A Guide to Illinois Conservation Rights

Conservation rights provide a legal, recorded way for a property owner to preserve particularly valuable aspects of property in perpetuity. The Illinois statute allows owners to protect the following characteristics:

(i) the significant physical and visual characteristics of structures having architectural, historical, or cultural significance, together with any associated real property, whether or not improved; or

(ii) land or water areas predominantly in their natural, scenic, open, or wooded condition, or as suitable habitat for fish, plants, or wildlife; or

(iii) the integrity of archaeological sites and the artifacts or information they may contain pending properly supervised excavation and investigation. 765 ILCS 120/1.

To create the conservation right, the owner conveys to a grantee the right to enforce limitations on the use of the property. As the author of the limitations, the owner may design the conservation right to meet the unique needs of the property and yet retain the ability to develop it as desired.

The Illinois Statute - The Real Property Conservation Rights Act, 765 ILCS 120, creates conservation rights in Illinois. To date, the statute is the only authority on the subject because no cases have dealt with this topic. While many other states have created conservation easements, Illinois allows conservation easements, restrictions, covenants, or conditions. Id. at § 1. Furthermore, the statute lists several specific issues a grantor may want to control or eliminate, most notably, public access or visitation.

Owner - The owner is the only person who may create a conservation right, however, everyone who has an interest in the land qualifies as an owner. Id. at § 3. The conservation right applies only to the extent of the owner's interest. Thus, if a lessee creates a conservation right, that right applies only to the leasehold interest, not to the fee interest.

Grantee - The statute nearly ensures conservation of the property in perpetuity
by limiting who may be a grantee. The owner may only grant the conservation right to one of the following entities: (1) an agency of the state; (2) a unit of local government; or (3) a not-for-profit corporation or trust whose primary purpose includes conservation. Id. at § 2. Furthermore, the conservation rights may only be assigned or transferred to the same type of entity. Id. at § 1. Since only those who will enforce the conservation right may hold it, conservation rights are very difficult to destroy.

Enforcement - The statute allows several entities to enforce the provisions of the conservation right agreement. The grantee, the state or local government, or neighboring property owners may enforce the conservation right through a lawsuit seeking an injunction, specific performance, or damages. The suit must be filed in the circuit court of the county where the property is located. Id. at § 4.

Restrictive Covenants - The Real Property Conservation Rights Act creates a scheme somewhat different from the effect of a restrictive covenant. First, fewer entities have the right to enforce a restrictive covenant than a conservation right. Only the parties, those in privity with them, or third-party beneficiaries have the right to enforce a restrictive covenant. Hays v St Paul ME Church, 63 NE 1040, 196 Ill 633 (1902); 13 ILP 187. Second, a party may lose the right to enforce a restrictive covenant by waiver, estoppel, abandonment, or release, 13 ILP 191, whereas the same is not true for a conservation right. Third, if a restrictive covenant is unclear whether it has a specific duration or is perpetual, then a presumption exists against perpetuity. Dick v Goldberg, 128 NE 723, 295 Ill 86 (1920). Conversely, conservation rights have a nearly perpetual duration because grantees may transfer or assign their rights only to other qualified grantees.

Conservation Right Uses - Conservation rights may be used for a variety of purposes because the statute offers great flexibility in their creation. An owner may always simply subject the entire property to a conservation right agreement. Conservation rights may also protect open areas in a residential real estate development, allowing an owner to both develop land and retain some of the natural characteristics in open areas. Similarly, an owner may use conservation rights to limit the type or density of development.

Conservation rights may also be used to protect farmland on the outskirts of growing communities. Since conservation rights may lower the assessed value of property for property tax purposes (because the use is limited and requires fewer municipal facilities), they may provide a way for farmers to maintain their farms in areas experiencing residential real estate development. Typically, owners give up the right to develop or alter the land or structures on it, but they retain the right to privately enjoy the property. Using this technique, a family owning a historic building may be able to afford to keep it in the family. Attorneys may find conservation rights a useful tool in aiding clients with estate planning or real estate development.

Federal Income Taxes - The Taxpayer Relief Act of 1997 provides an incentive for landowners to give up development rights in return for tax benefits by placing their land in a qualified conservation easement. A "qualified conservation easement" exists under Internal Revenue Code Sec. 170(h) if it meets all of the following criteria: (1) is a qualified real property interest (which includes a use restriction granted in perpetuity); (2) is made to a qualified organization (e.g., a governmental unit, local land trust); and (3) is exclusively for conservation purposes that are protected in perpetuity. Section 170(h) defines "conservation purposes" with the following examples: (1) preservation of land areas; (2) protection of natural habitat; (3) preservation of open space; or (4) preservation of a historically important land area or certified historical structure. Furthermore, the owner must meet the requirements of Treasury Regulation § 1.170A-14 on qualified conservation contributions in order to deduct conservation rights from federal income taxes.

The requirements are substantially the same as the Illinois statute's, but more detailed. When drafting a conservation right, attorneys should carefully peruse the Treasury Regulations to ensure the requirements are met for obtaining the tax deduction. When making a qualified easement contribution, the owners surrender little real control over their property, but attorneys should note that the less restrictive the easement (e.g., allowing limited development), the smaller the tax benefits. This is because the taxpayer's deduction is based on the reduction in property value resulting from the restriction. Finally, it should be noted that the year the conservation right is created, the owner may take a charitable contribution deduction for the value of the right granted.

Property, Estate, and Gift Taxes - Estate and gift tax charitable contributions are allowed for the same type of conservation easement contributions eligible for the income tax deductions, except there is no conservation purpose requirement. Under Internal Revenue Code Sec. 2031(c), for a decedent dying after 1997, an executor can elect to exclude from the gross estate the lesser of 40% of one of the following: (1) the value of land subject to qualified conservation easement, reduced by the amount of any estate tax charitable deduction allowed; or (2) the exclusion limitation. The exclusion limitation for estates of decedents dying in 1998 is $100,000; in 1999, $200,000; in 2000, $300,000; in 2001, $400,000; in 2002 and thereafter, $500,000.

This is in addition to the reduction in land valuation due to the conservation easement. However, for the purposes of estate and gift tax exclusion, preservation of historic land areas or structures does not qualify as a conservation purpose. There are additional rules and limitations for use of the exclusion. The land must be located within 25 miles of a metropolitan area or a national park or wilderness area, or within ten miles of an urban national forest. Also, the decedent or a member of the decedent's family must own the land three years prior to the decedent's death. Finally, a minimal amount of commercial recreational activity is allowed on the property while still qualifying for the exclusion.

Title Insurance - Since conservation rights are recorded documents, a title search should reveal them. If issuing a policy on property burdened by a conservation right, an exception should be raised, as for any right, which includes the following information: (1) legal description; (2) purpose of the right; (3) recorded document number of the conservation right agreement; and (4) names of the parties to the agreement.

© ATG atgc0799vol23

Posted on: Thu, 07/15/1999 - 5:35pm