Conservation Easements and the Doctrine of Merger

McLaughlin, Nancy A., Law and Contemporary Problems

I

INTRODUCTION

As relatively novel real-property interests, conservation easements raise a number of interesting legal issues, not the least of which is whether a conservation easement is automatically extinguished pursuant to the real- property-law doctrine of merger if its government or nonprofit holder acquires title to the encumbered land. (1) This article explains that merger generally should not occur in such cases because the unity of ownership that is required for the doctrine to apply typically will not be present. For merger to occur, "the two estates must be in the same person at the same time and in the same right." (2) If the government or nonprofit holder of a conservation easement subsequently acquires title to the encumbered land, the two estates will be "in the same person at the same time," but they generally will not be held "in the same right."

This is not simply a technical legal issue of interest only to real-property-law scholars. If the doctrine of merger is misapplied to conservation easements there will be significant negative public policy ramifications. Conservation easements are not private contracts between private parties entered into for private benefit, like rights-of-way easements between neighbors. Rather, conservation easements are authorized under state law because they provide significant conservation or historic benefits to the public. (3) They are held and enforced by government entities and charitable organizations on behalf of the public. (4) And the public subsidizes their acquisition through, among other things, appropriations to federal and state easement purchase programs and the provision of federal and state tax benefits to easement donors. (5)

Allowing conservation easements that continue to provide significant benefits to the public to be extinguished through the doctrine of merger would be contrary to the conservation and historic preservation policies that underlie the state conservation easement enabling statutes and the easement purchase and tax incentive programs. It would also permit government entities and land trusts holding conservation easements to avoid the restrictions on the transfer, release, modification, and termination of conservation easements imposed by many of the state enabling statutes, federal tax law, and the laws governing the administration of charitable gifts, which restrictions operate to safeguard the public interest and investment in conservation easements. (6)

II

CHARITABLE GIFTS OF CONSERVATION EASEMENTS

To understand why the doctrine of merger generally should not apply to extinguish conservation easements, some background regarding the manner in which conservation easements are typically conveyed and drafted is in order. Many conservation easements are conveyed to government entities and land trusts as charitable gifts for a specific charitable purpose--the protection of the particular land encumbered by the easement for the conservation purposes specified in the instrument of conveyance in perpetuity. (7) In addition, to satisfy the requirements for a federal charitable income tax deduction under Internal Revenue Code (IRC) [section] 170(h), many such easements expressly provide that they can be (1) transferred only to another government entity or conservation organization that agrees to continue to enforce the easement (8) and (2) extinguished only in a judicial proceeding, upon a finding that continued use of the land for conservation purposes has become impossible or impractical, and with a payment of a share of the proceeds from a subsequent sale or exchange of the property to be used by the donee in a manner consistent with the conservation purposes of the original contribution. (9) Many conservation easements also contain a provision granting the holder the discretion to agree to amendments to the easement, but only if, inter alia, such amendments are consistent with or further the conservation purpose of the easement. (10)

Under state law, the donee of a charitable gift made for a specific purpose (sometimes referred to as a "restricted charitable gift") must administer the gift consistent with its stated terms and charitable purpose. (11) The donee holds legal title to the gift, but on behalf of the public, which is the beneficiary of the gift. (12) Absent provisions in the instrument of conveyance providing otherwise, the donee is permitted to deviate from the gift's charitable purpose only with court approval obtained in a cy pres or similar equitable proceeding. (13) The state attorney general is generally required to be provided with notice of such a proceeding and an opportunity to participate to represent both the interest of the public, as beneficiary of the gift, and the interest of the donor in ensuring that the gift is used for the donor's designated purpose. (14) If the donee uses or threatens to use the charitable gift in a manner contrary to its stated terms or purpose, state law generally empowers the state attorney general; a party with a "special interest" in the enforcement of the gift; a cotrustee or codirector; and, in a few jurisdictions, the donor to sue the donee for a breach of its fiduciary duties. (15)

As noted above, many conservation easements are conveyed to government entities and land trusts in whole or in part as charitable gifts for a specific charitable purpose. Indeed, tax-deductible conservation easements are, by definition, charitable gifts made for a specific charitable purpose. (16) Accordingly, the state-law principles governing the administration of charitable gifts should apply to such easements." Thus, if the donee of such a conservation easement attempts to sell, release, or otherwise dispose of the easement in a manner contrary to its stated terms or charitable conservation purpose, the state attorney general; a cotrustee or codirector; a party deemed to have a special interest; and, in some cases, the donor should be permitted to sue the donee for a breach of its fiduciary duties. (18) In fact, state attorneys general have, on a number of occasions, invoked state-law principles governing the administration of charitable gifts to prevent a holder's improper amendment or termination of a perpetual conservation easement. (19)

III

CHARITABLE GIFTS OF CONSERVATION EASEMENTS AND THE DOCTRINE OF MERGER

The merger question will often arise when a conservation easement has been conveyed to a government entity or land trust as a charitable gift for the purpose of protecting the conservation values of a particular parcel of land in perpetuity. The easement will often include provisions specifying the manner in which it can be permissibly transferred, amended, or extinguished. Then, some years later, the easement donor or a subsequent owner donates the encumbered land to the holder free of any restrictions on the holder's transfer, sale, or other disposition of such land. (20) In this situation, both estates (the easement and the encumbered land) would be held in a representative capacity--for the benefit of the public--but the conservation easement would be held subject to an obligation that it be administered in accordance with its stated terms and charitable conservation purpose, while the easement-encumbered land would be held as a general asset of the entity that could be retained or sold in the entity's discretion. The two estates would be "in the same person at the same time," but they would not be held "in the same right." (21) Accordingly, merger should not occur; the easement should not be extinguished; and, although the holder could transfer, sell, or otherwise dispose of the land, it should be obligated to do so subject to the easement. (22)

The manner in which the merger doctrine applies in the normal course, as well as the policy underlying the doctrine, reinforces the conclusion that applying the doctrine to conservation easements would be inappropriate. In this regard, The Restatement (Third) of Property: Servitudes is instructive. The Restatement describes the general rule with regard to merger as follows:

   A servitude is terminated when all the benefits and burdens come
   into a single ownership. (23)

A few definitions are needed to understand this rule. The Restatement defines "servitude" to include easements and covenants, and conservation easements are referred to as "conservation servitudes." (24) A servitude "burden" includes the obligation of the burdened parcel's owner to not use the parcel in particular ways, while a servitude "benefit" includes the right of another person to receive the performance of that obligation. (25) The Restatement explains that, when all of the benefits and burdens of a servitude are united in a single person, the servitude ceases to serve any function. (26) Because no one else has any interest in enforcing the servitude, the servitude terminates and the previously burdened property is freed of the servitude. (27)

To illustrate, assume Parcel A (depicted below) is burdened by covenants that (1) prohibit the construction of any structure that would interfere with the view from adjacent Parcel B and (2) require vegetation on Parcel A be trimmed to protect the view from Parcel B. The owners of Parcels A and B are private parties who agreed to the covenants to protect the view from Parcel B for the benefit of the owner of Parcel B (rather than for the benefit of the public). Assume also that O, who is the owner of Parcel B …

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Publication information: Article title: Conservation Easements and the Doctrine of Merger. Contributors: McLaughlin, Nancy A. - Author. Journal title: Law and Contemporary Problems. Volume: 74. Issue: 4 Publication date: Fall 2011. Page number: 279+. © 2009 Duke University, School of Law. COPYRIGHT 2011 Gale Group.

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