Introducing conservation easements as "a subject of great concern to our community," Telluride Mayor John Pryor asked real estate attorney David Kuosman, of the law firm Faegre & Benson, to provide an overview of the subject. Kuosman's colleague, Leslie Fields, represents the Town of Telluride as outside counsel in its condemnation suit against the San Miguel Valley Corporation, owner of the Valley Floor. Kuosman was quick to point out, however, that he has no direct involvement in that case and that he had no interest or intention to "persuade anyone one way or the other" on the question of annexation versus condemnation.
Kuosman defined conservation easements, very broadly, as legal agreements by which rights are conveyed by a landowner who, in turn, is subject to restrictions or limitations. In many instances, landowners also reserve some degree of development rights. Land conveyances are typically to local government entities or to a non-profit land trust. Such an entity serves as trustee of the easement with primary responsibility for monitoring the landowner's adherence to agreed restrictions and enforcing remedies for violations of those restrictions. Any of three types of tax benefits may accrue to the landowner: estate, income, and, property. Conservation easements are perpetual, meaning they run with the land and remain attached to it irrespective of changes in the actual underlying land ownership.
Stating that there were "very strong statutes recognizing conservation easements," Kuosman added that there has been "a huge evolution over the years in conservation easement drafting, monitoring and enforcement." Referring to widely available published standards for the special land conveyance agreements, he said that there is now "more continuity in place," and that "ambiguities are going away." The problems that typically arise between parties to conservation easements, Kuosman explained, stem not from the nature of the contract itself, which is quite straightforward, but from imprecise drafting of the documentation.
The essential imperative in good drafting, the attorney stressed, is "to be as clear, concise and precise as possible about what we intend to restrict or inhibit."
In the case of the easement anticipated by the town council's framework for settlement of its condemnation case against SMVC, Kuosman said that it should be "easier than many transactions" because there is no reservation by the landowner for development rights. He also intimated that it could be difficult for SMVC to make a case to the IRS that its conveyance is a charitable donation, thereby qualifying for a reduction in the company's tax liability, due to the involved bargaining and negotiation of which it is part. The upshot of such a multifaceted deal, Kuosman said, is that the conveyance probably would not be deemed "disinterested generosity," a primary test of a tax-deductible donation.
Following, in paraphrased form, are some of the key questions posed to Kuosman and his answers.
Q: Can a conservation easement be broken?
A: Any contract is subject to contest. There can always be disputes and they are typically the result of different interpretations of the underlying documents. It is imperative to make the language of the agreement as clear as possible.
Q: Regarding restrictions, if something is not specifically listed as allowed, does that mean it's not allowed, and vice versa?
A: There tends to be general language in the agreements that gives an idea of general intention. Giving examples is a good idea and helps drafting better agreements. Commercial development is almost a universal restriction. Giving specific examples of restricted types of commercial development will help reduce ambiguity.
Q: Do the "Essential Elements" provide a reasonable basis of understanding for drafting a good conservation easement document?
A: They provide a basic framework, a skeleton, with lots of room to put on meat. The process of drafting starts with both sides sitting down and trying to map out what their respective expectations are, which results in an initial basic document. Going from that document to an actual conservation easement is a lot of work.
Q: Is seven months time enough to finalize all the details of the contemplated Valley Floor conservation easement?
A: I cannot see any reason why not. The inclusion of a management plan to do with river restoration, and the need for data such as baseline inventory reports to support a plan, take time. But the document itself can be done well within seven months.
Q: How does the choice of conservation easement versus condemnation direct us as a community to look at future open space opportunities?
A: Conservation easements have been the backbone of the land conservation movement around the world. I don't think there are any negative connotations. It is a much more economical way to preserve large tracts of open space. You can acquire the restrictions that are near and dear to you without paying fair market value for the land.
Q: Do we get more with an easement than through condemnation?
A: Ownership of land by fee title gives an entire bundle of rights. You won't get fee title through an easement as you would through successful condemnation, that remains with the owner. But the rights you do get, by way of the negotiated restrictions on the owner, may be the critical components you're trying to preserve.
Q: If the landowner has debt against the property, how do the secured lender's rights affect the conservation easement?
A: One of the fundamental practices is to subordinate mortgages to conservation easement restrictions.
Q: Can we control sale of the property?
A: Not unless you have negotiated a right of first refusal or first option to purchase. Otherwise, it is strictly up to the owner, SMVC, to choose a buyer. Any sale, however, will be strictly subject to the conservation easement.
Q: If the town obtained the Valley Floor through condemnation, could it put it into a conservation easement and, if so, would there be tax benefits for the town?
A: Yes, the town could. No, as a tax exempt entity the town could not take advantage of tax benefits or pass them on to others.
In some instances, questions from the public were either outside of Kuosman's ability to answer or were targeted expressly at town councilmembers.
Local attorney and former councilmember Jenny Russell questioned the extent of encumbrance on water rights that would be included in the proposed conservation easement. Councilmember Mallory Dimmitt explained that certain water rights were being conveyed to town but that SMVC had negotiated some retention of rights because of concerns about meeting the water needs of its proposed development. Those needs, said Dimmitt, to the extent they did not affect the water needs of the wetlands, had been agreed to be met by the town. Russell pressed on, asking if SMVC would, under the terms of the easement, have rights to water over and above their development needs and was told it would, provided the wetlands requirements were satisfied.
Toodie Stone, saying that she was confused by hearing "so many conflicting things," asked about the public's ability to control the final terms of the conservation easement and related annexation and development agreements.
"If we are unable to reach an annexation…if at any point we decide this is not working, we can walk away," answered Dimmitt.
"This council is prepared to walk away," said Pryor. "It is my belief that we will all vote on this again," he added. "I fully expect a referendum from the public if we don't like this." Pryor was referring to a 30-day referendum period contemplated by the settlement framework that would allow the public, based on 97 signatures, to call another special election after having the chance to see the details of all the agreements negotiated between the town and SMVC.
Local environmentalist Linda Miller questioned the feasibility of working out the terms of the contemplated five-year river restoration plan within the coming seven months. Dimmitt's response was that it was typical to reserve the right to agree to the plan subsequent to finalizing and signing annexation, development and easement agreements.
On the question of the order and timing of those various agreements, Eileen McGinley, an outspoken critic of the council's annexation proposal, was confused. She questioned the risk of agreeing to annexation and development before finalizing the conservation easement. By repeated attempts, council members tried to explain to her the concept of a simultaneous closing, that all the agreements covering all three major parts of the settlement would be agreed in concurrence, and then signed in order at one closing. And that good faith language within the agreements would prohibit SMVC from reneging on the easement agreement after the annexation and development agreements had been signed. It was an interlude marked by impatience on both McGinley's and the council's side and, eventually, Pryor felt compelled to bring his gavel to bear.
Similar impatience ensued between the council and its former member Hilary White Coe. White Coe said she had "tremendous faith in conservation easements" and "a lot of faith in our state constitution." She pointed out, however, that SMVC "has a challenge out to that constitution" and speculated that "maybe they will challenge conservation easements." White Coe went on to question whether or not The Nature Conservancy, a land trust to which both Pryor and Dimmitt are affiliated, had been involved in the council's easement discussions or whether "any promises had been made" to the trust.
"Absolutely not," answered Pryor.
"I hate to be cynical, but this is like putting a conservation easement on the golf course at Mountain Village," White Coe then said and launched into something of a diatribe against the limited development plan that forms an essential element of the council's proposed settlement agreement. At that point, Pryor again interceded and White Coe's turn at the speaker podium was curtailed. It was then up to Elizabeth Gick to scold council for failing to be appropriately open to collaborative discussion. "This is more about conversation than conservation," she said.
Council's next open forum will be held at its regular meeting next Tuesday in Rebekah Hall. The topic will be river restoration.