Overview Our Conservation Easement Process

A conservation easement is a type of private land protection agreement between a landowner and a land trust that is designed to permanently restrict subdivision, development and certain uses of the subject land for conservation purposes. Completing a conservation easement (CE) is a specialized real estate transaction that requires many levels of expertise in order to be done properly. The process involves a number of essential steps. While the process might appear complicated at first glance, landowners can take comfort in the knowledge that they are in good hands when they choose to work with the New Mexico Land Conservancy (NMLC).

Although NMLC has only been in operation since 2002, our staff and Board have decades of combined experience in private land conservation and, since our founding, we have completed dozens of projects that have resulted in the conservation of thousands of acres of significant wildlife habitat, productive farms and ranches, scenic open space, cultural and historic sites, and recreational lands throughout the state.

NMLC completes all of its easements in accordance with the generally accepted professional standards and practices as set forth by the national Land Trust Alliance (www.lta.org).

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1. INITIAL DISCUSSIONS BETWEEN LANDOWNER AND NMLC: The Landowner and NMLC discuss the physical characteristics of the property, the context within which it is located, and the ownership structure of the property and relevant title issues.  NMLC will want to understand the Landowner’s vision for the property and determine the conservation goals that could be achieved by placing a Conservation Easement (CE) on the property.  NMLC reviews its conservation easement process and may request background documentation (such as title documentation, legal descriptions, surveys, maps and photos). These initial discussions provide an opportunity for NMLC to see if the property has sufficient conservation value to merit easement protection and to qualify for the potential associated tax benefits, and to determine if there is a good match between the landowner’s interests and those of NMLC.  If there is mutual agreement to proceed after these initial discussions, NMLC will request a site visit with the landowner or the landowner’s representative.

2. SITE VISIT: The site visit gives NMLC an opportunity to see the property and understand its current condition and management; and to talk in greater detail with the landowner about its conservation values and what goals the landowner hopes to achieve through the CE. In particular, NMLC will want to understand what rights the Landowner may want to reserve (e.g., future building sites, land divisions, roads, farming, ranching, timber harvesting, recreation, etc.). In addition, any potentially complex issues, such as outstanding liens/mortgages and the status of mineral and water rights, are identified and discussed. Once NMLC and the Landowner decide to work together to complete a CE, the potential project is presented to the Board of Directors of NMLC for preliminary approval.

3. LANDOWNER CONSULTATIONS WITH PROFESSIONAL ADVISORS: A CE restricts the use of the subject land forever and, therefore, should not be entered into lightly. Landowners should get the facts before going to far into the process. Speaking to NMLC first is a good place to start because attorneys and accountants may or may not be well informed about conservation easements. Notwithstanding, while NMLC can explain the CE process and provide general tax information, NMLC cannot provide specific legal advice regarding the CE or the potential tax or financial implications, and recommends that the Landowner seek their own legal counsel regarding these matters. NMLC has experience working with a wide range of professional conservation easement advisors and can provide names and make recommendations to Landowners upon request.

4. LETTER OF INTENT, COSTS AND COMMITMENT CONTRIBUTIONS: If the Landowner and NMLC mutually agree to proceed after initial discussions and the site visit, the next step is to enter into a letter of intent. The letter of intent specifies the general terms under which the Landowner and NMLC agree to complete the conservation easement process, including the estimated timeframe, responsibilities of each party and the costs. Generally, there are three types of costs associated with completing a conservation easement: NMLC’s operating costs, transactional costs and stewardship costs. NMLC’s operating costs include the costs associated with NMLC conducting its due diligence, preparing and legally reviewing the CE deed and associated documentation, and facilitating the conservation easement appraisal. The transactional costs include the appraisal, title insurance and closing costs. The stewardship costs include the costs of annual monitoring and long-term legal defense of the CE by NMLC. Once the Landowner and NMLC agree to the terms of the letter of intent and the costs for the project, NMLC typically asks the landowner to make an initial “Commitment Contribution” upon signing the letter of intent to defray some of the initial operating and transactional costs that NMLC will incur in order to complete the CE. The balance of the project costs are paid in the form of a final contribution or contributions according to a mutually agreed upon schedule of payments upon successful completion of the CE process.

5. DUE DILIGENCE: As with any standard real estate transaction, the CE process begins with NMLC conducting thorough due diligence for the subject property. NMLC will obtain an updated title commitment to verify the legal ownership of the property and determine whether any mortgages or liens exist that might conflict with the conservation easement or cause it to be extinguished if there were a foreclosure. If a mortgage exists, the lender must subordinate its lien to the lien of the easement by signing a formal subordination agreement after the easement appraisal is completed. Typically, most lenders agree to sign these mortgage subordinations as long as the appraisal demonstrates that there is still sufficient, remaining value in the property after the placement of the CE to offset the value of the mortgage. In addition to a thorough review of title, NMLC may request other documents from the Landowner, including mineral and water rights documentation. In order to qualify for most federal and state tax incentives, the Landowner must be willing to extinguish or significantly restrict commercial mineral exploration and extraction through the CE. If the Landowner does not own all of the mineral rights associated with the property, which is not uncommon in New Mexico and many other western states, NMLC may have to commission a report from a qualified geologist to determine the current, commercial mineral potential. If none exist, the geologist must issue a report indicating that the likelihood for commercial mineral development is so remote as to be negligible. Many properties meet the so-called remoteness test because either no minerals are present or the current cost of extracting them makes commercial extraction infeasible. However, if the geologist determines there is significant mineral potential, the proposed CE would likely not qualify for the associated federal and state tax deductions. Regarding any appurtenant water rights, NMLC will want to discuss with the Landowner how many water rights need to be permanently tied to the property through the CE in order to maintain the conservation or agricultural values of the property. The final part of NMLC’s due diligence is to determine if there are any known or suspected environmental hazards on the property. If any environmental hazards are known or suspected, NMLC may commission a Phase I environmental assessment. If environmental hazards are detected through the Phase I, NMLC may proceed with a Phase II assessment and then determine the appropriate course of action with the Landowner. The existence of serious environmental hazards that cannot be mitigated may result in termination of the process.

6. BASELINE: The Baseline Documentation Report (BDR) is a description of the present condition of the property at the time the Landowner grants the CE. The BDR is used to monitor and compare any changes in the property over time and typically includes a description of the physical and biological characteristics of the property, current improvements, and the current management and uses of the property. The BDR includes narrative descriptions, maps and photographs to document the current condition of the property and inventory existing improvements. To complete the BDR, it may be necessary for NMLC to contract outside professionals or specialists. These may include: biologists or ecologists to evaluate flora/fauna and wildlife habitat values; archaeologists to assess cultural and historic resources; and natural resource management specialists to determine the quantity and condition of soil, range, timber and other natural resources. The BDR is required by the IRS and most state taxation authorities to qualify the easement for federal and state tax incentives.

7. CONSERVATION EASEMENT DEED: Preparing the CE deed is the most important step in the entire process. The CE deed declares the basic goals of the conservation project, spells out consistent and inconsistent uses of the property, and provides the conditions for approval and notifications, future transfers of the CE and property, enforcement, amendment, condemnation and termination. NMLC has a standard template that it uses as an initial framework for preparing all of its CE deeds, but it is important to understand that each CE deed is negotiated and tailored to meet the mutually agreed upon goals of the Landowner and NMLC. NMLC and the Landowner review and discuss initial CE drafts, making adjustments until both parties are satisfied with the final document. NMLC conducts final legal review of all of its CE deeds, but landowners may also wish to do the same.

8. APPRAISAL: While the CE draft is being prepared, NMLC works with the landowner to commission a qualified appraisal of the CE to determine the value of the CE and to qualify any charitable donation of CE value by the Landowner for tax purposes. Typically, NMLC commissions the appraisal on behalf of the Landowner and NMLC because of it has knowledge of qualified CE appraisers and it can form an immediate working relationship with the chosen appraiser which generally helps facilitate the appraisal process. If the Landowner chooses to commission the appraisal on his or her own behalf, NMLC will require its own review of the completed appraisal at least 30 days prior to the income tax filing deadliThe Landowner should be aware that the IRS stipulates that the appraisal cannot be completed any sooner than 60 days prior to the signing of the CE, and no later than the date the Landowner files the income tax return for the year in which the CE was donated.

9. FINAL BOARD APPROVAL, RECORDING AND CLOSING: The final CE Deed is presented to NMLC’S Board of Directors for their final approval, which comes in the form of an official Board Resolution. Once the CE deed is approved and any final contributions due are made, the Landowner and NMLC sign the CE deed, and NMLC record it with the appropriate County Clerk’s office. NMLC obtains title insurance for all of its CEs in the amount of the appraised value of the CE. NMLC will also ask the Landowner to sign a media release form specifying the extent to which NMLC can publicize the completed project. Copies of the recorded CE, BDR, and any other relevant documents are sent to the Landowner and/or the Landowner’s representative(s)..

10. TAX INCENTIVES FOR QUALIFIED C ONSERVATION EASEMENT DONATIONS: If the Landowner is interested in pursuing the federal or state income tax benefits associated with a qualified CE donation, this should be discussed with NMLC very early in the process. To qualify for federal income tax deductions, once the CE is recorded, the Landowner, or his or her representative, must submit a completed IRS Form 8283 for NMLC’s signature along with a copy of the final appraisal for NMLC’s review. If the Landowner elects to commission the appraisal on their own behalf, NMLC must receive the final appraisal and the completed IRS Form 8283 at least 30 business days prior to the due date for the Landowner's tax return. The Landowner should be aware that, if the appraised value does not appear to be properly justified, NMLC reserves the right to postpone or decline signing the Form 8283. To qualify for a New Mexico state tax credit, NMLC will work with the Landowner to submit a pre-certification application to the State of New Mexico at the beginning of the CE process. This process involves a determination by the New Mexico Department of Energy, Minerals and Natural Resources (EMNRD) that the Landowner’s easement donation has significant conservation value and is eligible to receive a tax credit. Once EMNRD has pre-certified the tax credit, NMLC will complete the CE process and then work with the Landowner to prepare and submit the final tax credit application to the State of New Mexico, which involves final review and approval of the CE and all associated documentation, including the appraisal, by EMNRD and the New Mexico Taxation and Revenue Department (TRD). NMLC will make its best effort to represent the project to the State of New Mexico, but it cannot guarantee that the Landowner will receive a tax credit for their easement as this decision ultimately rests with the State of New Mexico. Once a tax credit been issued, if the Landowner elects to sell part or all of the credit, NMLC can recommend a qualified broker to assist with this process.

11. STEWARDSHIP: Once NMLC agrees to accept and hold a CE, it is taking on a permanent responsibility to monitor and legally defend (steward) that CE. Accordingly, NMLC sets aside a portion of the CE contributions made by each Landowner in its Stewardship Endowment Fund. This fund is managed separately from NMLC’s operating funds and provides a source of pooled funding that is used to cover the recurring costs of CE monitoring and the potential, long-term costs of CE legal defense in the event of a violation. NMLC monitors all of its CE holdings on an annual basis. This involves contacting the Landowner once a year to arrange an inspection of the easement property by NMLC for the purposes of ensuring compliance with the terms of the CE and to document any changing conditions in the property based upon information contained in the BDR.

If you have any questions after reviewing this information please contact us.

If you have any questions after reviewing this information please contact us.