Amending and Terminating Perpetual Conservation Easements By

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Amending and Terminating Perpetual Conservation Easements

By Nancy A. McLaughlin and Benjamin Machlis

ver the past several decades, landowners have

donated perpetual conservation easements en-

cumbering millions of acres to government entities

government entities, in whole or in part, as charitable gifts and

for which the donor claims or could claim federal tax benefits

(tax-deductible conservation easements). This article is not in-

and to charitable conservation organizations known as

land trusts. Landowners make these charitable gifts for a

number of reasons, including a desire to ensure the perma-

nent protection of their land and to take advantage of tax

benefits.

Until fairly recently, little consideration has been given

to precisely what it means to protect land “in perpetuity”

with a conservation easement. But as perpetual conserva-

tion easements have begun to age, and the protected lands

have begun to change hands, questions have arisen re-

garding the circumstances under which these instruments

can be amended or terminated.

This article outlines the current guidance on this

issue and offers some drafting suggestions. Because

of space constraints, it focuses on perpetual conserva-

tion easements donated to land trusts or state and local

Nancy A. McLaughlin is the Robert W. Swenson

Professor of Law at the University of Utah S.J Quinney

College of Law in Salt Lake City, Utah, and the associate

editor for probate and trust for the Real Property, Trust and

Estate Law Journal. Benjamin Machlis is a third-year

student at the College of Law.

52 PROBATE & PROPERTY J JULY/AUGUST 2009

tended to imply that conservation easements conveyed in other

contexts will not be subject to the same or similar equitable

principles.

Conservation Easements as Charitable Trusts

A number of sources indicate that tax-deductible conservation

easements will be treated as charitable trusts under state law

and, thus, that such easements can be terminated, or amended in

a manner contrary to their charitable conservation purposes,

only in cy pres or similar equitable proceedings.

Restatements and Uniform Laws

Comment a to section 28 of the Restatement (Third) of Trusts

(2003) provides that a gift made to a charitable institution to be

used for a specific charitable purpose, as opposed to the instiŧu

tion’s general purposes, creates a charitable trust of which the

institution is the trustee. This principle also generally applies

to gifts made for specific charitable purposes to state and local

government entities. Tax-deductible conservation easements

are donated in whole or in part to government entities and land

trusts to be used for a specific charitable purpose—the protec-

tion of the particular land encumbered by the easement for one

or more of the conservation purposes enumerated in the Code

in perpetuity (all references herein to the

Code are to the Internal Revenue Code of

1986, as amended). According-

ly, the donation of a tax-deductible con-

servation easement should be treated as

creating a charitable trust of which the

acquiring entity is the trustee.

In some jurisdictions, courts refer to

gifts made to government or charitable

entities to be used for specific charitable

purposes, not as charitable trusts, but

as implied trusts, quasi-trusts, restricted

charitable gifts, or public trusts. Re-

gardless of the term used, the substan-

tive rules governing the administration

of charitable trusts (including cy pres)

generally apply, although some proce-

dural rules applicable to formal trusts

(such as those relating to accountings)

do not.

The Uniform Conservation Ease-

ment Act (UCEA) is consistent with

the Restatement (Third) of Trusts. The

UCEA was approved by the Uniform

Law Commission (ULC) in 1981 and

has been adopted by 24 states and the

District of Columbia. Although UCEA

§ 2(a) provides that a conservation

easement may be modified or term-

nated “in the same manner as other

easements” (that is, by agreement of the

holder of the easement and the owner

of the encumbered land), section 3(b)

states that “[t]his Act does not affect the

power of a court to modify or terminate

a conservation easement in accordance

with the principles of law and equity.”

In the comment to section 3, the draft-

ers explained that the UCEA leaves

intact the existing case and statutory

law of adopting states as it relates to the

modification and termination of ea -

ments and the enforcement of charitable

trusts and that, independent of the

UCEA, the state attorney general could

have standing to enforce a conservation

easement in his capacity as supervi-

sor of charitable trusts. In other words,

the UCEA does not and was never

intended to abrogate the well-settled

principles that apply when property,

such as a conservation easement, is con-

veyed as a charitable gift to a govern-

ment or charitable entity to be used for

a specific charitable purpose.

To confirm its intention that con-

servation easements be enforced as

charitable trusts in appropriate cir-

cumstances, the ULC amended the

comments to the UCEA in 2007. The

amended comments provide that,

because conservation easements

are conveyed for specific charitable

purposes, the existing case and statu-

tory law of adopting states as it relates

to the enforcement of charitable trusts

should apply to conservation ease-

ments. The comments also provide

that, notwithstanding UCEA § 2(a), the

entity holding a conservation easement,

in its capacity as trustee, can be pro-

hibited from agreeing to terminate the

easement (or modify it in contravention

of its purpose) without first obtaining

court approval in a cy pres proceeding.

The Uniform Trust Code (UTC)

was approved in 2000 and has been

adopted by 20 states and the District of

Columbia. Like the UCEA, the com-

ments to the UTC (§ 414) provide that

the creation and transfer of a conserva-

tion easement will frequently create

a charitable trust; the organization to

which the easement is conveyed will

be deemed to be acting as trustee of

what will ostensibly appear to be a

contractual or property arrangement;

and, because of the fiduciary obligation

imposed, the termination or substan-

tial modification of the easement by

the trustee can constitute a breach of

trust. The comments to the UCEA and

the UTC are likely to be relied on as a

guide in interpreting those acts so as to

achieve uniformity among the states

that have enacted them.

Finally, section 7.11 of the Restate-

ment (Third) of Property: Servitudes

(2000) provides that the modification

and termination of conservation ease-

ments should be governed, not by the

real property law doctrine of changed

conditions, but by a special set of rules

based on the charitable trust doctrine of

cy pres. In their commentary, the draft-

ers explain that, because of the public

interests involved, these servitudes are

afforded more stringent protection than

privately held conservation servitudes.

Federal Tax Law

Under federal tax law, the gift of a tax-

deductible conservation easement must

effectively be in the form of a restricted

charitable gift or charitable trust.

 The easement must be conveyed

as a charitable gift to a govern-

ment or charitable entity for a

specific charitable purpose—the

protection of the particular land

encumbered by the easement for

one or more of the conservation

purposes enumerated in the Code

in perpetuity. See generally Code

§ 170(h); Treas. Reg. § 1.170A-14.

 The easement must be expressly

transferable only to another quali-

fied entity that agrees to continue

to enforce the easement. See Treas.

Reg. § 1.170A-14(c)(2).

 The easement must be extinguish-

able by the holder only in what

essentially is a cy pres proceed-

ing—in a judicial proceeding,

upon a finding that the continued

use of the land for conservation

purposes has become “impossible

or impractical,” and with the pay-

ment of a share of the proceeds

from the subsequent sale or devel-

opment of the land to the holder

to be used for similar conservation

purposes. See id. § 1.170A-14(g)(6).

 The interest in the land retained

by the donor must be subject to

legally enforceable restrictions

that prevent any use of the land

inconsistent with the easement’s

purpose. See id. § 1.170A-14(g)(1).



At the time of the donation, the

possibility that the easement will

be defeated must be so remote as

to be negligible. See id. § 1.170A-

14(g)(3).

Because federal tax law contem-

plates that conservation easements will

be extinguished only in cy pres pro-

ceedings (or through condemnation),

Congress is apparently relying on state

charitable trust law for the enforcement

of such easements over the long term.

This reliance is appropriate. The regula-

tion of the behavior of charitable fidu-

ciaries is principally a state, rather than

a federal, function. State judges and

attorneys general have the greatest ex-

pertise in disputes involving nonprofit

governance and fiduciary responsibili-

ties, and state courts, rather than the

PROBATE & PROPERTY J JULY/AUGUST 2009 53

Tax Court or the IRS, possess the broad

range of equitable powers necessary to

protect assets dedicated to charitable

purposes. In fact, state attorneys gen-

eral are increasingly recognizing their

right and obligation, as supervisors of

charitable gifts and trusts, to enforce

conservation easements on behalf of the

public.

Cases and Controversies

A number of cases and controversies

also indicate that conservation ease-

ments are likely to be treated as restrict-

ed charitable gifts or charitable trusts

under state law.

r In re Preservation Alliance for

Greater Philadelphia, O.C. No. 759

(Ct. Com. Pl. of Philadelphia

County, Pa. June 28, 1999), the

court applied the doctrine of cy

pres to authorize termination of

a perpetual façade easement en-

cumbering an historic building af-

ter finding that the building could

not be restored to any proper use.

In Consent Judgment

State v.

Miller, No. 20-C-98-003486 (Md.

Cir. Ct. July 16, 1999), the court

approved the settlement of a suit

involving the attempted “amend-

ment” of a perpetual conservation

easement encumbering a 160-acre

historic tobacco plantation located

on the Maryland Eastern Shore to

allow a seven-lot upscale subdivi-

sion on the property. The state

attorney general had filed suit

asserting that the easement consti-

tuted a charitable trust that could

not be amended as proposed

without receiving court approval

in a cy pres proceeding. As part

of the settlement, the landowner

and easement holder agreed that

any action contrary to the express

terms and stated purposes of the

easement was prohibited and

that no action could be taken to

amend, release, or extinguish the

easement without the express

written consent of the attorney

general.

r *In final order Tenn. Envtl.

Council v. Bright Par 3 Assocs., L.P.,

No. 03-0775 (Ch. Ct. Hamilton

54 PROBATE & PROPERTY J JULY/AUGUST 2009

County, Tenn., Dec. 19, 2006), the

court approved the settlement of

a suit involving a four-lane road

constructed across land protected

by a perpetual conservation

easement to provide access to an

adjacent Wal-Mart Supercenter.

Two nonprofit organizations and

a private citizen had sued the

owner of the encumbered land

(the development corporation

that had sold the adjacent land to

Wal-Mart) and the holder of the

easement (the city of Chattanoo-

A variety of laws must be

considered when contemplating

the amendment of a conservation

easement consistent with its

charitable conservation purpose,

including charitable trust

principles, federal tax laws, and

the relevant state easement-

enabling statute.

ga) objecting to the construction.

In the settlement, the develop-

ment corporation agreed to

(1) convey a replacement parcel of

land and $500,000 to the plaintiffs

to be used for similar conserva-

tion purposes and (2) pay the

plaintiffs’ not insubstantial legal

fees. In approving the settlement,

the court concluded that the char-

itable purpose of the easement

had become, in part, “impossible

or impractical,” and the prop-

erty and cash transferred to the

plaintiffs constituted a reasonable

and adequate substitute for any

portion of the property that may

have been affected or taken as a

result of the road construction.

r Hicks v. Dowd, 157 P.3d 914 (Wyo.

2007), involved a perpetual

conservation easement encumbering

an approximately 1,000 acre ranch

located in Johnson County, Wyo-

ming. A partnership had donated

the easement to the county in 1993

and claimed a federal charitable

income tax deduction of over $1 mil-

lion. The partnership later sold the

land, subject to the easement, to the

Dowds. When the energy company

that owned the minerals underly-

ing the land and was not subject to

the easement engaged in minimal

drilling on the property, the Dowds

persuaded the county to transfer the

easement to them for the purpose of

terminating the easement. A resident

of the county (Hicks) sued, alleg-

ing that the county could not agree

to terminate the easement without

receiving court approval in a cy pres

proceeding. In 2007, the Wyoming

Supreme Court dismissed the case

on the ground that Hicks did not

have standing to sue to enforce a

charitable trust but invited the state

attorney general, as supervisor of

charitable trusts, “to reassess his po-

sition” on the case. In July 2008, the

attorney general filed a complaint

in district court requesting that the

deed transferring the conservation

easement to the Dowds be declared

null and void. The complaint al-

leged, among other things, that the

county violated its fiduciary duty to

assure the ranch’s permanent protec-

tion and to have a judicial determi-

nation made of impossibility before

terminating the easement. This case

was still pending on the date of pub-

lication of this article.

Amending Conservation

Easements

A variety of laws must be considered

when contemplating the amendment of a

conservation easement consistent with its

charitable conservation purpose, includ-

ing charitable trust principles, federal tax

laws, and the relevant state easement-

enabling statute.

Charitable Trust Principles

Flexibility to modify conservation ease-

ments in manners consistent with their

charitable conservation purposes is often

built into easements in the form of an

amendment provision. The typical

amendment provision grants the gov-

ernment or nonprofit holder the express

power to agree to amendments that are

consistent with or further the conserva-

tion purpose of the easement. Absent

an amendment provision, the holder

might be deemed to have the implied

power to agree to certain amendments

that are consistent with the purpose

of the easement or could seek court

approval of such “consistent” amend-

ments in a more "exible administrative

(or equitable) deviation proceeding. But

the outright termination of a conserva-

tion easement, or its modification in

a manner inconsistent with its stated

purpose (such as to permit subdivision

and development of the land), should

require court approval in a cy pres or

similar equitable proceeding (as is con-

templated under federal tax law).

Federal Tax Laws

The requirement under Code § 170(h)

(5)(A) that the conservation purpose of a

tax-deductible easement be “pro-

tected in perpetuity” should establish

the basic parameters for a permissible

grant of amendment discretion to the

holder. The conservation purpose of

an easement would not be protected

in perpetuity if the easement could be

amended in manners that adversely

affect or change such purpose. Alter-

natively, the conservation purpose of

an easement would not be jeopardized

if the holder is given the discretion to

agree to only those amendments that

further, or are consistent with, such

purpose. No formal guidance has

yet been issued, however, on permis-

sible amendments to tax-deductible

conservation easements. Accordingly,

the typical amendment provision

authorizes only amendments that are

consistent with or further the conserva-

tion purpose of an easement and ad-

ditionally provides that amendments

may not adversely affect the qualifica-

tion of the easement or the status of the

holder under Code § 170(h). The type

of amendment that would satisfy these

requirements is, at this point, unclear.

In a 2005 report on The Nature

Conservancy, the Staff of the Senate

Finance Committee noted that modifi-

cations to tax-deductible conservation

easements to correct ministerial or

administrative errors are permitted.

The Staff expressed concern, however,

about “trade-off” amendments, which

both negatively affect and further the

conservation purpose of an easement

but, on balance, are arguably consis-

tent with or further such purpose. The

Staff explained that the weighing of

increases and decreases in conservation

benefits is difficult to perform by the

holder and to assess by the IRS.

Government entities and land trusts

also must be mindful of the effect

amendments may have on their ability

to continue to accept tax-deductible

conservation easement donations. To

be considered an “eligible donee,” an

entity must “have a commitment to

protect the conservation purposes of

the donation” and “the resources to

enforce the restrictions.” Treas. Reg.

§ 1.170A-14(c)(1). Although the Trea-

sury Regulations provide that a con-

servation group organized or operated

primarily or substantially for one of

the conservation purposes specified in

Code § 170(h) (as most land trusts are)

will be considered to have the requisite

“commitment,” and the donee need

not set aside funds to enforce the ease-

ment, the IRS might nonetheless take

the position that an entity that agrees

to amend the conservation easements it

holds in contravention of their conser-

vation purposes is no longer an eligible

donee. The IRS also might take the

position that the conservation purposes

of easements donated to such an entity

are not “protected in perpetuity” as

required under Code § 170(h)(5)(A).

Finally, private inurement or private

benefit can occur when a charitable

organization sells or exchanges its

property for less than fair market

value. Although no formal guidance on

this topic has been issued, a land trust

that agrees to amend a conservation

easement in a manner that increases

the value of the encumbered land and

confers an economic benefit on the

landowner would presumably vio-

late the private inurement or private

benefit prohibition and thereby trigger

intermediate sanctions or jeopardize

its tax-exempt status. States and

subordinate government entities are

generally subject to a similar prohibi-

tion on conveying public property to

private individuals pursuant to state

constitutions.

Easement-enabling Statutes

All 50 states and the District of Co-

lumbia have enacted some form of

easement-enabling statute. Many

states have adopted the provision in

the UCEA that provides that a con-

servation easement can be modified

or terminated “in the same manner

as other easements.” As discussed

above, however, that language was

not intended to abrogate the principles

that apply when property, such as a

conservation easement, is conveyed as

a charitable gift to a government entity

or charitable organization to be used

for a specific charitable purpose. Ac-

cordingly, the entity holding a donated

conservation easement should agree to

modify the easement consistent with

its stated purpose only in accordance

with its express power to amend (as set

forth in an amendment provision), in

accordance with its implied power to

amend, or with court approval ob-

tained in an administrative deviation

proceeding.

A few easement-enabling statutes

provide that a conservation easement

can be modified or terminated (or

converted or diverted) upon satis-

faction of certain conditions, such

as the holding of a public hearing

or approval of a public official. As

with the UCEA, however, there is no

indication that these statutes were

intended to abrogate the principles

that apply when property, such as a

conservation easement, is conveyed

as a charitable gift to be used for a

specific charitable purpose. Moreover,

if conservation easements could be

amended or terminated upon satisfac-

tion of only the conditions in a state’s

enabling statute, and those conditions

are not consistent with the require-

ments set forth in Code § 170(h) and

the Treasury Regulations, conserva-

tion easements conveyed in the state

should not be eligible for federal tax

incentives.

PROBATE & PROPERTY J JULY/AUGUST 2009 55

Bjork v. Draper

In Bjork v. Draper, 886 N.E.2d 563 (Ill.

App. Ct. 2008), app. den., 897 N.E.2d

249 (Ill. 2008), the court invalidated

amendments to a perpetual conserva-

tion easement that a land trust ap-

proved at the request of new owners

of the encumbered land. The land trust

argued that the state enabling statute,

which provides that a conservation

easement can be released by its holder,

gave it the right to release or amend the

easement at will, regardless of

(1) the status of the easement as a tax-

deductible perpetual charitable gift,

(2) the easement’s charitable purpose,

which is to retain “forever” the scenic

and open space condition of the

grounds of an historic home,

(3) provisions in the easement ex-

pressly prohibiting some of the activi-

ties authorized by the amendments,

and (4) the provision in the easement

requiring that the easement be extin-

guished, in whole or in part, only by a

judicial proceeding. Although the court

noted that the easement contemplated

amendments, and that protecting the

conservation purpose of an easement in

perpetuity does not necessarily mean

that the language of the easement can

never be changed (the court explained

that an easement could be amended

to add land, which would most likely

enhance the easement’s purpose), the

court concluded that “no amendment

is permissible if it con"icts with other

parts of the easement.” The court was

not presented with and, thus, did not

address the argument that the conserva-

tion easement constitutes a restricted

charitable gift or charitable trust, which

may have afforded the court some "ex-

ibility to ratify amendments if any were

consistent with the easement’s purpose.

The court did, however, properly hold

that tax-deductible perpetual conserva-

tion easements may not be substantially

amended or released by their holders

at will.

Drafting Suggestions

Protecting Donor Intent

Many landowners donate conservation

easements because they have a strong

personal connection to their land and

56 PROBATE & PROPERTY J JULY/AUGUST 2009

desire to see that land permanently pre-

served in the manner set forth in the

easement. Although it is well settled

that use of the word “trust” or “trustee”

is not necessary to create a trust rela-

tionship, and conservation easements

not containing such terms nonetheless

should be treated as restricted charita-

ble gifts or charitable trusts, to provide

even greater assurance that the holder

of a conservation easement will enforce

the easement according to its carefully

negotiated terms and stated purpose,

the easement could explicitly tie the

gift to charitable trust principles. For

example, the easement could specifi-

cally provide that (1) it is conveyed to

the donee as a charitable gift to be held

in trust for the benefit of the public for

the charitable purpose stated in the

easement, (2) the donee can agree to

amend the easement only as provided

in the amendment provision, and

(3) the donee can agree to terminate

the easement, in whole or in part, only

as provided in the termination provi-

sion, which should comply with the

requirements of Code § 170(h) and the

Treasury Regulations and reference

the doctrine of cy pres or its equivalent

under the relevant state’s law.

The landowner’s attorney also

should (1) review the donee’s amend-

ment policies and procedures, (2) dis-

cuss with the donee the donee’s inter-

pretation of the standard amendment

provision (for example, does the donee

take the position that such provision

grants it the right to agree to trade-off

amendments or remove land from the

easement’s protections?), and (3) if the

donee is a charitable organization, re-

view the schedules to IRS Form 990 on

which the donee was required to report

the number of easements it modified

or extinguished during the taxable

year. The landowner also may wish to

customize the standard amendment

provision to, for example, preclude

the donee from agreeing to amend

the easement to increase the level of

residential development permitted on

the property, which the donee might

view as a permissible component of a

trade-off amendment.

Finally, the landowner’s attorney

should explore additional enforcement

options, such as providing in the ease-

ment (1) that the landowner and his

heirs or other family members have

standing to sue the holder to redress a

breach of trust or (2) for a “gift over” of

the easement (and accompanying stew-

ardship endowment) to another quali-

fied entity in the event of such a breach.

Providing Flexibility

To provide the "exibility needed to

respond to changing social, economic,

and environmental conditions, govern-

ment entities and land trusts should

negotiate for the inclusion of a standard

amendment provision in the conserva-

tion easements they accept. They should

also discuss their amendment policies

and procedures and their interpretation

of the standard amendment provision

with prospective easement donors so

there is no confusion or misunderstand-

ing regarding their intent to agree to

amendments that are consistent with

or further the conservation purpose of

an easement. If a landowner refuses to

grant the desired level of amendment

discretion, the donee can decline to

accept the easement. Alternatively, the

donee can accept the easement knowing

it has less discretion to agree to amend-

ments than is granted in a standard

amendment provision. Donees also

should consider when it is (and is not)

appropriate to protect land in perpetu-

ity with a conservation easement. In

appropriate circumstances, more "exible

land protection tools, such as leases or

management agreements, should be

employed.

Conclusion

Lawyers assisting easement donors

and donees should have a thorough

understanding of the various laws that

can affect the administration of perpet-

ual conservation easements. Although

the law in this area is still develop-

ing, much can be done to ensure that

conservation easements are drafted to

comply with all relevant laws, carry out

the landowners’ intent, and provide

easement holders with the "exibility

needed to administer easements con-

sistent with their overall charitable con-

servation purposes in light of changing

conditions. ■