Oaks III: What is a Conservation Easement?

On June 20, developer Ken Thompson presented his plan for the to the Occoquan public, and to turn 12.7 acres of the 18-acre development into a conservation easement "for perpetuity."

But converting all or a portion of a piece of property into a conservation easement is not a "slam dunk," said Kim Hosen, executive director for the Prince William Conservation Alliance, chair of the County Planning Commission, and Occoquan District Planning Commissioner.

“A conservation easement is when someone sells their development rights and permanently gives up their rights to develop a property," Hosen said. "A conservation easement is held by a group called a land trust, and that is their mission, to hold easements."

The Virginia Outdoors Foundation holds most of the easements in Virginia.

"In eastern Prince William County, which is more developed, we don't really have any properties left that meet the Virginia Outdoors Foundation's criteria," Hosen said.

The Virginia Outdoors Foundation guidelines say that "easements on properties less than 50 acres in size must contribute to or add to a designated conservation resource and provide a high level of protection for the identified conservation values of the property to be considered for acceptance."

If a portion of Oaks III was turned into a conservation easement, it would likely be held by the Northern Virginia Conservation Trust.

"Because the Northern Virginia Conservation Trust is such an effective holder of these kinds of easements in Northern Virginia, we don't hold many easements east of Loudoun County," said Jason McGarvey, communications and outreach manager for the Virginia Outdoors Foundation.

However, there's still no guarantee that a portion of Oaks III would be accepted as a conservation easement.

"When the land trust accepts an easement, they're also accepting the responsibility in perpetuity," Hosen said. "There's a perpetual investment that they have to make to make sure that the terms of the easement are honored and enforced. You can't guarantee that a land trust will take it."

A land trust makes this judgement based on the "conservation value" of the property. A property with more trees might have a greater conservation value than a property with fewer trees, for example.

Once a piece of property is held as a conservation easement, its market value goes down. But there are still incentives, on both the federal and state levels, to turn the property into a conservation easement. Virginia is one of four states that offers tax credits to the landowner of a property held in conservation easement.

"If you have a piece of property and a land trust is going to take it, the state gives you a tax credit," Hosen said. "How the tax credit is determined is based on the difference between two appraisals of the property."

The two appraisals are the development appraisal and the conservation appraisal, which are based on the value of the property after development and the value of the property in conservation, respectively.

"Subtract the conservation appraisal from the development appraisal, and that's the number you're working with for the tax credits," Hosen said. "The state will give you 40 percent of the value of the development rights that you sold or gave away. Suppose that you're land rich or cash poor or for some reason your finances don't allow you to take advantage of your tax credit. Virginia allows you to sell your tax credits on the open market."

The 2011 estimated sale price for tax credits is 80 to 86 cents on the dollar, but it fluctuates. This option is open to most individual landowners, and open to some non-profits, with restrictions.

An organization like the NRA, for example, which are the current owners of the Oaks III property, would be able to sell their tax credits because they are not a conservation or environmental organization.

Private individual or business landowners of a conservation easement can also receive a federal tax deduction. This option is not open to a non-profit.

"In the end, you would have received cash for a significant portion of the land, but you still own the land and are free to sell the land as encumbered by the easement," Hosen said. "The land at that point would be worth less than previously because you had been paid for the easement."

This article is part of a continuing series on the Oaks III development.