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Provisions requiring payments by owners of eased land to the easement holder upon each transfer of the land may be placed in the document that grants a conservation easement. This guide suggests best practices and provides sample provisions to maximize the effectiveness of this strategy for funding easement stewardship.
This guide is intended for application in Pennsylvania, where use of transfer fees in support of conservation easements is clearly permissible under the law. The law is not consistent from state to state.
A land trust cannot meet its obligation to monitor land under conservation easement and uphold an easement’s conservation objectives and restrictive covenants without adequate funding. Obtaining funds that can support the land trust in carrying out its duties in perpetuity presents a major challenge. Funding commitments from easement-granting landowners—typically a conservation project’s strongest supporters—play a critical role in meeting the land trust’s funding need.
When seeking these commitments, land trusts employ various strategies to balance the need for sufficient funds to support the land trust’s long-term costs with the need for the amount requested of landowners to be affordable and acceptable. The WeConservePA guide Stewardship Funding Arrangements: Options for Financing the Obligations of Conservation Easement Holders reviews these strategies.
A compelling strategy with a winning track record involves obtaining a financial commitment from the landowner that binds not only them, but future owners as well. In other words, the burden of the commitment is spread over many generations of owners rather than only the owner who grants the easement. This type of promise is commonly referred to as a “running cov-enant”—a covenant that obligates each successive owner by virtue of their ownership. For this type of forward-looking commitment, careful drafting is essential to ensure adherence to the promise. Issues of enforceability of running covenants are addressed in the WeConservePA guide Legal Considerations for Stewardship Funding Arrangements.
A threshold requirement to establish a running covenant is ensuring that every future owner will be on legal notice that the covenant exists. This is accomplished by ensuring the commit-ment appears in the public record. To bind future owners to a funding commitment made by the present landowner for easement stewardship, two primary approaches are available:
Among its advantages, the free-standing covenant may be used to grant to the easement holder a security interest (mortgage) in the conserved property, which reduces the risk of non-payment by owners. The guide Stewardship Funding Arrangements reviews this approach, and for those using it, WeConservePA provides the Model Stewardship Funding Covenant.
Despite the compelling reasons to use a separate instrument, there are arguments for implementing a covenant for funding easement stewardship within the grant of easement itself. Most notably, this approach seems more acceptable or easier to implement for both landowners and land trust staff. Stewardship Funding Arrangements also reviews this alternative.
Much of the content of the Model Stewardship Funding Covenant can be adapted for use in drafting a funding covenant to be placed in the easement instrument. This guide supplements the model's material with specific guidance for placing the covenant in the easement instrument.
Barring extraordinary error, a stewardship funding covenant recorded in the public records as its own distinct document will be noted as a discrete line item on a buyer’s title report. A funding covenant placed within the grant of easement stands a much greater chance of being missed in the title work.
If the parties fail to identify the payment obligation prior to the sale transaction, the right of the easement holder to collect is not waived, but the best opportunity to receive payment will be missed. When the obligation is recognized and considered prior to closing, the required amount may be listed as a line item on the settlement statement and paid out of funds collected from the parties at the closing table. If that opportunity is missed, collecting the payment can become arduous.
To ensure that attention, drafters should presume that no future party will read past the first page of the grant of easement. As such, conspicuous notice should be included on the first page, stating for example:
NOTICE: FUNDS DUE UPON TRANSFER OF PROPERTY. Section 8.14 of this Grant requires payment to Holder upon each Transfer.
The ideal place for this notice is typically above the document title, but below the space reserved for the recording caption. Consider using a bolded font, text size larger than the body text of the document, or other techniques that help the text draw a reader’s eye. Include a clear reference to the article or section where the covenant is located in the document.
Drafters may go further, summarizing the substance of the commitment. For example, in the case of a transfer payment based upon a fraction of the sale price of the property:
NOTICE: A payment equal to one percent of the Fair Value of the Transfer is due upon each Transfer of the Property. See article 8 of this Grant.
Prominent notice also serves to draw the attention of a casual reviewer of the easement to the existence of the obligation.
A grant of conservation easement serves the fundamental purpose of empowering the holder to block land uses inconsistent with the conservation objectives. Affirmative obligations, including stewardship funding covenants, constitute a peripheral matter—functionally distinct from the servitude established by the grant. While choice of location of a funding covenant within the document is unlikely to impact the covenant’s legal effect, placing the covenant with other miscellaneous provisions is sensible and avoids disrupting the logical ordering of provisions and flow of text focused on the grant’s primary function. For example, when using WeConservePA’s Model Grant of Conservation Easement and Declaration of Covenants, the covenant could be placed in article 8 “Miscellaneous” (with notice of the covenant placed on the first page of the document).
As described in Legal Considerations for Stewardship Funding Arrangements, a stewardship funding covenant enforceable over multiple ownerships must meet the legal requirements of a running covenant. It must state the intention of the parties to establish a running covenant, describe the method by which payments will be calculated, and articulate the purpose of the covenant. Drafters of stewardship funding provisions in grants of conservation easement may adapt one or more of the covenant provisions found in the Model Stewardship Funding Covenant, with careful attention paid to defined terms and internal references.
Grants of conservation easement—at least those of any conservation value—are written to run with the land, all future owners of the property being bound to its covenants. Most likely, this applies to all covenants within the grant, including affirmative payment obligations. However, to avoid any doubt on the matter, include a covenant-specific preamble with legally operative language to ensure the obligation’s enforceability against future owners of the property. For example:
The undersigned Owner or Owners, on behalf of themselves and all future Owners, covenant to Holder, as a covenant running with the land, to make payments to Holder as follows . . .”
Under Pennsylvania law, to enforce a payment obligation against future owners, the covenant must “touch and concern the land.” In other words, the land must be benefited in some way by the payment. A payment obligation that doesn’t have a clear nexus with the property burdened by the obligation will not be enforceable. (Legal Considerations for Stewardship Funding Arrangements examines this in detail.) To inoculate a stewardship funding covenant from future attack on this basis, include a clear, concise statement of the purpose for the payment. Examples of purpose statements for a variety of funding covenants are provided in article 2 of the Model Stewardship Funding Covenant. One or more of these provisions may be adapted for use within a grant of conservation easement.
For example, the following provision establishes a percentage-based payment due upon transfer, with a statement explaining its purpose:
A payment equal to __% of the Fair Value of the Transfer is due upon each Transfer of the Property. “Fair Value of the Transfer” means the greater of (a) the actual sale price (if applicable); or (b) the computed value of the property as calculated for transfer tax purposes (county-assessed value multiplied by the common level ratio factor for the county in which the Property is located). This arrangement is made in recognition of Holder’s perpetual obligation to uphold the Conservation Easement, to otherwise advance the Conservation Objectives of the Conservation Easement, and—together with Holder's other arrangements—to ensure Holder’s continuing and durable capacity to carry out its charitable mission to protect and care for land, including the Property.
Finally, the funding commitment should include any applicable provisions limiting, clarifying or qualifying the particular covenant. For example, see the content of article 3 of the Model Stewardship Funding Covenant.
The following sample stewardship funding covenant, designed for placement in an easement granting document based on the Model Grant of Conservation Easement and Declaration of Covenants, implements percentage-based payments due upon each transfer of ownership of an eased property. (As previously discussed, it needs to be coupled with a notice placed on the first page of the grant.)
8.14 Stewardship Funding Covenant
The undersigned Owner or Owners, on behalf of themselves and all future Owners, covenant to Holder, as a covenant running with the land, to make payments to Holder as follows:
Use of stewardship funding covenants necessitates an adjustment to recordkeeping practices. A formal schedule that lists each existing funding covenant along with relevant events (transfers, payments, assumptions, interest charges, etc.), together with procedures for maintaining the schedule, will enable the organization to monitor and enforce the funding obligations with precision and authority.
Express assumption of stewardship funding obligations by a successor landowner is a condition for waiving payments otherwise due with an “Exceptional Transfer.” Assumption can be accomplished with a simple writing that evidences the landowner’s intent to be legally bound by the promise. For example:
_________(“Successor Owner”) [intends to acquire/has acquired] the interest of _________(“Prior Owner”) in the property known as _______ (the “Property”), which is burdened by that certain [Grant of Conservation Easement/Stewardship Funding Covenant] in favor of ______ [easement holder] dated as of _______, which includes, in article 8, a stewardship funding covenant (the “Covenant”). Intending to be legally bound, Successor Owner hereby expressly assumes Prior Owner’s obligations under the Covenant including the obligation to make payments under the Covenant coming due during Successor Owner’s period of ownership.
If the funding arrangement involves one or more payments that came due under the prior owner, but is not in default at the time of transfer, the following text can be added to the end of the preceding provision:
. . . and any payments that arose prior to, and remain unpaid as of the date of, the acquisition of Successor Owner’s interest in the Property.
