Academic journal article Vanderbilt Law Review

Sink or Sell: Using Real Estate Purchase Options to Facilitate Coastal Retreat

Academic journal article Vanderbilt Law Review

Sink or Sell: Using Real Estate Purchase Options to Facilitate Coastal Retreat

Article excerpt

INTRODUCTION

Though home to only 280 residents, Smith Island, Maryland, is of critical symbolic significance-at an elevation of only five feet, it represents a bellwether of sea level rise.1 In the last century and a half, the Chesapeake Bay has already swallowed 3,300 acres of Smith Island, and the rest may disappear as soon as 2025.2 In an effort to reverse this trend, the island has turned to jetties, bulkheads, and other coastal defenses,3 and in 2012, the state of Maryland offered residents a buyout to relocate-an offer promptly rejected by most.4 Meanwhile, the Chesapeake Bay has continued to rise, proving to be an unstoppable adversary.

Although in no way unique, the story of Smith Island encapsulates many of the themes and complexities surrounding sea level rise generally. Foremost among them is coastal landowners' refusal to capitulate,5 an attitude that epitomizes not only general feelings about sea level rise in the United States,6 but also the undeniable social7 and economic8 importance of our nation's coasts. Yet such resistance runs counter to scientific projections, which almost unanimously view sea level rise as inevitable.9 Indeed, some experts now posit that relocating development from coastal areas-a strategy termed "retreat"-will become unavoidable as places like Smith Island face no other alternative.10

The incompatibility of these diametric positions-defiance on the one hand, and data suggesting the need to retreat on the other- illuminates the basic dilemma facing the future of American coasts.11 This Note attempts to reconcile such tension by proposing the use of purchase options-contracts that provide "the right to purchase something without the obligation to purchase it"12-as a strategy for accomplishing retreat. More specifically, it introduces what it calls "sea level purchase options" ("SLPOs")-real estate options that do not vest until sea level rise imposes tangible effects on a given property. Operationally, this Note asserts that nonprofit, conservation-focused organizations such as land trusts13 should purchase SLPOs on threatened coastal properties, and when, but not until, sea level rise actually affects those properties-assessed objectively by measures such as tide line-land trusts would have the right to purchase the properties. After exercising SLPOs, land trusts would then maintain the land as open space, creating a coastal buffer against further sea level rise. On the other side of the transaction would be coastal landowners, who might agree to sell SLPOs either because they deny that sea levels are rising-and would thus receive consideration for selling an option they believe will never vest-or as a way to mitigate the risk of losing their land to sea level rise regardless.

While their primary purpose is to facilitate coastal retreat, the true value of SLPOs stems from their effect of delaying abandonment until necessary. This, in turn, has three critical consequences. First, because options impose no future obligations, they furnish flexibility in responding to sea level rise as it unfolds. Relatedly, landowners can continue to use coastal properties until retreat becomes imperative, but abandonment becomes an aspect of their expectations, discouraging wasteful development and increasing the chances of orderly, collaborative retreat in the future. Finally, and most compellingly, this arrangement has the potential to overcome landowner intransigence. By compensating landowners up front through an option payment and requiring in return only that they sell their land if sea level rise occurs, SLPOs leverage landowner skepticism so as to secure a promise to retreat when their position has become untenable.14 For unyielding landowners, this is akin to gambling on the status quo-risking the sale of their land on a bet that sea level rise will never occur. But selling SLPOs is also a way for landowners to hedge their bets; even if they lose and are forced to sell their land, they would receive a payout that sea level rise might otherwise foreclose. …

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