Landowners Must Carefully Negotiate and Review Conservation Easement Provisions

A recent federal case from the Middle District of Pennsylvania highlights the importance of carefully negotiating and reviewing terms within conservation easements so as to fully protect landowners’ interests.

Conservation easements are powerful tools to preserve and protect natural, historic, and ecological resources. After granting a conservation easement, the landowner retains his ownership interest in the property, as well as any property rights not specifically restricted by the terms of the easement. The holder of the easement, usually a land trust or a government agency, enforces the easement and ensures that the landowner is using the property in a manner consistent with the easement’s terms. In exchange for giving up often significant property rights (such as the right to commercially develop the land), a landowner who grants a conservation easement usually reaps significant state and federal tax savings. 

The terms of a conservation easement are negotiable, and it is crucial that the easement is well drafted so as to avoid surprises. It is also important that the landowner clearly understands the restrictions and obligations established by the agreement. A recent case from the Federal District Court for the Middle District of Pennsylvania illustrates this point. At the time the owner’s predecessors granted a conservation easement to a wildlife foundation, hydraulic fracturing (fracking) was not in use in the area. Neither party considered the possibility that the shale below the surface of the property may contain accessible natural gas deposits.  Five years later, however, fracking had taken off, and oil and gas companies were seeking to explore the property for natural gas deposits.  The conservation easement contained no terms specifically addressing oil and gas exploration. However, it did include a number of restrictions, including banning “industrial or commercial uses” and “commercial mining and/or quarrying.”  The easement specifically reserved to the owner all non-prohibited rights. A dispute arose after the owner sought to begin natural gas exploration on the property. The wildlife foundation resisted, arguing that although not specifically addressed in the conservation easement, fracking was banned by its terms.

The owner filed an action against the foundation seeking a declaration that fracking was a permitted activity under the conservation easement. The court sided with the foundation, and awarded the foundation reasonable costs and attorney fees pursuant to a “cost of enforcement” provision in the easement.  In the subsequent costs and fees proceeding, the court ordered the owner to pay $184,775.66 to the foundation for costs, attorney fees, and litigation expenses incurred by the foundation to enforce the easement.

The “cost of enforcement” provision in the conservation easement gave only the foundation the right to recover costs and fees associated with “enforcing” its terms. It does not appear that any other provision in the easement would have granted a similar benefit to the owner had it been the “prevailing party” in the dispute.  As evidenced by this case, it is important that landowners clearly understand the extent of their obligations and restrictions under a conservation easement. It is also crucial that landowners negotiate terms to protect their interests. A non-reciprocal costs and fees provision shifts bargaining power to the party entitled to the fees. Landowners and practitioners should watch for these provisions and carefully negotiate and evaluate conservation easements prior to their execution.