CONFLICTING EASEMENTS: FINDING A LEGAL SPACE WHERE LAND CONSERVATION AND MINERAL DEVELOPMENT CAN LIVE IN HARMONY
| Jurisdiction | United States |
L.L.M. in Natural Resources & Environmental Law Spring 2010
jcullers12@law.du.edu
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Driving along the outskirts of cities, or even within one, you may encounter working ranches, alfalfa fields, or seemingly untouched, open plots of land and wonder: how did this land escape the ever-expanding suburbs? A likely answer: conservation easements. Conservation easements are real property interests that restrict development in favor of preserving wildlife habitat, open space, or historic resources.1 Federal and state tax laws incentivize their creation, thus conservation easements represent a significant public investment in preservation.2 Their versatility helps easements thrive from the fringes of urban sprawl to remote scenic vistas.3
Now, imagine this open land with well pads, access roads, and pipelines--is it still "conserved"? This paper examines the conflict between mineral development and conservation. Section I explains the conflict's origin, while Section II details its implications and need for a legal solution. Section III explores possible legal solutions and why they are inadequate, while Section IV argues that the accommodation doctrine of mineral law offers the best solution to the conflict because it strikes the right balance between surface conservation and mineral development.
I. LEGAL FOUNDATIONS OF THE CONFLICT
This Section introduces conservation easements generally and the role tax law plays in the conflict with mineral development. The Section ends with a brief discussion of the contexts in which the conflict arises.
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A. Introduction to Conservation Easements
Conservation easements are real property interests granted by surface landowners. They impose limitations and obligations on the grantor's use of the surface for the purpose of protecting conservation values.4 These values include wildlife habitats, scenic views, historic resources, and open space.5 Generally, conservation easements allow the landowner to remain on the property and continue residential, agricultural, or other uses. However, the easement will contain detailed, individually-tailored restrictions on surface use to protect the conservation values, such as limiting the location and size of buildings and other structures.6 Modern conservation easement statutes do not require an appurtenant dominant estate.7
Conservation easements are held by governmental entities or charitable organizations; the charitable organizations are known as "land trusts" organized solely for this purpose.8 Most conservations easements are perpetual as this is a requirement for the grantor to qualify for federal tax benefits.9 Since the common law disfavors conservation easements, state legislatures enable them by statute and override common law defenses to enforcement.10 All states except North Dakota have enacted some form of conservation easement legislation.11 Most have adopted the Uniform Conservation Easement Act (UCEA),12 first drafted in 1981 and amended in 2007.13
Conservation easements are fast becoming a primary land conservation
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tool. In 2003, over five million acres of private land were subject to conservation easements14 held by over 1,260 land trusts in America.15 The largest trust organization is The Nature Conservancy, which currently holds 3.2 million acres of conservation easements.16
B. Conflict with Mineral Development
Conservation easements' conflict with mineral development is potentially far-reaching because most landowners, especially in the western United States, do not own the mineral estate underlying their land. The federal government owns the minerals underlying approximately 60 million acres of private land.17 These lands are subject to entry under the 1872 Mining Law18 and leasing under the 1920 Mineral Leasing Act.19 Alternatively, minerals may be privately owned, and the owner can lease or develop them. For purposes of this paper, mineral development refers to oil and gas development rather than surface or hard rock mining, because, as we will see, surface mining is unlikely.
Where conservation easements are concerned, mineral issues manifest themselves in two contexts. First, mineral issues arise when an easement is granted, affecting the grantor's eligibility for tax benefits. Second, mineral issues arise after the grant, when ongoing or potential mineral development threatens the conservation values of the easement, and visa versa. This paper focuses on the latter problem, which results from the mineral estate's dominance and tax law.
1. The origin of the conflict: mineral estate dominance
As noted above, minerals (including hydrocarbons, metals, and other valuable substances) are often severed from surface of the land, resulting in two overlying estates: the surface estate and the mineral estate.20 The mineral estate is dominant to the surface estate and includes an implied
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easement to use the surface as reasonably necessary to access the minerals.21 As a result, surface owners cannot prevent potentially damaging mineral development on their land. A variety of legal doctrines and statutes have developed to ease this burden on the surface, but the essential relationship between mineral and surface estates remains.22
Surface owners grant conservation easements to protect the surface from development, but cannot burden the surface use easement in favor of the mineral estate. The result: a direct conflict between the negative easement of surface conservation and the surface use easement appurtenant to the mineral estate.
2. Aiding and abetting the conflict: tax law
Conservation easements need not comply with tax laws. However, in practice federal tax incentives motivate the vast majority of modern easements,23 and drafters take pains to ensure tax success. The resulting easements are vulnerable to oil and gas extraction.
Easements must comply with the Internal Revenue Code ("Code") and IRS regulations in order to qualify as a tax-deductible charitable contribution.24 There are multiple permissible conservation purposes.25 Easements typically include at least two purported conservation values (such as open space and wildlife habitat) to ward off potential IRS challenges.26
Importantly, tax laws do not require that the grantor of a conservation easement own both the surface and mineral estates,27 probably because few landowners enjoy this status. If the grantor owned both interests, he or she could give up the right to develop the minerals as a condition to receiving tax benefits, eliminating the risk of future mineral development.
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The Code recognizes the threat that mineral development poses to the conservation values of an easement, but makes a distinction between surface and non-surface mining methods. Easements compliant with the Code carry a very small risk of future surface mining, which would no doubt destroy the easement.28 However, the Code allows benefits where there is mineral development at the time of the grant using subsurface methods.29 Hydrocarbon extraction occurs on easements in existence today thanks to this allowance.30
The Code does not foreclose or even mention future subsurface mineral extraction, despite requiring that conservation easements be granted in perpetuity. As a result, most easements encompass a perpetual risk of potentially damaging hydrocarbon development. Land trusts will weigh this risk in choosing whether to hold the easement donation and may consciously assume the risk.31
3. Situations where the conflict arises
As explained above, a severed and dominant mineral estate opens the door to conflict with surface conservation, and tax law fails to close that door in the case of subsurface mineral extraction. The resulting tension
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occurs in three situations: (1) the mineral owner and surface owner are the same, and mineral owner later wishes to develop or lease minerals; (2) the mineral owner (or lessee) and surface owner are different, and there is ongoing mineral development on the property when the conservation easement is granted; and (3) the mineral owner (or lessee) and surface owner are different, and the mineral owner seeks to develop the minerals after the easement is granted.
In the first situation, a well-drafted easement will probably constrain the unitary owner's ability to develop minerals in a way that threatens the easement. However, in the latter two, the easement cannot legally reach the mineral owner or lessee's interest, setting the stage for a conflict.
II. IMPLICATIONS OF THE CONFLICT
This section describes conflict's implications for both the mineral and surface estates, with detail on how mineral extraction can harm specific conservation values. The text also explains the need for a legal solution enabling both activities.
A. Conservation values at risk
An easement's conservation purposes are routinely written in terms of IRS regulations defining permissible conservation values. Oil and gas operations can potentially harm the most likely conservation purposes of the easement.
IRS regulations describe in detail four possible conservation values: (1) preserving land for "outdoor recreation by, or the education of, the general public;" (2) "protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem;" (3) "preservation of certain open space (including farmland and forest land);" and (4) "preservation of a historically important land area or a certified historic structure."32 Purpose (1), public education or recreation, is rarely utilized because it requires substantial and regular public use,33 and most donors do not want such activity on their land.34 Purpose (4)...
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