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A landowner may agree to funding arrangements that require the landowner or successor owners of an eased property to make one or more payments to the easement holder to support stewardship of the property. An understanding of what makes promises binding is critical for crafting arrangements that are enforceable over time.
A promise made by a landowner to make one or more payments to support stewardship of their property is relatively easy to document and enforce. More challenging is making a promise made by the landowner enforceable against successor landowners. In either case, an understanding of what makes promises binding is critical for crafting stewardship funding arrangements that are enforceable over time.
The guide Stewardship Funding Arrangements provides an overview of the variety of funding arrangements that are available to landowners and easement holders to ensure that holders can meet their stewardship obligations over time. This companion publication delves into the legal matters, research, and analysis that underpin the approaches taken in that guide, in the guide Placing Transfer Fees in Grants of Conservation Easement, and in the Model Stewardship Funding Covenant.
When landowners grant a conservation easement, they empower the easement holder to act when needed to further the conservation purposes of the grant. Money fuels the exercise of that power. Funding makes possible the property monitoring, reviews, enforcement actions, and other stewardship activities undertaken by the holder to ensure that the conservation purposes of the easement are achieved.
To support stewardship, most land trusts collect from the landowner a single contribution at the time the conservation easement is granted. The contribution is invested with the returns used to fund the land trust’s routine stewardship activities; the principal typically is left untouched except if needed to fund enforcement. From the land trust’s perspective, the chief merit of this approach is the immediacy of payment, which eliminates the risk of future non-payment.
The single contribution approach brings into sharp focus the tension between the goals of adequacy for the holder and affordability for the landowner. A contribution of a size adequate to meet long-term stewardship needs, if required in a single payment at the time of easement acceptance, is not affordable for many prospective donors. Lowering the payment to an affordable level may risk adequacy and thereby jeopardize the effectiveness of the holder’s easement program over the long term.
Another problem with the single contribution approach is that a calculation of future needs relies on estimating future probabilities based upon past experience. Will an allowed right of subdivision ever be exercised by the landowner? If calculating a single contribution, the holder must look to past experience with other landowners. If crafting a program for future payments, the holder can take a “wait and see” approach.
The solution to the dilemma of achieving both adequacy and affordability is to spread payments in support of stewardship over time.
This guide explores and addresses pertinent legal issues when stewardship payments are deferred into the future.
The first section sets the general rule: promises to pay are binding only upon those (the “promisors”) making the promise. Therefore, an easement grantor’s promise to make a payment or payments in the future is binding only on the grantor, and subsequent owners of the eased property have no duty to see that the promise is kept.
The next three sections explore three avenues that may be used separately or together to avoid the consequences of the general rule:
A promise to pay a sum of money in the future is binding upon the promisor so long as:
In Pennsylvania, the Uniform Written Obligations Act (33 P.S. § 6) allows a written statement that the promisor “intends to be legally bound” as a valid legal substitute for consideration. The Act applies to promises to pay.
Promisors are personally liable for payment of the promised sum of money. The phrase “personal liability” means that, if the promisee commences a civil action against the promisors for non-payment of the obligation, the judgment obtained in that lawsuit may be collected from any of their then-owned assets: real property, bank accounts and the like.
A money judgment resulting from a civil action creates a lien that automatically attaches to all of the then-owned real property of the promisors in the county in which the judgment is obtained. The holder of a judgment can obtain a court order requiring employers and other persons to pay the income otherwise payable to the debtor to the holder instead until the debt is satisfied (known as a garnishment). The holder of a judgment can also obtain a court order to take possession of property of the debtor, including both real and personal property, for sale at a public sale in repayment of the judgment (known as a levy).
These remedies for nonpayment can be exercised only against the promisors and their assets. If the promisor has no assets, the judgment may be uncollectible.
The judgment lien takes its priority, compared to other liens and encumbrances on property, as of the date the court entered judgment for the promisee. If, for example, property owned by the promisors is worth $100,000 and, at the time judgment is entered, it is encumbered by a first mortgage securing $80,000 and a second mortgage securing $20,000, the judgment lien will attach as a third lien but there is nothing to be gained by ordering a sale to collect on it. A court-ordered sale (whether ordered by the promisee or one of the two superior creditors) will divest the promisee’s lien; however, the proceeds of the sale will be paid to the superior lienholders with nothing remaining for the promisee.
If the holder of a judgment lien does nothing but keep the lien in force by renewing it as required under applicable law, the opportunity exists to receive payment if and when the owners desire to sell and, to complete the sale, need to clear title. Even a deeply subordinated judgment lien, like the third-priority lien described above, needs to be removed to clear title on a voluntary (not court-ordered) sale.
When a debtor becomes overwhelmed with debts they cannot afford to pay, the United States Bankruptcy Code provides for relief through a court-supervised bankruptcy process. While bankruptcy comes in a variety of forms, the process generally involves an accounting of all of the debtor’s debts and assets, and the development of a plan to liquidate assets and pay, restructure, and discharge debts. In general, unsecured creditors are in the weakest position in any bankruptcy proceeding and are at particular risk of seeing their debts discharged with little or no payment.
Consider this hypothetical situation:
In addition to or instead of a stewardship contribution made at the time of the grant of conservation easement, the landowners promise that they (as contrasted with future owners) will make one or more payments in the future. No collateral is offered to back up this promise.
The landowners are personally bound to make these payments as and when stipulated in a writing that they have signed and delivered to the holder. The written promise may be in a donation agreement, the grant of conservation easement, a promissory note, or other document. The promise is binding, even without consideration, if the holder has relied on the promise in accepting responsibility for the easement (or, in Pennsylvania, if the written promise evidences the promisor’s intent to be legally bound).
If a payment becomes past due and the promisors continue to own the eased property, the promisee may obtain a judgment lien that attaches to the eased property. However, the judgment lien will be subordinate to all existing mortgages on the property. The lien of the judgment will take priority over other liens and mortgages recorded after the date of the lien but not before (meaning that the date of the original promise is not relevant).[1]
If the eased property passes into new ownership with the promise to pay unfulfilled, the new owners have no responsibility either to see that the personal debts of prior owners are paid (other than those that have been reduced to judgments and attached to the eased property) or to honor promises for future payment made by the prior owners. A judgment lien obtained against the promisors does not attach to the eased property if the promisors no longer own it at the time judgment is entered. If neither the promisors (nor, if deceased, their estates) have other assets, then collection efforts may be futile. No one is liable for payment and no assets are exposed to collection.
Nonprofit organizations generally try to avoid collection actions if possible. The nonprofit may have a lawful claim but must be concerned about the potential for a nasty, but newsworthy, spate of allegations and counterclaims. Collecting on a promised donation, when nothing has been received in return, is especially problematic. But, if the easement holder has depended solely on the personal liability of the promisors to ensure collection, then its only recourse to collect on an unpaid promise is to commence a civil action.
The law provides a solution to these problems: as discussed below, the grantors’ promise to pay may be secured with a voluntary lien on the eased property at the time of the promise.
A personally binding promise may be secured by granting a mortgage on real estate or a security interest in other non-real estate assets. The assets subject to a mortgage or security interest serve as collateral for the payment obligation. The promisee holds a lien which is not extinguished by the sale of the collateral. This gives the promisee assurance that:
If the promised payment is past due, the promisee may bring a legal action to compel its sale to satisfy the obligation. Because the obligation is tied to the asset (not merely a personal promise to pay), both present and prospective owners of the collateral have an incentive to see that payments secured by their property are paid as and when due; otherwise, their ownership is at risk.
Prospective purchasers are unlikely to acquire property subject to an existing mortgage or other lien securing past-due payments that are not the purchasers’ responsibility. The practical consequence is that at settlement, the settlement agent will typically collect the past-due or otherwise payable amounts from the seller for payment to the promisee, or require the seller to demonstrate that the obligation has been satisfied and released.
The priority of a mortgage or other lien dates from when it is publicly recorded. In Pennsylvania, an obligation cannot be enforced against a subsequent purchaser or mortgagee who acquires their interest without actual or “constructive” notice of the obligation. [2] Constructive notice is assured when the obligation is recorded.
Where a promisee successfully completes a foreclosure action and obtains a judgment, the resulting lien dates back to the date when the mortgage was recorded. Thus, a recorded mortgage ensures priority over all later recorded documents, because every person who acquired an interest after the mortgage was recorded had constructive notice of the outstanding obligation.[3]
A voluntary grant of mortgage or other security interest may be structured in any number of ways to achieve the needs and desires of the promisors and promisee. Points of flexibility include:
Memorializing a forward-looking funding commitment with a mortgage or security interest provides assurance that the commitment will be honored, whether by the present or future landowners.
The grantors propose to fund stewardship out of proceeds of a sale of the eased property. When their promise is secured by a mortgage that becomes due and payable in full upon transfer, the purchaser will not close without assurance that the stewardship payment secured by the mortgage has been, or will be, paid in full from the proceeds of sale.
The grantors propose to fund stewardship out of proceeds of the sale of one or more lots permitted within the eased property. A mortgage is recorded against these lots immediately after the recordation of the grant of conservation easement. The grantors promise that the easement holder will receive 20% of the proceeds of sale but not less than $20,000 in consideration of the release of each lot from the mortgage. When the easement holder is notified that settlement is imminent, it will sign and deliver a release of the lot to the settlement agent for recordation upon delivery of the stipulated payment to the easement holder. The mortgage remains intact as to other lots until payment in full is received. Release of the mortgage has no effect on the conservation easement.
An easement holder wants to be notified of any transfers of the eased land for a variety of reasons. Even if notice is required by the conservation easement, it may not happen. Because mortgages receive substantial attention during the property conveyance process, an easement holder who also holds a mortgage on the eased property is likely to be notified of an impending transfer regardless of the amount secured.
A mortgage securing stewardship payments need not restrict the ability of present or future landowners to access financing. The conservation easement must remain superior to all mortgages if a federal tax deduction is involved as well as in most other cases. In contrast, a mortgage securing stewardship payments may be recorded in a subordinate position: in other words, the conservation easement is placed in first position, the mortgage to the third-party lender in second position, and the mortgage in favor of the easement holder in third position. The easement holder, as a mortgage holder, may also agree to subordinate its mortgage (but not easement) interest in the property to future liens. The subordination of the mortgage will have no effect on the priority of the conservation easement.
When a stewardship funding arrangement has been paid in full, the easement holder must record a satisfaction clearing the mortgage from the public record. Satisfaction of the mortgage will have no effect on the conservation easement.
The law permits parties to agree that a promise should stick to real estate by executing a covenant that “runs with the land”—sometimes called “a running covenant” or “real covenant.” A running covenant is enforceable against future owners of the land even if the future owners did not intend to make, adopt, or agree to honor the promise. That is a serious departure from the general rule of promises only binding the promisor, so it is only applied when the covenant meets certain requirements. As a matter primarily of common law, the factors for consideration can vary state by state. In Pennsylvania, the requirements are that:
All three are necessary. A covenant that touches and concerns the land and purports to bind future landowners will be unenforceable against successive landowners if it is not recorded. A recorded covenant that touches and concerns the land but doesn’t specifically provide for enforcement against future landowners won’t be enforceable against them. A recorded covenant that purports to bind current and future landowners may not be enforceable if it doesn’t “touch and concern” the land.
Common examples of covenants that run with the land include:
In general, a covenant running with the land binds only the present owner of the affected land at any point in time.[7] Promisors may be liable for payments coming due, or performance required, under the covenant during their period of ownership but not for payments or performance first coming due after their period of ownership. Each subsequent owner becomes automatically liable for payment and performance of the covenant upon taking ownership. No documentation need be signed to reflect their agreement to honor the prior owner’s promise; because the covenant is publicly recorded, constructive notice is assured, and each buyer assents by accepting title.
Courts will generally effect the apparent intention of the parties to the covenant. If the covenant is made in connection with a mortgage, or otherwise purports to give the promisee recourse to the property in the style of a mortgage, the remedy may include compelling sale of the subject property. If the covenant provides for enforcement against landowners personally, courts may enforce it as such.[8]
In Pennsylvania, conservation easements based on WeConservePA’s Model Grant of Conservation Easement and Declaration of Covenants are covenants running with the land. As to covenants for stewardship funding, the problematic issue is the last requirement—whether the covenant “touches and concerns” the land—which is discussed in greater detail below.
To meet the “touches and concerns” requirement, a promise must affect the land bound by the covenant, as opposed to an obligation that is strictly personal in nature.[9]
For example, a landowner promises, in a recorded document, to pay $500 each year to his neighbor, but without an explanation for the use of the funds. After the land is transferred, the neighbor tries to collect and the new owner refuses to pay. Because the recorded document does not establish any rational connection between the commitment and the land it burdens, the court may, and probably will, decline to enforce the promise. If instead the covenant provided that the funds are for maintenance of a common driveway, the promise is much more likely to be enforced. As discussed below, existing case law provides little guidance directly on point as to promises for stewardship funding. Thus, it is difficult to confidently dismiss the possibility that a court could object to a particular stewardship payment arrangement on the grounds that it fails the “touches and concerns” requirement.
Pennsylvania courts and federal courts applying Pennsylvania law have held, in several of the cases arising from French and Pickering v Natale, that the breaching landowner is personally liable for compensatory damages arising from a breach of a restrictive covenant in a conservation easement. There are no other reported cases in which enforcement of a promise to pay in a conservation easement has been sought in any Pennsylvania court of appeals.
Pennsylvania courts have supported the principle that landowners are personally liable for payment to a homeowners’ association of charges reasonably related to services provided by the association to common areas. A number of appellate decisions have upheld the right of a homeowners’ association to collect, as a personal liability of the beneficial users of the common areas of the development, a proportionate share of the cost of repair, maintenance, and upkeep of the common areas whether or not specifically provided for in the deed or other documentation of the association. The Treasure Lake Property Owners Association case decided by the Pennsylvania Superior Court in 2003 upholds the principle that there is a duty on the part of the landowner to share in the costs of services that benefit his ownership in land. The Treasure Lake case also confirms that the remedies available to the beneficiary of a promise to pay a sum of money that qualifies as a covenant running with the land are not limited to remedies against the land (such as an injunction or foreclosure of a lien against the land) but also include the right to obtain a judgment for the unpaid sum against the owner collectible from the owner’s assets including but not limited to the burdened property.
Other cases have affirmed the enforceability of promises to pay being recorded as running covenants. In Leh v. Burke, a deed restriction was deemed to be a covenant running with the land, binding a future owner to pay for a proportionate share of the costs to build a road adjacent to, but outside of the burdened property. In holding that successor landowners were personally liable for the payment, the Court’s analysis centered on effecting the intention of the original parties, as reflected in the plain language of the covenant, and dismissed numerous equitable arguments from the present successor landowner.
No matter how strongly a covenant to make payments touches and concerns the land, when gauging the enforceability of a stewardship payment triggered by a transfer of the eased property (called a “private transfer fee”), it is important to take into account state law and federal regulation that may impact the enforceability as well as the marketability of property encumbered by them.
Forty-three states regulate private transfer fees. California’s statute permits private transfer fees that are properly recorded and contain certain disclosures. Many other statutes, in contrast, set forth a broad prohibition on private transfer fees and then enumerate a variety of payments that are effectively exempt from the prohibition. Exceptions in some states include payments to homeowners associations as well as nonprofit organizations providing direct or other benefits to the encumbered property. Exemption from regulation should not be taken to imply legislative authorization of the specific payment arrangements. It only leaves the question of validity and enforceability to otherwise applicable law.
States regulating private transfer fees include (but may not be limited to) Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dako-ta, Tennessee, Texas, Utah, Virginia, Virginia, Washington, and Wyoming.
Pennsylvania’s Act 8 of 2011 prohibits private transfer fees but provides an exception for conservation easements. The Act amends Title 68 (Real and Personal Property) of the Pennsylvania Consolidated Statutes. Anything defined as a private transfer fee by the Act is prohibited. The Act provides ten specific exclusions from the definition of private transfer fee. Conservation easement-related fees are one of these exclusions.
Conservation easement-related fees are not subject to the Act’s general prohibition on private transfer fees payable to a “nonprofit corporation, charitable association or charitable trust” if the conservation easement was prepared in conformance with the Conservation and Preservation Easements Act or the Agricultural Area Security Law and the holder has been in existence for at least two years. The exception also applies to fees on real property included in the same development plan with the property that is subject to the conservation easement.
The exclusion of private transfer fees for conservation easement holders does not guarantee their enforceability in court; however, it does present clear evidence that the legislature did not see them as being contrary to public policy. Further, because the fee advances the goals of conservation, the exception fits squarely within the extensive body of policy statements, from all branches of the government of the Commonwealth, in support of conservation of natural, agricultural, and scenic resources.
Regarding government-held conservation easements, the Act provides a broad exception for: “Any tax, fee, charge, assessment, fine or other amount payable to or imposed by a governmental authority.”
The Federal Housing Finance Agency (FHFA) published a final rule in March 2012, which prohibits its regulated agencies, Fannie Mae (FNMA), Freddie Mac (FHLMC) and the Federal Home Loan Banks from purchasing mortgages on properties encumbered by certain types of private transfer fee covenants. Transfer fees that support, among other things, environmental, conservation and recreational activities are exempt if they directly benefit the property burdened with the covenant. Direct benefit also includes activities in a burdened community or adjacent or contiguous property or other property used primarily by residents of the burdened property.
Courts generally resolve contractual disputes in a manner consistent with the language used, and will not invoke equitable jurisdiction to rescue a party from freely-made business decisions. But where the language of a contract is susceptible to multiple interpretations, a court may resolve the dispute to effect the most rational construction.[10] Where a stewardship funding arrangement sets out purpose for a payment, but the method of calculating the payment isn’t rationally connected to that purpose, the result may be an apparent contradiction. If called upon to resolve the contradiction, a court may interpret the language to find an equitable result, potentially at the expense of the holder.
For example, consider a stewardship funding covenant provides that upon each transfer of an eased property, the transferor will pay an amount to the easement holder calculated as 6% of the sale price, and goes on to say that the purpose of the fee is to compensate holder for the expenses it incurs monitoring the property for compliance with the easement’s terms. Upon transfer of the property, the sale price is five million dollars, and the fee is calculated as $300,000. The holder’s actual costs for monitoring this property and similar ones over the course of one ownership, are arguably substantially less. The transferring landowner may argue that the plainly written intention of the parties was to defray costs specifically associated with monitoring, and the 6% calculation is contradictory and excessive. How a court would rule on this argument is uncertain, but there is some risk that it may invoke its equitable jurisdiction to adjust the fee downward.
To minimize this risk, a fee that is intended to be flexibly used for stewardship or other permanent or unascertainable costs should be accompanied with a description of those purposes. A fee that is to be earmarked for a particular or narrow use should be calculated in a way that is, and will likely remain, well-tuned to that use.
Applying the guidance derived from the sources described above to a promise for stewardship funding is challenging. The examples listed below range from describing a direct, visible, on-site connection between the stewardship payment and some advantage to the land burdened by the covenant to no connection at all. There is little or no case law on point; thus, the estimations of enforceability are best guesses based upon an examination of a variety of sources including the guidance discussed above.
The prospects for enforceability noted below each example address the issue solely from the standpoint of whether the nexus exists to support a running covenant. The greater the uncertainty, the greater the need to consider other avenues (secured promises and assumptions) discussed in this guide.
A number of the examples also note the potential application of the FHFA rule to the scenario.
Example: The conservation easement provides that the conservation organization is to furnish on-site resource management services to improve biodiversity, wildlife habitat, and water quality of the stream within the conserved property in accordance with standards set forth in the conservation easement. The landowner is to reimburse the costs of providing these services on a quarterly or other periodic basis.[11]
Enforceability: The reasonable costs of these services are highly likely to be collectible from landowner as a running covenant. The conservation organization is providing a service to the land.
Example: Conservation easement includes a requirement to reimburse the costs and expenses reasonably incurred in connection with review of an action (e.g., subdivision, timber harvest plan) proposed by the landowner that is permitted by the easement subject to the review of the conservation organization.
Enforceability: The right to reimbursement is highly likely to be collectible as a running covenant because the services furnished in connection with the review are directly related to either the intensity of use or development of the property and were prompted by a request from landowner.
Example: Conservation easement includes a requirement to reimburse the costs and expenses incurred in investigating a possible violation and exercising enforcement rights under the conservation easement.
Enforceability: If the costs arise from landowner’s acts or omissions with respect to the use of the property, then there is a direct connection between the use (or misuse) of the property and the investment of time and money on the part of conservation organization. The costs are collectible as a personal liability of the defaulting landowner.
Example: The conservation easement includes a promise to make a payment of $500 per year (subject to adjustment over time to maintain currency value) to fund the costs of routine monitoring and availability for consultations with landowner on issues pertaining to conservation of the property.
Enforceability: Likely enforceable as a running covenant although there is some risk a court may use its discretion to adjust the amount to more closely reflect the easement holder’s actual costs.
Example: Same as above, but with the addition that, if not paid as and when due, the obligation bears interest at a stipulated fixed rate, compounded annually, and is due and payable in full by the owner (if not earlier paid) at the time of, and as a condition of, transfer. This variation reduces the number and frequency of collection actions that may need to be taken from delinquent landowners while providing an incentive for prompt payment to avoid accumulation of interest.
Enforceability: Likely enforceable as a personal liability of landowner but unlikely that court would issue an order restraining transfer pending payment to the conservation organization. A court may decline to enforce a running covenant that unreasonably restrains alienation (free transferability).[12] Other alternatives to induce compliance are discussed below such as conditioning delivery of a certification of pre-transfer inspection upon payment in full of all of the accrued but unpaid obligations of the transferring landowner.
FHFA: Many payment obligations (residential mortgage loans, for example) are due and payable in full on transfer if not earlier paid. That does not make them “transfer fees” for purposes of the FHFA rule discussed above.
Example: The $500 annual payment described above is subject to increase to cover the allocated cost of the premium for conservation defense insurance (i.e., Terrafirma) applicable to the property (and the number of lots within the property).
Enforceability: More likely than not to be enforceable as a running covenant although the court will have the power to weigh in on the reasonableness of the amount. Having funds available to enforce the conservation easement through insurance coverage reduces the reimbursement obligations of the landowner upon a violation. Requiring uniform standards to fund enforcement from all landowners of conserved property spreads the burden in an equitable manner.
Example: The conservation easement imposes a charge of $2500 (subject to adjustment over time to maintain currency value) upon transfer of each conserved property. The amount is calculated to include the time typically spent with brokers and prospective purchasers or lenders explaining and interpreting the conservation easement as well as the time spent on a pre-transfer inspection and issuance of certification of violations (if any) prior to closing of the transfer.
Enforceability: Likely enforceable as a running covenant but with a possible risk that a court could exercise its discretion to limit the charge to the costs and time actually incurred by the conservation organization in connection with transfers.
FHFA: The FHFA rule does not prohibit payments that defray actual costs of transfer of the property. This reimbursement is calculated, for convenience of collection, at a fixed sum sufficient to defray the cost of services typically rendered in preparation for a transfer. Whether that difference (actual vs. typical) is material for purposes of the FHFA rule is uncertain.
Example: The conservation easements on buffer properties surrounding a preserve contain a provision charging a fee of $1000 per year to fund preserve maintenance because that investment significantly enhances the value of the conserved property.
Enforceability: Likely enforceable as a running covenant but enforceability would be enhanced if benefit to landowners had a more direct connection to costs of maintaining the preserve; for example, opportunities for access to the preserve not generally available to the public.
FHFA: This fee would likely not violate the FHFA rule, as the benefit to adjacent or contiguous property may support a finding of direct benefit.
Example: The declaration for Sand Acres, a common-interest community developed in an ecologically sensitive area, requires payment of a transfer fee of one percent on the sale of each lot to the Sand Acres Foundation, a conservation organization that holds a conservation servitude restricting development of most of the commonly held land owned by the Sand Acres Community Association. The Foundation manages the property subject to the conservation servitude and carries out environmental education programs.
Enforceability: A transfer fee that has a direct benefit to an identifiable community is likely to be found enforceable by a court because it has a rational justification. In this example, taken from the Restatement (§3.5 Comment c.), the revenues support land management and educational programs for the common interest community rather than a particular lot; nevertheless, the benefit is to common areas held for the benefit of all lot owners. This type of private transfer fee is also exempt under the FHFA rule.
Variation. Same as the Sand Acres example above but the conservation organization does not have any management responsibilities for the common areas of the community. The conservation organization has funded major restoration and conservation projects in and around the development, but it also uses the money to subsidize a substantial portion (30%) of its operating budget and distributes surplus funds to other non-profits in the vicinity.
Enforceability: The connection between land and money in this variation is not as clear as in the Sand Acres example. The connection between the funding of projects in and around the development and the conserved land can probably be established if those projects further the conservation objectives for the conserved land. A reasonable allocation of general overhead to those projects may also be rationally justified. But, without more information connecting the funding to the conserved property, it is difficult to articulate a rational explanation why a landowner ought to be compelled to contribute a portion of the value of his land to support non-profits in the vicinity.
FHFA: The transfer fee is only exempt from the FHFA rule if the transfer fee is restricted to funding projects the community or adjacent or contiguous lands.
Example: The conservation easement imposes a fee of one (1%) percent of the value of the conserved property upon each transfer of the conserved property. The fee is designated to fund conservation easement stewardship activities of the land trust, including for the subject property, but not for the subject property alone. The amount of the fee is not directly correlated with actual or projected costs of stewardship.
Enforceability: Pennsylvania courts have not been asked to enforce funding arrangement resembling the example, but principles of Pennsylvania law favor enforceability.
As discussed above, Pennsylvania courts generally respect the apparent intent of the drafters except where doing so runs contrary to public policy or otherwise leads to an unconscionable result.[13] A conservation easement is a unique real property interest, recognized and favorably treated by state law. Stewardship costs are not predictable; enforcement of one easement may consume more financial resources than routine monitoring on fifty others. A mechanism that ensures periodic funding from owners of the conserved land to support the easement’s purposes should be on solid legal footing.
While the funding generated by the covenant is not reserved exclusively for the particular property, funds paid under the covenant directly benefit the land by ensuring the easement holder’s ability to provide long-term protection.
FHFA: This transfer fee would likely not be exempt under the FHFA rule. The result may be a decrease in marketability of any residential mortgage loan made on the property, and in turn, a decrease in the marketability of the property itself. However, twelve years after the FHFA rule was finalized, the authors of this guide have not identified evidence substantiating harm to the marketability of property subject to transfer fee covenants. One potential reason is the upper limits FHFA places on mortgages eligible for programs of its regulated entities. As of 2024, the maximum amount eligible for a FHFA-conforming loan in Pennsylvania is $766,550.00.
The enforceability as running covenants of the payment arrangements noted above can be summarized succinctly: A payment arrangement in which funds are dedicated to a purpose that has a direct connection to the parcel of land burdened by the covenant is more likely to be enforceable than one that does not, but unique qualities of conservation easements and their attending circumstances defy easy analysis under existing common law rules.
Assumption occurs when one person agrees to adopt the promise of another person as their own. While covenants intended to bind future landowners should be recorded as running covenants (and secured by a mortgage lien when possible), assumption may have utility in special circumstances. For example, a land trust may agree to waive enforcement of a “due on sale” provision for a deferred contribution commitment made by a landowner provided that the landowner obtains an assumption of the obligation from a buyer. In other instances, notwithstanding that a funding arrangement is recorded as a running covenant, obtaining an assumption may be useful to avoid any doubt about its enforceability.
If the holder and landowner intend to bind future owners to a stewardship funding commitment, assumption is not a suitable substitute for a running covenant or a mortgage lien. While it is possible to contractually bind a landowner to require any buyer to assume their obligation to make payment, if the landowner subsequently fails to obtain the assumption, the holder’s only recourse is against that original owner for breach of contract; the holder will likely have no recourse against the new owner.
An agreement to assume personal liability for future payment obligations does not have to be in a recorded document to be effective under Pennsylvania law. Any writing signed by the new owners will suffice if it evidences their intention to be legally bound to make the promised payments.[14] A short and simple agreement, a clause in the deed conveying title, or even a short amendment to an existing donation agreement are all effective to bind a successor. The following language may be used to document an assumption:
“_________(“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 ______(“Holder”) dated as of _______, which includes, in article ___, a stewardship funding covenant (the “Covenant”). Intending to be legally bound, 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.”
A charitable contribution must be voluntary in order to be deductible for federal tax purposes. Payments made by the original donor in satisfaction of a funding commitment to a conservation organization may be (but are not necessarily) deductible as charitable contributions for federal tax purposes. For further information, see the guide Donation Agreements.
Stewardship payments made by a subsequent owner (not the easement grantor) are not deductible as charitable contributions. Taxpayers can only deduct contributions made as a result of their own voluntary promises to donate (not someone else’s promise).
[1] See 21 P.S. § 351. Pennsylvania’s recording statute provides that recording order establishes the priority of instruments affecting title to real estate, except if the holder of a later-created interest has actual or constructive notice of an unrecorded obligation. This protects individuals acquiring property or interests in property from undiscoverable rights held by third parties.
[2] See the Pennsylvania Recording Statute, 21 P.S. § 351.
[3] Central Pa. Sav. Ass’n v. Carpenters of Pa., Inc., 502 Pa. 17, 22, 463 A.2d 414, 417 (1983).
[4] “In equity the test by which to determine whether a covenant in a deed runs with the land is the intention of the parties. To ascertain the intention, resort must be had to the words of the covenant read in the light of the surroundings of the parties and the subject of the grant": Landell v. Hamilton, 175 Pa. 327 (1896).
[5] The rule has always been that the grantee . . . must search for conveyances . . . made by any one who has held the title" Pyles v. Brown, 189 Pa. 164 (1899). "The party who has placed his written title on record has given the notice which every person is bound to know and respect. The law does not require him to go further.” Knouff v. Thompson, 16 Pa. 357, 364 (1851).
[6] "In contrast with a personal covenant, a covenant which is to run with the land ordinarily must affect the land and be intended to pass with it. Caplan v. City of Pittsburgh, 375 Pa. 268 (1953).
[7] "When a promise to do an affirmative act, such as in this case to make a monetary payment, is found to run with the land, the person in possession at the time the obligation matures is responsible for discharging it." Leh v. Burke, 331 A.2d 755 (Pa. Super. Ct. 1974).
[8] Treasure Lake Property Owners v. Meyer, 832 A.2d 477 (Pa. Super. Ct. 2003) (rejecting argument that where a covenant to pay fees “runs with the land,” it may be assessed only against the land, and not the landowners personally; rather the intention of the parties, as determined by the language used, determines the remedy).
[9]”In contrast with a personal covenant, a covenant which is to run with the land ordinarily must affect the land and be intended to pass with it.” Caplan v. City of Pittsburgh, 375 Pa. 268 (1953)
[10] "Heidt v. Aughenbaugh Coal Company, 406 Pa. 188 (1962).
[11] This example is offered for illustrative purposes. Please note that affirmative obligations such as this on an easement holder within a grant of conservation easement are rare and generally not advisable.
[12] PA courts have approved of due-on-sale clauses in the mortgage lending context, though other applications may be subject to different review. "The reasonableness of restraint is judged by the purpose sought to be obtained." New Home Federal Savings and Loan Association v. Trunk, 22 Pa. D. & C.3d 399 (Pa. Commw. Ct. 1982)
[13] "Where the language of a deed or a restriction is not clear, then in order to ascertain the intention of the parties its language should be interpreted in the light of the subject matter, the apparent object or purpose of the parties, and the conditions existing when it was made." Parker v. Hough, 420 Pa. 7, 12-13, 215 A.2d 667, 670 (1966).
[14] Uniform Written Obligations Act (33 P.S. § 6).
