Private Preservation Protections: Preservation Easements

Preservation activities outside of federal incentives

The development of a preservation ethic is never complete, nor would the proper metaphor be evolutionary.

Other means of creating oversight before or after any change may be made can be informal and informational, or formal and legal.

The legal forms between the property owner and a referee whose “interest” is the maintenance of the character of the property are called easements, or covenants.

Object based History Model

Action model

Private restrictions on the use of property

Easement

A formal agreement between the owner of a historic structure and a government agency or

preservation organization giving the latter the right to review and approve changes to the building before they are undertaken.

In exchange for giving the preservation organization or government entity a legally enforceable right to protect the historic character of the site that amounts to a property interest, the building’s owner may receive tax or some other economic benefits.

Easements as a form of common law

Easements are part of the ancient common law of England

Railroads and other transportation involve easements. Virtually all infrastructure involve easements.

Preservation and conservation easements did not find extensive use in the United States until the environmental movement was well-established.

What is a Covenant?

Covenant is the common law term for an agreement. In contemporary use is primarily for conveyances for real estate. The responsibility for upholding the terms of the covenant transfer to any new owner.

The agreement may be between the State Historic Preservation Office and the owner of a historic property in which the owner agrees to ensure the maintenance and preservation of the architectural and historical characteristics that qualified the property as eligible for the National Register of Historic Places.

A condition for grant-funded stabilization work. To protect their monetary investment in a property, the state or federal government retains a right to review any work on the building for a period of time (often ten years) through the covenant agreement.

If historic properties are sold, transferred, or leased to non-federal entities the federal agency will often execute a covenant with the State Historic Preservation Office to protect a property in perpetuity.

Qualified Conservation Contribution

Qualified Conservation contribution is defined by the Internal Revenue Service as a gift of a qualified real property interest to a qualified organization.

A “qualified real property interest” includes “a restriction granted in perpetuity of the use which may be made of the real property.”

A “qualified organization” is defined broadly to embrace most publicly supported charities. (501c3) status

To be exemptTo be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be

organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may be distributed to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

Conservation purpose

Conservation purpose may be :

Preservation of land areas for outdoor recreation, or education of the general public, for scenic beauty, and is clearly pursuant to Federal, State or Local conservation policy—and will yield significant public benefit.

Or

The preservation of an historically important land area or a certified historic structure.

Certified structures are those buildings or the National Register of Historic Places, or that is placed on the National Register by the time the tranferrer’s tax return is filed for the year of transfer.

The gift must be “exclusively for conservation purposes in perpetuity.

Importance of appraisals

Before and After approach

Appraisal of value must stem from:

Market data

Cost

income approaches

Before and after valuation must be applied to the property as presently developed, not as might be developed.

Differences between open-space and façade easements

Open space easement what is the value of the buildings?

Within historic districts one method of analysis: note what developers are paying for properties to assemble into larger more dense developments.

Thayer et al vs Commissioner. (Substantial vs Incidental)

In the case of Estate of Philip R. Thayer, Deceased, et al.

v. Commissioner, 24 T.C. 384, acquiescence, C.B. 1956-2, 8, relative to the deduction under section 812(d) of the Internal Revenue Code of 1939 (now section 2055 of the 1954 Code) of the decedent's legacy to the California Alumni Association, the Tax Court of the United States held that such deduction was allowable.

It found that the association was operated exclusively for educational and charitable purposes within the meaning of section 812(d) of the 1939 Code. In arriving at its decision, the court stated that the crux of the problem is whether the social and

recreational activities conducted by the Association are 'substantial' or merely incidental to the objective of advancing the interests of the university. The court concluded that the social or recreational aspects of the Association's activities were merely incidental to its primary purpose of affording a medium through which the alumni can contribute to the welfare of the university.

Admittedly, the instant alumni association was organized to advance the welfare of its University. Its constitution states that it is to be organized and operated exclusively for educational and charitable purposes. The constitution also states that in addition to and in the furtherance of such purposes the association shall foster a spirit of fraternity among graduates and former students of the university, encourage recreational activities for its members and promote other appropriate nonprofit activities. The evidence presented discloses that participation in the university's fund-raising campaigns and the performance of necessary services for the university constitute the major part of the association's activities.

Although the statute requires that an organization claiming exemption under section 501(c)(3) be organized and operated 'exclusively' for one or more of the specified purposes, the section does not require that every activity performed by the organization shall per se be directly for one or more of such purposes. Thus, activities which involve social and other related features which are incidental to the primary purpose or purposes are not decisive that the organization is participating in non-exempt activities. See I.T. 3330, C.B. 1939-2, 185. The Tax Court in the Thayer case recognized, and the Service agrees, that activities which in themselves are not educational or charitable may be incidental to such purposes; if they are, such activities do not constitute a ground for denying the exemption.

An appraisal of the social, recreational and other activities engaged in by the association primarily for the benefit of its members and other alumni results in the conclusion that such activities are incidental. It is concluded, therefore, that the association's principal, primary and predominate stated purposes are educational and charitable and that substantially all of its activities are devoted to charitable purposes in that they are in aid of education. Accordingly, it is held that the instant association is organized and operated exclusively for educational or charitable purposes and that it is entitled to exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954.