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A savvy real estate buyer knows to check for easements on a property before buying, but if you’re just starting—or don’t understand what a conservation easement is—you might be subject to a potentially unpleasant surprise. Depending on what kind of development you had in mind, a conservation easement could prevent you from doing what you intended with the property.
However, that doesn’t mean that having a conservation easement on your investment property is automatically a bad thing—be sure to check with your realtor and appraiser for more details about what the easement entails.
But first, if you want to learn which lenders will provide financing for land under a conservation easement, click the link below to book a free strategy call with our team at LendCity today.
What is a conservation easement?
A conservation easement is a legal device that’s designed to protect the natural habitat on the land, while (often) still allowing for some development. It is designed to restrict both the private and commercial development of the land according to the terms outlined in the legal documents. You could still privately own the land, but the oversight of the habitat and its conservation is entrusted to a government oversight agency or land trust.
Conservation easements are usually permanent, but they “run with the land.” That is, they can pass from buyer to buyer. That’s how you can end up buying a property with such an easement, without having consented to or agreed with yourself. (Technically, you agree to the easement when you buy it, which is why it’s so important to stay informed and read the fine print.)
If your investment property has a conservation easement upon it, it will be incumbent on you to ensure that the easement won’t interfere with your intended use. If it doesn’t, congratulations—you will very likely receive a tax benefit from that use of your land.
How do I know if there’s a conservation easement on my property?
To find out whether you have a conservation easement, and what it covers, you’ll need to go through a few different sources. First, check both the deed and your land survey to see whether an easement is mentioned. If there is one, you can either request a copy of the legal terms from your seller or check to see if your province has a copy on file. While no one appreciates more paperwork, it’s crucial information to see whether your investment property can be developed and used as you see fit.
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Advantages and disadvantages of conservation easements
Preserve the habitat
Generally, conservation easements are designed to preserve unique property, vegetation or natural habitats. If the rest of the property is open for you to use as you wish, you could end up with a unique feature on your land. For nature lovers, it can be a win-win all around.
You might not get to develop the property as desired
Depending on how large the easement is and where it’s located, however, you might not be able to develop your property in exactly the way you’ve envisioned. If you want to build homes upon it, you might be limited to a much smaller portion than you paid for, and will likely be subject to more stringent restrictions than other landowners.
You could get a great deal or tax relief
On the other hand, if the easement won’t interfere with your plans for development or building, you may end up getting a sweetheart deal that wouldn’t otherwise be available. That’s why it’s so important to find out exactly what the easement requires or restricts, and weigh it against your plans before you buy. The property may be significantly discounted, or you may receive a tax benefit like a charitable income tax deduction. These are usually based on the difference between the fair market value of the land with and without the easement, which could be quite large.
You might not be able to subdivide
If you’re looking at the property with the goal of subdivision, bear in mind that the easement may limit how and where you can subdivide, or ban it altogether. No one wants to find that out after they’ve already set their heart on a particular piece of property, so research thoroughly.
You might not be able to build any “permanent structures”
Depending on the easement terms, building permanent structures on the easement might be prohibited—which includes fencing and other barriers.
You might not be able to landscape as desired
So the easement won’t interfere with your plans for the land, the price is great, you’re getting a great tax benefit and you love the natural habitat it preserves—but you should also consider your plans for landscaping. Conservation easements may prevent you from removing existing vegetation, planting new bushes, trees or flowers or even sculpting and weeding the habitat that already exists. It’s yet another reason why the fine print is so important—if you’re wedded to a specific vision, a conservation easement can be devastating.
You might have a harder time reselling
If the drawbacks seem to outweigh the benefits, you’re not alone in that thinking. Sometimes conservation easements can make selling a piece of property far more difficult than it would be without one, or you could sell it for less than you were hoping to recoup. Similarly, the old chestnut “if it seems too be good to be true, it probably is,” is a good one to abide by here.
The restrictions might not affect you at all
However, you might not be affected by the restrictions at all—conservation easements are widely regarded as frustration in real estate development and investment, but that is not always the case.
Ultimately, whether you decide to buy a property with a conservation easement, the most important thing to remember is that you need to know exactly what it entails. It may be more flexible than you expect, or you could find an easy dealbreaker.
Once again, if you want to learn which lenders will provide financing for land under a conservation easement, click the link below to book a free strategy call with our team at LendCity today.