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Conservation Easements and Title Insurance:What Land Trusts Don’t Tell You
11/14/02 Land trusts are in the ‘sales business.’ The bottom line for most
land trusts is closely linked to selling a ‘product’: perpetual conservation
easements ostensibly used to "protect land for future generations."
Land trusts have no ‘legal’ obligation to disclose information about
potential defects in the product they are selling. In addition, the
non-profit, tax-exempt, charitable status of the typical land trust
serves as a statutory shield between the product ‘buyer’ (land owner/grantor)
and the product ‘seller’ (the land trust/grantee). Because of that
artificial shield, the land trusts’ motivations and operations go
unquestioned by misguided, uninformed landowners. "Caveat Emptor"--
let the buyer beware! On the other hand, most private businesses such as auto dealers or appliance retailers, of necessity must exhibit a greater degree of integrity. Because they operate in a relatively free market, unsupported by the taxpayer and special legislative dispensations, they are compelled by laws of the real-world marketplace to act with honesty if they expect to stay in business. While it is true car dealers (and doctors, real estate agents, stock brokers, accountants, attorneys and many other businesses) are licensed and their practices regulated, licensing and statutory regulation have never been the answer to ensuring integrity and preventing abusive or unethical practices. In fact, attempts to legislate ethical behavior create distortions which, more often than not, result in additional problems, most notably a false sense of security and a dependent, unthinking populace. Even so, while there are certain defined statutory remedies available to a retail buyer of goods or services, similar remedies are not available to the conservation easement ‘buyer’ once the ink is dry and the deed is recorded. There are no "lemon laws" or "product recalls" for conservation easements. As J. Zane Walley of the Paragon Foundation, a national private property rights advocacy organization, points out: "Although agents of land trusts put together multi-million dollar real estate deals, they are not licensed; they are not responsible for providing full disclosure; nor are they legally obligated to conduct business in an honest manner. At present, land trust agents may safely, with complete disregard for honesty and accepted real estate laws, say anything and everything… they wish in order to close the ‘deal’." However, it is the availability of free market remedies (or lack thereof) which truly indicates the integrity of the conservation easement ‘product’ being sold by land trusts. For instance, we expect (and even demand) manufacturers offer a written warranty on new vehicles and many dealers offer a written warranty on used autos or the option to purchase one. Warranties, or product insurance, are readily available for most legitimate products at a nominal cost. But ask a land trust about a warranty which would explicitly protect the integrity of "remainder interest" private property rights retained by the grantor after a conservation easement takes effect. Ask your attorney. Ask their attorney. Ask them if they will write specific, enforceable warranty covenants in the "deed of easement" where the land trust or government agency will assume liability, guarantee to defend the title, and indemnify the owner of remaining property rights if those rights are ever challenged, diminished or damaged due to an action or an event occasioned or triggered by a conservation easement, "in perpetuity." Or, ask if the land trust is willing, at its expense, to purchase a title insurance policy which similarly protects the land owner’s remaining "bundle of rights". They won’t do it. It probably can not be done even if they would. Some of the reasons land trusts, their attorneys, and title insurers will not explicitly warrant the integrity of "remainder interest" property rights under a perpetual conservation easement are fairly obvious: 1) The terms and conditions of perpetual conservation easement agreements are often ill-defined, and are subject to ‘third-party’ interpretation, interference, and/or legal actions. 2) Interpretation and enforcement of conservation easement agreement terms, in most cases written by the land trusts using their own standardized forms which are based on a statutory ‘fiction’, the Uniform Conservation Easement Act, are open-ended and purposely biased in favor of the land trusts. 3) In recent years, many courts have exhibited a growing hostility toward the sanctity of private property rights, especially when deciding environmental and natural resource protection issues. 4) Arbitrary legislative and regulatory actions, at the local, state and federal levels, continue to undermine the rights of private property owners. 5) Land trusts, which have no qualms about advocating a perpetual encumbrance on private land, are surrogate agencies of government, and are risk adverse when their own financial liability is at stake. Unwittingly, most grantors assume virtually all risk to the integrity of remainder rights, while, protected behind the skirts of government, grantees knowingly assume little or none. 6) A conservation easement, clouding title to real property, attempts to negate fundamental principles of long-established Anglo-American property and common law, thus creating an arena for conflict. Title insurance policies are contracts where a title insurance company insures and defends/indemnifies a property owner against loss or damages resulting from defects or failure of title to a specific parcel of property. Land purchasers often buy title insurance for their own protection. Most banks and lending institutions will insist on title insurance to protect their interests when they accept land as collateral for a loan. When a title search is done, a ‘certificate of title’ or ‘title opinion’ is issued by the examiner which is used by the insurer to assess the perfection of the title. Title insurers except obvious imperfections and risks from policy coverage. It is normal for easements encumbering an insured property to be excepted. An underwriting attorney in the national headquarters of one of the nation’s largest title insurers, Land America, made the following point: "Obviously, in our title insurance policy, if there’s a conservation easement, we should be putting in an exception. When we see a conservation easement, we’ll take exception to it." What the title insurer is saying is any claim arising due to the effects of a conservation easement is excepted from coverage. Interesting to note is the fact that land trusts and government agencies which are grantees, or holders of conservation easements, require good title and/or title insurance on land which they are considering for a conservation easement. For instance, the U.S.D.A. Forest Legacy Program Implementation Guidelines, §XI, states if any federal funds are used in the purchase of easements, federal acquisition procedures must be followed, one of which is: "5. Assure title is free and unencumbered or that title insurance is secured for the full value of the encumbered property." (emphasis added) Obviously, it is prudent policy for any land trust or government agency contemplating the acquisition of an interest in real property such as a conservation easement, or a lender accepting property as security for a loan, to be certain the property title is sound and/or protected by title insurance. Shouldn’t prudence also dictate a potential conservation easement grantor demand assurance of the same unencumbered, full value protection for his remaining property rights? After all, the grantor is asked to convey an unencumbered/insured interest in his land. The answer should be an emphatic yes, but potential grantors are seldom made aware of the risks. In fact, land trusts routinely state a conservation easement only restricts certain rights, leaving other rights intact and fully exercisable by the property owner. Statements to this effect are highly misleading. Some attorneys may argue a title policy, in effect when a conservation easement is granted, will continue to protect the owner’s remaining bundle of rights. In theory this may be true for certain of those rights, but in practice a conservation easement, because it is not a true easement, but instead a bastardized muddle of restrictive covenants and servitudes, is not a distinct encumbrance on specific rights. Consider a land owner’s right to harvest timber, unrestricted by the terms in the deed of easement. If a judicial, regulatory or legislative act is subsequently construed or expanded to allow the grantee, or a third party with "standing" such as a government agency, to impose onerous "approved management practice" restrictions or prevent a timber harvest because of "endangered species", the land owner’s property rights would be damaged, but he would have no valid claim against the title insurer or the land trust for recovery of the diminished value of his property. Unlike a power-line easement, for example, which is a contractual ‘known’ well-defined by a long-established body of law, a conservation easement is a mutant, malign, and parasitic organism with hidden tentacles entangling other property rights in unforeseen ways. If title insurance companies-- free-market institutions whose financial success is tied to hard-nosed assessments of risk affecting title to real property-- will not assume risks associated with conservation easements, private property owners should be even more adamant in their refusal to entangle themselves and their property with the risks of this alleged "option for protecting property for future generations." © November, 2002, The Virginia Land Rights Coalition
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