With Easements & Covenants
North Carolina is rich in natural and historic resources. Yet, as any preservationist knows, these special places are fragile and irreplaceable. How are we to protect and wisely conserve these resources and yet maintain our tradition of private ownership?
One appealing alternative for many property owners is the historic preservation easement. Easements have emerged as a very useful legal tool for protecting land and historic properties in North Carolina.
What Is an Easement?
An easement is a legal agreement between a property owner and a qualified preservation organization or public agency, in which:
- The property owner (the grantor/donor) promises to protect the property’s historic integrity, without inappropriate alterations, additions or demolition.
- The organization or public agency (the recipient/donor) is granted the right to enforce the covenants of the easement and to monitor the property.
- The owner retains the right and duty to manage and care for the property, pays taxes on it, and can live in the house just as before and may sell or lease it or pass it on to heirs.
How Does an Easement Work?
The easement is a legal document that restricts the use of privately owned property. Usually a permanent restriction, it is written in deed form and is filed with the county register of deeds, thereafter running with the title to the land and affecting each succeeding owner just as it does the original grantor.
The easement is simply a legal agreement between the property owner and a preservation organization into which the parties enter for the mutual benefits of historic preservation, continued private ownership, and possible tax advantages or other compensation to the owner. The organization takes on the responsibility and legal right to enforce the easement. If a future owner or someone else violates the easement (perhaps by erecting a building the easement does not allow), the organization has the authority to require that the violation be corrected and may resort to legal means if necessary.
Easements are flexible tools. The easement should protect the historic resources on the property but can be custom designed to meet the personal and financial needs of the landowner. Historic preservation easements are intended to protect the architectural and historical integrity of a structure by imposing limitations on the types of alterations that may be made. In some cases, the owner may choose only to protect the exterior of the building. A preservation easement may also be designed to protect a building’s interior and important elements of the landscape surrounding a structure, such as outbuildings or associated archaeological remains. The extent of the restrictions placed on the property is decided together by the parties to the agreement.
How Long Does an Easement Last?
The duration of the easement is the choice of the landowner and the recipient and must be decided at the time of negotiation. However, if the landowner wishes to claim any income or estate tax deduction, the easement must be granted in perpetuity. In most cases, the owner will prefer a perpetual easement.
Can an Easement Ever Be Changed?
Because the preservation easement generally is entered into for the preservation and protection of a cultural resource, it is not designed to allow for quick and simple alterations to the terms. If after the easement has been recorded, the donor wishes to change the easement, it may be altered only by mutual agreement of the parties. However, when the donor wishes to take an income or estate tax deduction, the easement must provide that it may be terminated or substantially altered only with the approval of a court of law, upon a showing that the original purpose is no longer attainable. In practice, easements are seldom altered.
What Expenses Will the Donor Incur?
There will be some costs for the donor. Generally, the donor of the easement pays the title search, land survey, appraisal, accounting fees and legal fees for preparing the easement. Some organizations charge a fee for accepting easements. The recipient may incur costs in the transaction of receiving the easement (recording costs) and, more significantly, in providing for long-term monitoring and enforcement costs.
What Are the Advantages of an Easement?
An easement seldom significantly restricts the owner’s use and enjoyment of the land. Most landowners will continue to use their property just as before, but with the granting of the easement, the future of the property is no longer left to chance. The land and structures are protected, and the protection will usually run in perpetuity.
An owner considering granting an easement may benefit from savings in estate taxes, income taxes and property taxes. If the IRS rules for granting an easement are followed, a property owner may deduct the value of the easement as a charitable deduction from his or her federal income tax. Assume the property owner has his property appraised without an easement at $50,000. He then has the property appraised with the easement in force and it is now worth $30,000. The $20,000 difference is the value of the easement gift for tax purposes. For property taxes, the county tax assessor must take into account the reduction in value caused by the easement and should tax the property at its restricted value, not at its highest and best use as if development were unrestricted.
Most preservation easements can be divided into two sections — affirmative rights given to the organization and covenants made by the property owner concerning the future use of the land. Affirmative rights might, for example, give the organization the right to bring researchers to the property with the consent of the landowner. Covenants concerning the future use of the property can be “positive” (requiring the landowner to take an action) or “negative” (preventing the landowner from taking an action). Positive covenants may include limitations on demolition or development.
What Properties Are Eligible for Easements and Associated Tax Reductions?
The federal and state governments provide tax incentives for easements given only for certain qualified purposes. To qualify as a charitable contribution, and thus to earn federal and state income tax reductions, the easement must be perpetual, must be made to a qualified donee (generally, a non-profit preservation organization or a public agency), and must meet one or more of the conservation purposes, set out in the federal tax code:
- Preservation of historically important land or buildings (generally, the property must be listed on the National Register of Historic Places).
- Preservation of land for outdoor recreation or education.
- Protection of relatively natural habitats of fish, wildlife or plants.
- Preservation of open space pursuant to a clearly delineated governmental conservation policy.
Who May Give an Easement?
Only the owner of the land or building may decide to grant an easement. In the end, the decision to give an easement is a personal one which must be made by the property owner alone, but the owner should always consult competent legal and tax counsels to assure that his or her wishes are successfully translated into the provisions of the easement agreement and to assure that every advantage is taken of all possible tax benefits.
To Whom May an Easement Be Given?
The easement may be granted to a qualified preservation organization, either private nonprofit or governmental. The property owner chooses the best recipient to administer the intended preservation project.
Many private organizations such as Preservation NC, the National Trust for Historic Preservation, and local preservation organizations accept easements. Governmental agencies, such as the state Department of Cultural Resources or a local historic preservation commission, may accept easements. In choosing, the owner should consider the size and location of the property and the kind of protection desired for its features or resources. The owner should also be sure that his or her interests and concerns are shared by any prospective recipient.
All properties sold through Preservation North Carolina’s Endangered Properties Program have protective covenants placed in the deeds.
Protective Covenants agreements serve several important functions:
- Prohibits demolition of the historic resource.
- Obligates the owner to rehabilitate and maintain the property.
- Gives Preservation North Carolina design review over several aspects of the property including exterior alterations to the historic structure, alterations of significant designated interior architectural features (for example, staircases, mantels and woodwork), and usually over changes to the landscape or setting.
Preservation North Carolina recognizes that the historic structures need to be adapted and altered to provide for contemporary conveniences (such as modern baths and kitchens, closet space, and heating and air conditioning) and to accommodate contemporary uses. Preservation North Carolina reviews and offers guidance to the property owners to ensure the requested alterations can be accomplished without destroying the architecturally significant features of the building.
Preservation North Carolina retains a first right of refusal on the property in the event of a sale, and also retains the option to repurchase the property if the covenants are violated and the violations are not corrected. The covenant agreement is recorded at the county Register of Deeds and runs in perpetuity with the deed to the property, thus protecting the historic resource for future generations.
Rehabilitation Agreements also accompany properties sold through the Endangered Properties Program that require substantial rehabilitation.