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Waisted Space: Conservation Easements

-- By MichaelHilton - 17 Apr 2010

Conservation Easements Overview

Conservation easements are a form of covenant which place restrictions on the use of land, and the ability to enforce this restriction is typically given to a third party such as the local government or a charitable trust. Additionally, this covenant runs with the land, and is enforceable against any owner who comes into possession. Most states today have passed legislations specifically authorizing the creation and continuation of this type of covenant. Conservation easements have only recently started gaining in popularity, growing from 2,514,566 acres affected in 2000 to 6,245,969 in 2005, an increase of 148% in a five year period.

Necessity for land use control

The emergence of private ownership was a response to new cost-benefit possibilities. In other words, private ownership was created to internalize the externalities. However, total private ownership without any control would lead to new externalities: owner A can exclude owner B from using his own land, but he has no right to limit the ways in which B uses B’s land. Therefore, B might choose to ignore the possible negative effects on A’s land and use his own land in a way that is beneficial to himself but inefficient overall, because the harm it brings to A’s land is larger than the benefit to B’s land. A might choose to revenge and do the same thing, but it will only worsen the whole situation. The best option now is for the two parties to negotiate and reach an agreement regulating the uses of the two pieces of land. Thus, we have various means for land use control, such as easements and covenants. Conservation easements are just part of the broader scheme.

Prohibition of restraint on alienation

On the other hand, property law has long operated under the logic that there should be few restraints on alienation of property held in fee simple. American courts have been very hesitant to recognize restrictions attached to the alienability of inherited land, holding that such a testamentary device resembles too closely the traditional English fee tail which restricted the right of ownership to a piece of land to a particular class. The principle can be seen in the case of Johnson v. White, in which the court refuses to recognize the provisions of a will which restrict who may come to own the land in question. The common law’s dislike for restraints on free alienation is embodied in the Rule against Perpetuities. The Rule against Perpetuities is designed to protect against dead hand control of land alienation for longer than one generation. In other words, an owner can put a restraint on his children’s ability to transfer the land, but not his grandchildren’s.

The conflict and reconciliation of the two concepts

Prohibition of restraints on alienation seems to be inconsistent with the basic assumption of private land use control: the parties would presumably negotiate and reach a deal in a reasonable way. Actually, some commentators argue that the traditional prohibition of restraints on alienation should be abandoned and freedom of contract should be honored. To put it differently, it is not courts’ job to decide whether a restraint imposed by a landowner is reasonable or not. For other scholars, the prohibition is still worth keeping, but it must be used more prudently now than in the thirteenth century. In my opinion, the two concepts may not necessarily contradict with each other, since the rationale behind the two concepts is the same: efficient use of land. Reasonable people generally would strike a deal in an efficient way, so we should encourage freedom of contract in principle. However, people act irrationally once in a while, so prohibition of restraint on alienation such as Rule against Perpetuities is still necessary. Conservation easements should also be looked at in this light.

The special problem of conservation easements

As one type of private land use control, conservation easements can be prima facie justified. However, the presence of governmental action complicates things. Sometimes such an action is necessary. In the basic example of private land use control, there are only two parties so it may not be hard for them to reach a deal; the negotiation cost is low. However, sometimes there are just too many people involved so it may not be efficient for them to reach a deal; the transaction cost is too high. For example, when there is one victim of a toxicant-emitting factory, a court might issue an injunction and let the parties decide how much the factory should pay to buy the injunction. On the other hand, if there are a thousand victims, the court might render monetary damages instead, because it is too hard for a thousand people to reach a consensus.

Nonetheless, such a remedy is inevitable subject to the doubt as to the court’s capacity to decide the amount of monetary damages. This problem is especially apparent in the creation of conservation easements. For instance, a conservation easement may be created to preserve a historical site. For such an easement to be efficient, the gain of conserving the site must be greater than the cost of giving up the mall and the tax benefits combined. Judging from the skyrocketing of the numbers of conservation easements, it is hard not to be suspicious that the tax benefits are just too high.

The problem with any kind of governmental intervention has always been like this: due to procedural restraints and political influences, the government can hardly do things in the most efficient way. Governmental intervention is still necessary, but it is necessary only on condition of a private system failure. Therefore, conservation easements are not inherently unjustifiable, but the use must be more limited than it is today.

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