Easements Aren't So Easy
Whether express or implied, dealing with easements isn't always easy.
Argianas & Associates is frequently retained to assist clients for a variety of real estate-related matters, and we are with them from the first phone call to the final report. Often the real estate related appraisal is associated with a property owner’s contemplated gifting of easements.
what are easements?
An easement is a legal interest (non-possessory right) in a property that gives one entity the right to use another entity’s property. The entity with the right to use an easement is the ‘dominant’ estate; the entity that submits to an easement is a ‘subservient or servient position.’ Easements can be established by necessity, prescription, threat of condemnation, simple agreement, or by donation. Easements can involve surface, subsurface, or aerial rights, with their duration sometimes temporary and sometimes permanent.
There are distinctions between express (by way of agreement) and implied easements (created by special circumstances). The details of each can be complicated, perhaps a topic for a future blog. Whether express or implied, dealing with easements isn’t always easy.
Conservation easements reflect voluntary arrangements between private property owners and nonprofit or land trust government agencies that preserve landowner use limitations while setting aside portions of a property for public use. Conservation easement appraisals usually involve large swaths of land whereby the owner retains ownership but gifts away certain rights to the public to use parts of the land for horse riding trails, walking trails, parks, open space/nature preserves, etc. The appraiser values the entire parent tract, with a value established for the portion to be set aside for conservation use.
Properly planned, the establishment of conservation easements provides income tax benefits to a property owner while preserving a property’s natural features (such as a large field of view that the property owner wishes to remain undisturbed).
Once the conservation easement is put in place, the owner’s real property rights are encumbered. While the property owner retains underlying ownership, the Conservation Easement restricts the future use of the property, thereby impacting its value. The tax deductibility of a Conservation Easement compares pre-easement vs. post-easement values, allowing a deduction for the difference. Handled correctly, valuation of a Conservation Easement measures the before and after value of a property owner’s real property rights (assuming establishment of the easement).
real property rights vs. real estate
Real property rights are the legal rights associated with property ownership (those of landowner/landlord or leaseholder). The real property rights to be appraised should be those of ownership as of the effective value date. In practice, the effective value date should be planned to allow a property owner the maximum tax benefit.
In a recent Argianas engagement, we discovered the gifting of certain rights had been improperly sequenced. The lands were gifted after easement rights had already been established and as a result, the Fair Market Value of the property owner’s effective gifting was substantially less than what it could have been had the easement and gifting sequence been better planned.
temporality, order of operations & effective value date
A point in time is an important concept in real estate appraisal. A simple analogy would be to analyze the value of a building before it is built, post-construction, and after it is demolished. The effective value date, the date of the value conclusion, can be in the past (retrospective), current, or in the future (prospective). The real estate appraisal cannot amend the property rights that existed at the time of the effective value date. If the gifting party owns less than a fee simple interest, the value of the gift is substantially less than full value.
Pre-planning and careful legal structuring for contemplated transfer of land via easement is critical. It is not the date of gifting, but rather, the date for which an easement is to be conferred.
helping clients keep their heads on straight since 1991
We’ve seen a thing or two along the way. For the experienced team at Argianas this often means solving complicated real estate appraisal issues beyond what typical appraisal firms are capable of completing. In all engagements, we use a careful and thoughtful approach and disclose, qualify, and educate our clients along the way.