects repairs so as to permit landlord to collect rent during that period):  http://scholar.google.com/scholar_case?case=16297268405506062242&hl=en&as_sdt=2&as_vis=1&oi=scholarr

Matt Festa

May 7, 2013 in Caselaw, Conferences, Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, March 7, 2013

Sawers on History, Fourth Amendment Searches, and the Right to Exclude

Brian Sawers (Maryland) has posted Keeping Up with the Joneses: Making Sure Your History Is Just as Wrong as Everyone Else's, forthcoming in Michigan Law Review First Impressions, Vol. 111, p. 21 (2013).  The abstract:

Both the majority and concurring opinions in United States v. Jones are wrong about the state of the law in 1791. Landowners in America had no right to exclude others from unfenced land. Whether a Fourth Amendment search requires a trespass or the violation of a reasonable expectation of privacy, government can explore open land without a search warrant.

In the United States, landowners did not have a right of action against people who entered open land without permission. No eighteenth-century case shows a remedy for mere entry. Vermont and Pennsylvania constitutionally guaranteed a right to hunt on open land. In several other states, statutes regulating hunting implied a public right to hunt on (and, by implication, enter) unfenced land.

Matt Festa

March 7, 2013 in Caselaw, Constitutional Law, Crime, History, Property Rights, Scholarship, Supreme Court | Permalink | Comments (0) | TrackBack (0)

Owen on Taking Groundwater

Dave Owen (Maine) has posted Taking Groundwater.  The abstract:

In February, 2012, in a case called Edwards Aquifer Authority v. Day, the Texas Supreme Court held that landowners hold property rights to the groundwater beneath their land, and that a regulatory restriction on groundwater use could constitute a taking of private property. The decision provoked strong reactions, both positive and negative, throughout the world of water law, for it signaled the possibility of severe restrictions on governmental ability to regulate groundwater use.

This Article considers the deeper issue that confronted the Texas Supreme Court, and that has confronted other courts across the country: how should the Takings Clause of the Fifth Amendment, and parallel clauses of state constitutions, apply to groundwater use regulation? Initially, this Article explains why this issue is exceedingly and increasingly important. It then reviews all of the groundwater/takings decisions from federal and state courts in the United States. Finally, the Article considers the implications of foundational property theories for the application of takings doctrine to groundwater use.

The analysis supports two key conclusions. First, it undermines arguments against treating water rights as “constitutional property” — that is, property protected by federal and state takings clauses. Proponents of those arguments generally assert that treating water rights as property has uneven support from prior caselaw and that such treatment will be prevent sensible governance. A review of groundwater caselaw demonstrates that the former assertion runs counter to the weight of authority, and that the fears underlying the latter argument are overstated. Second, and more importantly, the analysis undermines arguments for granting groundwater use rights heightened protection against regulatory takings. Recently, litigants and commentators skeptical of government regulatory authority have widely advanced those arguments. But they find no support in past groundwater/takings caselaw, and no property theory justifies adopting such an approach.

An important issue, and a reminder that state supreme courts continue to play a crucial role in shaping modern property law.

Matt Festa

March 7, 2013 in Caselaw, Constitutional Law, Environmental Law, Property, Property Rights, Scholarship, State Government, Sustainability, Takings, Texas, Water | Permalink | Comments (0) | TrackBack (0)

Friday, February 22, 2013

Eagle on Economic Impact in Regulatory Takings Law

Steven J. Eagle (George Mason) has posted "Economic Impact" in Regualtory Takings Law, forthcoming in the West-Northwest Journal of Environmental Law & Policy.  The abstract:

In Penn Central Transportation Co. v. City of New York the Supreme Court stated that the existence of a regulatory taking would be determined through “essentially ad hoc, factual inquiries,” and that one of three factors of “particular significance” was the economic impact of the regulation on the claimant. This article examines the conceptual problem whereby the Fifth Amendment requires compensation for the taking of property and not a fraction of its owner’s worth. The fact that economic impact of stringent regulations is greater when parcels are smaller has led to a complex “parcel as a whole” test that conflates impact with another Penn Central test, owner’s expectations. Furthermore, application of the impact test to parcels held as investment property might vitiate the temporary taking. The Federal Circuit’s recent abandonment of its prior “return on equity” approach is emblematic of this problem. 

Measuring the economic impact upon owners also is complex where government condemns part of an owner’s parcel, leading to difficulties in computing severance damages. Broad assertions that “offsetting benefits” conferred upon property owners by government actions reduce the impact of regulations also requires clarification. 

The article concludes that unresolved issues and complexities in adjudicating the “economic impact of the regulation on the claimant” test provide an additional reason why the conceptually incoherent Penn Central doctrine must be replaced.

Matt Festa

February 22, 2013 in Caselaw, Constitutional Law, Eminent Domain, Property Rights, Scholarship, Supreme Court, Takings | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 22, 2013

What is the Value of a Historic Facade Easement?

For those of you interested in conservation easements (particularly historic façade easements), you may have been following the Scheidelman saga.The next installment is now out.

In Scheidelman v. Comissioner, T.C. Memo. 2010-151 [Scheidelman I], the landowner sought a deduction for a façade easement burdening her Brooklyn brownstone. The Tax Court disqualified an appraisal because it viewed the method of calculating the easement’s value inadequate. Appraisals must include the method of valuation used as well as the specific basis for the valuation. The appraiser applied a percentage to the fair market value of the property before conveyance of the conservation easement. The Tax Court found that the appraiser had insufficiently explained the method (i.e., the percentage approach) and basis of the valuation (i.e., the specific data used).

The landowner appealed to the Second Circuit. The Second Circuit [Scheidelman II, 682 F.3d 189 (2d Cir. 2012)] reversed the Tax Court, saying that the shortcomings of the approach should not disqualify the appraisal.

On remand [Scheidelman III, T.C. Memo. 2013-18 ], the Tax Court accepted the Second Circuit's assessment that the appraisal was “qualified” but still  thought it was crappy was not credible. You can check out the case if you want to delve into the nitty gritty of appraisal methods. The most problematic issue appeared to be the fact that the appraisal just picked a number between 10 and 12% of the fair market value of the home when trying to determine the value of the conservation easement. The appraiser's reasoned that those are the numbers that courts and the IRS seem to like instead of actually looking at the property and making an assessment.

I am enamored of this case though because in the end the Tax Court said no tax deduction is warranted. The evidence demonstrates that façade easements actually increase the value of homes in this area. Additionally, the landowner herself admitted that she was seeking a tax deduction for something she would have done anyway. Here is my favorite quote from the landowner:

    "Well, I was primarily interested in preserving my house itself in light of the dramatic development     that was occurring in and around Fort Greene during those years and still is. I was also intrigued by     the tax benefit of preserving the facade which I had intended to do anyway. …I also wanted to benefit     tax wise. I didn't know how much I would benefit, but I wanted to benefit from what I was already     intended to be committed to doing."

I have been disturbed fascinated by conservation easement tax deductions that pay owners not to do things they never planned on doing. In understand that there can be some value to the conservation easements becuase perhaps future landowners would have other desires, but it is hard for me to reconcile that worth with the high value of tax deductions current landowners receive. I am glad to see the IRS and Tax Court calling these landowners out. Maybe if a landowner seeks to claim a tax decuction for a conservation easement and we see that the conservation easement increased the value of their land, they should have to pay that difference to the treasury.

Jessica Owley

 

 

 

January 22, 2013 in Architecture, Caselaw, Conservation Easements, Development, Historic Preservation, New York, Property Rights | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 13, 2012

Professors' Corner--Title Insurance and Services

Tanya Marsh has the details for this month's teleconference at Property Prof.  As many of you know, the ABA Section on Real Property, Trust, & Estate Law has been hosting free teleconferences featuring law professors' discussions of recent cases and hot topics in the field.  This month's "Professors' Corner" will focus on recent developments in title insurance and title services.  Here is the info:

Wednesday, November 14, 2012
12:30 p.m. Eastern time (11:30 a.m. Central, 9:30 a..m. Pacific)
Call-in number: 866-646-6488
Passcode: 5577419753

Tanya will moderate the discussion featuring Professors Joyce Palomar (Oklahoma), Barlow Burke (American), and Eileen Roberts (William Mitchell).  Check it out if you are able.  Some of us Land Users have had the opportunity to participate in past months' calls, and it's a great way to stay up to date.

Matt Festa

November 13, 2012 in Caselaw, Conferences, Property, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 10, 2012

Conservation Easements Again: Golf Courses as Natural Habitat?

Some of the most questionable conservation easements are those covering golf courses. A recent summary judgment ruling from the Tax Court highlights the concerns that arise. RP Golf LLC owns 277 acres in Platte County, Missouri where it has two private golf courses. It placed a conservation easement over the golf courses and claimed a $16,400,000 tax deduction (yep that’s $16.4 million to agree not to subdivide its golf courses).

To qualify for tax deductions, conservation easements must have a qualified “conservation purpose” as defined in § 170(h)(4)(A) of the Internal Revenue Code. RP Golf claims that its conservation easements meet two different purpose requirements: (1) open space and (2) natural habitat.

Deductions are allowed for conservation easements that protect open space where such preservation is pursuant to a clearly delineated Federal, State, or local governmental conservation policy. I.R.C. § 170(h)(4)(A)(iii)(II). Missouri does have a general policy to promote open space, but the policy enables counties and the state park board to acquire property rights to protect open space in counties where the population exceeds 200,000.  Mo. Ann. Stat. § 67.870. As Platte County has fewer than 100,000 residents, the court concluded the golf course conservation easements were not acquired pursuant to a conservation policy.

Deductions are also permissible where conservation easements protect relatively natural habitat of fish, wildlife or plants. Perhaps somewhat audaciously, RP Golf contends that its conservation easements protect “relatively natural habitat.” It is always a challenge to determine what is “natural” these days and the court found that there disputed material facts on this issue (thus making it inappropriate for summary judgment).

This little cases raises a lot of issues regarding what we protect for whom along with what we consider natural in our increasingly developed world.

- Jessie Owley

October 10, 2012 in Caselaw, Conservation Easements, Land Trust, Property, Property Rights | Permalink | Comments (0) | TrackBack (0)