Prepared by: Sue Michalsky, Paskwa Consultants Ltd., Tel: 306-295-3696 Email:suemichalsky@sasktel.net

MODULE #3

Dedicated Stewardship Funding

Training Module

April 2010

This project is made possible through a grant from the Alberta Real Estate Foundation

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Dedicated Stewardship Funding Training Module

Learning Outcomes:

1. Understand how dedicated funds can help the land trust uphold its responsibilities and the promises made to the public when accepting a conservation easement or acquiring a fee simple property.

2. Be able to determine the long term costs associated with monitoring and defending conservation easements.

3. Be able to determine how much funding will be needed to care for a fee simple property over time and meet your land trust’s goals.

4. Understand different methods for calculating stewardship fund contribution amounts based on easement stewardship costs

5. Be able to determine whether a steady source of operating income or a designated fund(s) provides the best assurance of the financial resources your land trust needs to meet its property management responsibilities.

6. Know how to assess your current stewardship funding situation for adequacy and understand options for increasing it.

7. Know how to create a stewardship fund policy for your land trust.

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GLOSSARY

Affirmative obligations - A clause in the restrictions section of the conservation easement that requires the landowner or the land trust to conduct management in a certain manner or to meet a certain goal.

Baseline Documentation Report - The legal record of the site and condition of the resource; included in the easement or deed package.

Capital costs - A one-time cost to purchase a large physical asset, after which there will be only recurring operational or maintenance costs.

Conservation Easement - A legal agreement between a landowner and a qualified conservation organization or government agency that limits a property's uses in order to protect the property's conservation values. It is a voluntary, written agreement that is registered on title to the land in Alberta in accordance with the Alberta Land Titles Act. It binds current and future owners of the land.

Day rate - A labour rate used in budgeting that incorporates salary, benefits, overhead to support the employee (both physical and labour), and time spent on associated administration.

Dedicated Stewardship Fund - A dedicated, but not necessarily permanent, source of funds for a land trust to cover the costs of conservation easement monitoring and land management. A dedicated fund may be an endowment or may be a fund from which the principal can be expended under certain circumstances.

Encroachment - Extension of a structure, portion of a structure, or destructive activity onto someone else's property without permission.

Endowment - A fund which is kept in perpetuity to provide interest and dividend earnings for the benefit of a charitable cause.

Financial model - A mathematical representation of key financial and operational relationships. Comprising of one or several sets of equations, it is used in analyzing how an organization will react to different economic situations or events, and in estimating the outcome of financial decisions before committing any funds.

Infringements – Violation of another’s rights. Includes encroachment and violations.

Liability - The responsibility of a land trust to ensure that negligence or inappropriate actions do not result in bodily injury or property damage.

Monitoring - The act of observing and keeping a record of the activities and conservation values associated with a conservation property.

Operating budget - A detailed projection of all estimated income and expenses based on forecasted revenue during a given period (usually one year). It generally consists of several

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sub-budgets, most important one being the revenue budget which is prepared first. Since an operating budget is a short term budget, capital costs are excluded because they are long-term costs.

Operating reserve - An amount of money set aside because building components or equipment will wear out in a relatively short time and need to be replaced. Operating reserves are often merely an accounting entry as a phantom expense item reducing net operating income. This ensures the funds for replacement are available when required.

Overhead - The ongoing administrative expenses of an organization which cannot be attributed to any specific business activity, but are still necessary for the organization to function. Examples include rent, utilities, and insurance.

Reserved rights – rights of development specifically exempted in a conservation easement agreement, such as the right to replace or construct additions to buildings, which are otherwise restricted by the CE agreement.

Stewardship budget - A detailed projection of estimated stewardship annual and capital replacement costs for a fiscal year. The budget often provides detail by property and is based on estimated stewardship income.

Stewardship endowment - A dedicated, permanent source of funds for a land trust to cover the costs of conservation easement monitoring and land management in perpetuity.

Violations - Breaking, breaching or contravening the restrictions and affirmative obligations outlined in a conservation easement agreement to the detriment of the conservation values of a property.

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BACKGROUND

When a land trust accepts a fee simple property or conservation easement (CE), it promises to ensure that the land’s conservation values remain protected forever. To fulfill this promise to future generations, land trusts should analyze potential activities that could occur over time related to the CE or fee simple property following securement. Such an analysis enables the land trust to determine their financial obligations into the future.

To be responsible stewards of the land, land trusts need to understand the financial implications of their long term stewardship obligations, have a plan to meet these obligations and manage their financial resources prudently so that future staff and volunteers are able to fulfill their commitments.

Long term stewardship is important to the land trust community and the public over time for the following reasons:

• It allows the land trust to meet long term land conservation goals.

• It maintains long term credibility in the community where the land trust works.

• It ensures long term securement tools have longevity.

• It maintains public support which influences donor support, and therefore financial

security into the future.

The surest way to prepare for the costs of stewardship commitments is to set up a dedicated fund that is managed separately from the land trust’s operating budget. However, there are many variations of funding stewardship costs including:

• Funding at least a portion of annual stewardship costs from the income generated

from a dedicated fund.

• Paying stewardship costs from the annual operating budget and reinvesting the

dedicated fund income to increase that fund’s growth until the fund reaches a

certain targeted level.

• Funding stewardship expenses from sources other than a dedicated fund, such as

operating funds, membership income and/or dedicated government funding for

land trusts.

Stewardship costs associated with monitoring and managing CEs and fee simple properties are predictable and trackable from year to year. Therefore, it is possible to estimate the dollar amount required to fund stewardship activities well into the future. However, there will also be times when a land trust needs to defend a CE or deal with legal encroachment

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on fee simple lands. These legal defence costs are irregular and unpredictable. For this reason, the Best Practices Training Module for the Alberta Land Trust Alliance recommends that stewardship and legal defence funds be established separately.

Land trusts commonly use one of the two following dedicated fund models to prepare for stewardship and enforcement costs:

1. Combined Stewardship Fund and Legal Defence Fund

Some land trusts plan for major defence funding to come from the principal of the dedicated stewardship fund. The income of the fund may be available for annual stewardship, but the principal is expended only in the case of a major legal defence action. As a result, such a fund is not a true “endowment,” because the principal may be withdrawn. One problem with this approach is that the fund may be drained to address an expensive legal challenge. If an organization finds itself in the unenviable position of defending two or more violations or potential violations simultaneously, it might jeopardize the entire stewardship program by depleting the overall fund.

2. Separate Stewardship and Legal Defence Funds

Alternatively, a land trust may establish a true stewardship endowment (from which income but not principal may be spent) to cover routine stewardship expenses, and set up a separate dedicated fund (from which income and principal may be withdrawn) for the defence of CEs and liability associated with fee simple properties. Every land trust must be prepared to pay significant legal expenses at some point in time. Although it is difficult to project actual costs or the frequency with which legal defence expenses will be incurred, the Land Trust Alliance in the US recommends that to fully fund an enforcement action or other litigation, a land trust needs a minimum of $50,000 in its legal defence fund. The more fee simple properties or CEs a land trust holds, the larger the legal defence fund should be.

The distinction between a stewardship and a legal defence fund is not readily apparent. Land trusts must determine their own distinction. In most cases baseline documentation and monitoring fit clearly into stewardship while defending conservation agreements and conservation values in a court of law fit clearly into legal defence. In between those actions is a gray zone of activities that can be allocated to either fund depending on the land trust’s preference. For example, some land trusts include any component of binding arbitration as legal defence whereas other land trusts place mediation into stewardship.

This training module addressed the requirements for a dedicated stewardship fund only and deals only peripherally with legal defence. For more detailed treatment of legal defence requirements, see the work prepared by the Miistakis Institute of the Rockies on behalf of the Foothills Land Trust in Appendix A.

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The following sections are dedicated to the provision of information and guidance for land trusts seeking to build a dedicated stewardship fund. Much of the following information is extracted from the Land Trust Alliance’s “Determining Stewardship Costs and Raising and

Managing Dedicated Funds”, and adapted for the Alberta Land Trust Alliance.

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WHAT VARIABLES INFLUENCE STEWARDSHIP COSTS?

A land trust’s stewardship program should be tailored to the types of CEs and fee simple

properties it holds, the land resources it protects and the partners with whom it works. All

land trusts must plan to fund the following major stewardship activities:

1. Baseline documentation (although many land trusts consider this item a

transactional cost),

2. Regular, periodic monitoring,

3. Land management activities,

4. Maintaining ongoing landowner /partner / public relationships,

5. Administrative costs or overhead, and

6. Legal costs in response to liability, violations or encroachments.

STEWARDSHIP COSTS FOR CONSERVATION EASEMENTS

The costs associated with CE stewardship programs will vary, depending on the methods a

land trust uses for monitoring, whether staff or volunteers are involved, the complexity of

easement provisions and land management requirements and the likelihood of violations,

encroachments and liability. Using information from its stewardship program, a land trust

can determine costs for current activities and projects into the future. Costs for CE

enforcement, including legal and other CE defence costs, should also be forecast.

Some of the major costs associated with stewarding conservation easements include:

Labour Costs: All land trusts, whether they currently use paid staff or volunteers for easement stewardship, must consider labour costs. Volunteer-based land trusts need to consider if and when the organization will need easement stewardship staff, even if volunteers complete the job today. Paid staff time almost always increases as easement stewardship programs mature. Even if the land trust continues to use volunteer monitors as the volume of monitoring increases, staff will be required to manage volunteer training and scheduling.

When evaluating the costs of staff time (salary and benefits) or volunteer time for routine monitoring, a land trust should consider the following activities:

• Preparing for and visiting the property during annual monitoring. Routine

monitoring may require expert advice that is not available from staff or volunteers.

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Experts such as appraisers, agrologists, foresters, wetland ecologists or wildlife

biologists may be called in for certain monitoring tasks or to answer questions that

arise during monitoring.

• Answering landowner questions; communicating with other interested parties, such

as neighbours or the local governing body; reporting and keeping good records; and

communicating with the board and staff about stewardship issues.

• Following up on problems or questions that arise during the monitoring visit.

• Additional monitoring visits when reserved rights are exercised. For example, CEs

that allow subdivision or the construction of new residences are more costly to

monitor than those that do not. If a land trusts accepts an easement that includes

reserved rights or other activities for which land trust review and approval will be

needed, it should factor in the cost of this time. In some cases, paid consultants, such

as natural resource experts, architects, land use planners or legal advisors, may be

needed as well. These visits allow the land trust to spot any possible

misunderstandings or errors before construction is completed and can go a long

way toward building landowner trust.

• Extra monitoring if a CE involves affirmative obligations of the landowner for

specific management activities.

• Overseeing volunteer monitoring programs (e.g., arranging for training and

supporting volunteers, tracking paperwork and following up on problems).

• Maintaining good relationships with landowners can involve time and expense

beyond the required monitoring functions, and the stewardship cost estimate

should consider these extra costs. Strong relationships with landowners are based

on person-to-person contact with the organization. Some land trusts work toward a

more proactive relationship with easement landowners to foster good

communication and land management. Some prepare and send regular newsletters

to their easement landowners; others hold annual events to gather easement

landowners for fun and education. These outreach activities can help keep

landowners attentive to the easement and offer additional information or

opportunities for collaborative resource improvement projects with the land trust

or related organizations.

• Land trusts should pay special attention to cultivating a relationship with the new

landowner when a CE property changes hands. Land trusts that have experienced

turnover to “second generation” landowners know that at this point enforcement

challenges commonly begin. Most land trusts try to meet with a new landowner as

soon as possible to review the easement, answer questions and head off potential

conflicts. Land trusts should factor in extra time for cultivating relationships with

new landowners. Timely, consistent education and treatment of landowner requests

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is often the best method for ensuring strong, constructive landowner relationships,

and is often the best defence against possible violations.

Office Overhead: Because organizations usually need an office and associated amenities to run a CE program, some land trusts add a factor for overhead into their easement stewardship cost calculation. Estimates may be based on a percentage of actual office overhead costs or on a percentage of estimated CE stewardship costs and then added on to the stewardship estimate. If a land trust incorporates overhead into the CE stewardship calculation, it should be used consistently from easement to easement.

Travel and Mileage: Depending upon the size of the land trust’s service area, travel costs can be anywhere from an incidental cost to a significant expense. Some larger land trusts hold easements that are located more than a day’s drive from their headquarters. In addition to the mileage, accommodations and meals, travel time can become a substantial cost.

Supplies and Equipment: Cost of supplies is usually a relatively minor component of easement stewardship costs. Consider, for example, the costs of cameras, image processing, GPS units, fireproof file cabinets, copying and mailing, along with any expenses unique to a program. Dedicated computers, vehicles and aerial imagery are examples of additional costs that can be incurred when CE programs become large.

Storage and Records Management: Land trusts should consider storage and recordkeeping as part of the cost of a CE stewardship program. Costs associated with recordkeeping include:

• Direct costs (such as fireproof files, archival materials, etc.)

• Labor costs (staff time involved in documentation of landowner contacts and other

functions)

• Administrative support (filing, mailing, database updates, etc.) This often-

overlooked aspect of stewardship expense is one that becomes substantial once an

organization has accepted a large number of easements.

Legal Costs: Over time, monitoring activities inevitably result in legal questions about CE interpretation, compliance issues, process and other points of law. Sometimes these questions come directly from the landowner as a request for easement interpretation, discretionary approval or amendment. For the CE holder, having ready access to an attorney is essential. Some land trusts keep an attorney on staff or on retainer and some seek advice from members of their board of directors who have a legal background. These approaches can help keep legal costs down, but for some situations it may be necessary to hire outside counsel. CE holders should consider these predictable, ongoing legal expenses in their stewardship planning.

Additional Management Costs with Affirmative Obligations: If a land trust accepts affirmative obligations in a CE, it must estimate these ongoing stewardship costs as well.

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While affirmative obligations are often supported by the original landowner, subsequent landowners may be less enthusiastic about this level of “partnership” with the land trust. The land trust will need to calculate the time and resources necessary to implement these provisions into the future. These costs could include:

• Habit management activities such as weed control, prescribed burns and species

monitoring or inventories. Habitat improvement investments can range from one

volunteer workday to a major, multiyear restoration project involving heavy

equipment. The challenge, when factoring in this cost on an annual basis, is to be

realistic. Land trusts frequently underestimate the true cost of these types of

activities.

• Opening land to the public can lead to additional stewardship expenses, particularly

to resolve conflicting uses, maintenance issues and landowner concerns. For

example, if a land trust accepts responsibility for trail maintenance on a CE

property, it should plan for regular monitoring, maintenance to keep the trail up to

acceptable standards and perhaps collaboration with public user groups on trail

issues.

• If a CE requires that educational activities are to take place on the protected land,

the land trust will need to allocate sufficient time to ensure that these events are

conducted.

• Some land trusts include CE provisions that require cooperation with the landowner

to provide demonstration projects on the CE land — usually in a specific location or

relating to a specific habitat improvement.

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STEWARDSHIP COSTS FOR FEE SIMPLE PROPERTIES

Stewardship of fee-owned properties is a complex enterprise because of the wide range of activities land trusts may undertake, from simple monitoring to removing invasive species to managing public recreational use. Managing fee simple properties is an evolving field within the land trust community. Every property poses both typical and unique management challenges. Also, impacts on the land and uses of the land are not static, and many of the challenges that land trusts will face in the future are not well defined or even contemplated today.

Costs will vary from land trust to land trust and property to property because stewardship will involve different activities on different properties. Stewardship activities range from basic monitoring to ensuring that the property is secure and free of encroachments; to conducting detailed inventories of natural resources and ecological attributes, along with extensive management activities; to improving wildlife habitat, controlling invasive species, or generating income from agriculture, recreation or forestry. The land trust must also consider donor, neighbour and community expectations when determining appropriate stewardship activities. If a land trust uses public or foundation money to acquire a property, the grant agreements may have conditions requiring certain stewardship activities designed to protect the investment of the funder and help achieve its programmatic mission. Once a land trust determines its goals for a property and how to achieve them, it can then begin to put together estimates of costs for current and future stewardship activities.

In general, land trusts must plan for four types of stewardship costs:

• Start-up costs

• Annual costs

• Capital expenses

• Capital replacement costs

Start-Up Costs: When the land trust first acquires a property, it needs to take some actions immediately. Start-up activities can include:

• Holding a dedication ceremony

• Contacting neighbours

• Preparing lease agreements

• Surveying and posting boundaries and hazards

• Cleaning up garbage

• Conducting natural and cultural resources inventories

• Locating species at risk

• Fencing

• Installing gates at trailheads or to block roads

• Constructing or repairing trail and parking areas

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• Removing buildings or known hazards

• Erecting entrance signs

• Purchasing or preparing maps and aerial photographs

• Preparing a baseline documentation report and management plan

• Preparing a property brochure These expenditures begin transforming a property into a protected area. They may be one-time costs, or occasional recurring costs. Start-up costs are most often considered to be one-time, initial expenditures. They can be calculated early in a land acquisition project and be incorporated into that project’s budget. The cost of installing gates, signs and other structures can usually be easily calculated based on the cost of materials and staff or contractor time. It is generally not appropriate to pay for these costs from restricted endowments, because they are more properly analogous to capital costs, not operating costs. Therefore, land trusts should raise funds specifically for start-up costs, just as they would for capital costs, and not mix these funds with those that are designed to generate annual income from interest on endowment principal. Annual Costs: Most of a land trust’s stewardship costs are annual expenses for monitoring and managing the property. In calculating the amount needed for its stewardship fund, each land trust must remember that it needs to generate enough money from interest on its fund to cover these annual costs (as well as additional interest to put back into the fund to at least keep the principal even with inflation). A comprehensive list of annual costs incurred in land ownership is outlined below, but it is not necessarily a complete list. Each property, each locality, and each land trust may have unique needs. Before assuming responsibility for a property, a land trust should make its best effort to factor in all the annual costs associated with that property, and budget accordingly.

• The land trust’s property should be monitored regularly (see Stewardship Monitoring Training Module for detail on activities), according to the needs of a particular site. Most land trusts will want to budget for staff or a consultant’s time to do monitoring or to supervise volunteer monitors.

• Signs, buildings, trails, roads, dams, bridges, walkways, docks, fences, gates, boundaries, registration boxes, parking areas, etc., need to be maintained. Costs may include material expenses and staff or consultant time.

• The costs of purchasing (or renting) and maintaining equipment used in management should be considered in a project’s annual expenses.

• Depending on the land trust’s conservation objectives for the property, a variety of resource management activities may be needed on a recurring basis. These might include for example, control of noxious weeds or other exotic species, mowing,

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prescribed burning, plantings, maintenance of scenic views, pest control, water quality monitoring, grazing or installing nesting structures.

• There are a number of administrative activities a land trust must undertake as part of its overall stewardship program. These may not be attributable to a particular property but should be funded by the stewardship fund. These include staff time and other costs associated with overseeing the program, developing stewardship policies, public relations activities that are part of stewardship, maintaining records, annual budgeting, filing tax forms, hiring interns, coordinating volunteers and managing a computerized database, if applicable.

• Each municipality has its own rules governing the payment of property taxes by nonprofit organizations. In some, land trusts have the option of applying for agricultural or open space classification, which greatly reduces their tax burden.

• To protect itself from liability, every land trust should carry liability insurance sufficient to cover all properties and their structures. The cost of liability insurance varies substantially depending on the use of the property and other factors and may change over time. In addition, a land trust may wish to carry property damage and replacement insurance on any buildings or other structures associated with a fee simple property.

• When a land trust owns a parcel of land, however small, the land trust becomes part of the local community. It now has neighbours with whom it should communicate its land management plans, even if that means leaving the property in its natural state. The amount of staff time required to build and maintain these relationships and to process related paperwork is substantial. Public relations costs are particularly important if a property is considered a “cornerstone” of a local community and there are residents or groups that have a strong interest in its use and management.There are any number of leases into which a land trust may enter. All will require oversight. Building leases are common when a land trust acquires properties with buildings for which it has no programmatic use. Being a landlord carries with it substantial responsibilities for maintenance, tenant communications and occasionally unpleasant activities such as disputes and evictions. There are legal costs for preparing leases and rental agreements, and for resolution of disputes. Leasing agricultural land to farmers, recreational leases and other land resource leases are generally less complex to administer. If land or structures are leased to other parties by the land trust, the cost of having counsel review and renew the leases periodically should be considered.

Replacement and Capital Costs: Normally, if the land trust must purchase or acquire major equipment to accomplish property maintenance (e.g., a tractor to mow fields), or is building a structure or installing a new feature that costs more than a certain amount, that expense is considered capital. If capital equipment is purchased that can be used on more than one property, the land trust can choose to allocate a portion of the cost to each appropriate property or simply account for it in the overall stewardship budget. Knowing

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when a new property will require the land trust to purchase additional equipment is important so that fundraising goals can be adjusted to reflect the added expense to the organization. If possible, capital needs associated with a property should be calculated up front as part of the land acquisition process. While a stewardship fund that covers routine annual maintenance costs may be ideal, a land trust also needs to plan for occasional replacement costs, larger capital improvements or other contingencies. These costs might include replacement, repair or maintenance of the following:

• Brochures

• Trailhead or road barriers

• Equipment purchase and maintenance

• Signs and registration box

• Boundary signs/brushing out boundaries

• Bridges and walkways

• Buildings, fences and other structures Although capital costs should generally not be funded from a dedicated stewardship fund, the costs associated with replacement of those capital items should be calculated and extrapolated to an annual cost. A sufficient amount should be added to the property’s stewardship fund to generate the required annual return. If a property contains buildings, it is essential that the land trust be certain that its budget includes the costs associated with ongoing maintenance and periodic capital improvements, utilities, property damage insurance, etc. In some situations a substantial management activity (e.g., native grassland or forest restoration or restoring water flow to a wetland) is needed early in the land’s ownership to restore the property to a desired natural condition; associated costs may be substantial. In this case, such expenses should be handled as capital costs or start-up costs.

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HOW ARE STEWARDSHIP ENDOWMENTS CALCULATED?

Land trusts use a wide variety of stewardship protocols, depending on their staffing level, number and nature of fee simple properties and CEs held and overall organizational capacity. This diversity is one of the greatest strengths of the land trust community. However, it also means that there is no single right way to calculate long-term stewardship costs that apply to all organizations conserving land.

When calculating the annual costs associated with land stewardship, it helps to imagine all possible tasks, and then assign an average time factor and frequency for each. If a land trust already has a stewardship program in place with 50 or more properties, it likely has accurate and useful information on stewardship costs at its fingertips. With these numbers, a land trust can see its total stewardship program costs and begin to evaluate patterns in the overall management of CEs and fee simple properties.

Carefully tracking costs per property will help predict future expenses and determine stewardship fund contribution amounts. Tracking data is extremely helpful in determining what it will cost to steward a CE over time, and in building a program that is efficient, effective and sustainable. While it may not seem crucial to track volunteer time, doing so is useful when calculating in kind contributions and when transitioning from volunteers to paid staff. Tracking is sometimes difficult in small, volunteer managed land trusts or in very large centrally managed land trusts. A compromise might be for relevant staff or volunteers to track the time and tasks involved in stewardship.

Land trusts need to consider the future as they establish funds for land stewardship. Creating separate funds for each fee property may make sense when a land trust owns only a few properties, but over time, managing multiple funds can become an accounting nightmare. Most larger land trusts will want to consider having a general “Land Stewardship Fund” from which income is drawn annually to cover stewardship and management costs on the full set of properties owned by the organization.

This tactic is less cumbersome than administering numerous separate endowments or dedicated funds, many of which could be subject to specific donor restrictions and limits that must be carefully reviewed and tracked before they can be spent.

Once the start-up costs, capital costs and annual tasks and their associated costs have been determined, land trusts can use straightforward financial models to project what amount of

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funding needs to be set aside into a stewardship or endowment fund to generate income that will pay for the stewardship program into perpetuity.

Land trusts use a variety of methods to develop the per-property estimate of costs and stewardship contribution. The more common are case-by-case, flat fee, and hybrids of these two.

Case by case calculations involve predetermining the tasks and cost estimates associated with each property and estimating how much endowment funding is need to produce that amount of income annually at a given minimum or average interest rate.

Benefits of the case-by-case approach include:

• Tasks are identified in advance, and cost estimates can be based on known data.

• The stewardship contribution amount can be tailored to reflect the actual property

particulars, as needed, placing fair burden on the properties that will be most

expensive to steward.

• It is easy to explain and understand and provides excellent background for

prospective project funders when the land trust makes its case for why a

stewardship contribution is needed.

Challenges with the case-by-case approach include:

• It takes time and experience to develop an effective formula.

• The land trust needs to regularly review the formula’s assumptions, which involves

tracking expenses.

• The formula must be used by knowledgeable staff or volunteers who are able to

interpret the complexity of each property and apply the assumptions of the formula

consistently.

• It can require difficult risk assessment for particular CE clauses or land management

activities. For example, if grassland restoration is a stipulation of a conservation

easement or a management action for a fee simple property, the risk that the initial

seeding is unsuccessful should be incorporated into the cost for this property.

Flat fee models are based on average CE and fee simple stewardship costs. Some land trusts determine a flat fee amount by creating a model line-by-line calculation of cost for an “average” property. Better yet, land trusts that have good internal cost tracking data may determine the flat fee amount by dividing their actual overall annual stewardship expenses by the number of properties held. Benefits of the flat fee approach include:

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• The calculation is simple to understand, can be adjusted as expenses increase and can be easily explained to the public.

• The flat fee allows the land trust to say “our stewardship contribution is X dollars per property secured,” thereby limiting lengthy negotiations over funding amounts.

• It is consistent with all landowners in a service area and may limit the conversations among neighbours as to why stewardship contributions varied from property to property.

• It works well in land trusts where property tend to be similar in nature and size, and/or the conservation easements use fairly standard clauses.

Drawbacks of the flat fee approach include:

• Solid cost information for the entire stewardship program, preferably for at least a few years, is needed.

• Land trusts may have widely varying conservation easements or fee simple properties with different complexities and “risk-related” clauses or activities which makes it difficult to adapt this model to their work.

• Because this model uses averages costs, the land trust has less of an incentive to

track and assess the true costs of certain CE clauses or types of management

activities that are time consuming or risky from a stewardship perspective. If actual

stewardship costs are not tracked, a significant risk exists that stewardship will be

underfunded over time.

The flat fee model is used by many Alberta land trusts. Stewardship fees per property range from $10,000 to $45,000.

Some land trusts have developed “hybrid” models that combine the advantages of the case-by-case and flat fee models. These hybrids start with a base stewardship contribution amount that covers standard cost elements for an average CE or fee simple property and then adjusts the contribution amount upward to reflect factors that may make stewardship more difficult or time consuming to monitor. Such factors may include:

• Reserved rights associated with a CE, such as subdivision and building rights

• Public access

• Affirmative obligations of the land trust or of the landowner for specific types of management such as restoration activities

• Detailed monitoring requirements

• Reporting requirements to funders

• Distance from land trust office

• Property size

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Developing a hybrid formula can allow land trusts to keep most stewardship contribution requests to potential funders relatively straightforward, while requiring properties with greater stewardship challenges to have better funding. Some land trusts calculate stewardship contribution amounts based on the easement’s value or the overall property value. In this method, a portion of the easement or property value is sought as a one-time contribution to the stewardship fund. Several Alberta land trusts use this model and stewardship fees range from 10 to 15% of property or CE values. In many cases, percentage of value models do not lead the land trust to stewardship fund contribution amounts that accurately reflect their ongoing financial responsibilities for CE or fee simple properties. Land trusts that use this method may run into problems because the costs of stewardship are not related to the initial value of the conservation easement or the land. Organizations that choose to use this approach should regularly assess whether the inputs to the stewardship fund are adequate to support their long-term stewardship obligations. The percentage of value approach can be most problematic for a land trust that works in an area with wide variation in property values.

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SOME GUIDELINES FOR ESTIMATING STEWARDSHIP COSTS

Some rules of thumb are provided below to help with calculating stewardship costs and dedicated fund requirements.

• 5% is a commonly used interest rate (see documents in Additional Resources

section for examples) for calculating long term investment of endowments

• As a guideline for planning labour needs, consider that one full-time trained staff

person or volunteer may be able to oversee the stewardship of 50–100 CEs in a year

as determined by the experience of members of the Land Trust Alliance. However,

this figure is highly dependent upon CE program variables and should be carefully

evaluated on a case-by-case basis. Actual ratios vary depending on the depth of the

relationship the land trust wishes to develop with the landowner, the complexity of

the CE, the travel time to and between properties and the size of properties.

• US land trust experience shows that up to 5% of CE properties may change hands

annually, although this number varies by region and type of property.

• The desired stewardship funding for fee lands is often higher than for conservation

easements, because there are generally many more responsibilities associated with

fee land ownership than conservation easement stewardship.

• For land trusts with staff, an hourly or daily rate should be established that covers the actual salary of the staff involved, plus benefits and overhead. Alberta land trust day rates for staff vary between $400 and $600/day. This rate should be budgeted, if not for each property, in a combined “property stewardship” budget. If the land trust uses volunteers to perform most or all of its stewardship work, the number of work days dedicated to each property or to the land trust’s overall property stewardship activities should be documented. Then, if future tasks are reassigned to paid staff, there is a way to estimate the cost.

• Each land trust needs to assess if it will incorporate a portion of its organizational overhead (rent, electricity, records storage, insurance, equipment rental or purchase, telecommunications costs, supplies, heat, etc.) into the calculations for the costs of its stewardship program. There are a number of ways to budget overhead. It can be factored by adding a figure equal to a percentage of the staff time allocated to stewardship activities. Alternatively, the land trust’s overhead costs can be calculated from its total annual operating budget and assigned to each part of the organization as a percentage of the overall budget.

• Public access to land trust property almost always adds complexity to stewardship. How much complexity and cost is a function of how much and what type of public recreation is allowed. Most of the costs fall under administrative costs, staff time, start-up costs, insurance, maintenance, equipment costs, public relations, etc., but

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the land trust should have a public use policy for its lands and a specific plan for each property, based on the capacity of the land to accommodate these uses and the land trust’s capacity to manage them. Larger land trusts sometimes categorize their ownerships into various types, with some being identified for more intensive recreational use, and therefore investment, and others for lower intensity use. It is generally safe to assume that if public use is allowed or encouraged, that use will continue to grow over time and demand a greater investment of financial resources.

• It’s relatively easy to determine the annual maintenance costs for items that require only periodic maintenance. To calculate the amount of stewardship funding required for periodic, but not annual, maintenance (e.g., roof replacement, paving, painting), determine their costs, and then amortize the amounts over the time period between their completions. For example, assume a sign must be painted every five years. To determine the amount of endowment funding needed to cover the cost, assume one fifth of the cost will occur annually. Then determine the amount of endowment needed to generate this amount of income on an annual basis.

• Land trusts should define what level of expense (e.g., > $1,000) is large enough to be classified as a capital expense, and define when such an expense is considered “capital” versus “maintenance.” Smaller equipment purchases (saws, tools, work clothing, etc.) are generally budgeted as annual equipment expenses, especially if the equipment is subject to wear and tear and must be replaced regularly.

• There are other items that can add to stewardship costs, including wildlife control, emergency and natural disaster response, etc. To ensure that all potential costs associated with stewarding a property have been considered, a land trust should take the time to prepare a management plan, develop a budget and carefully consider every possible event or activity that might occur over the course of the land trust’s ownership. Not every item will need to be budgeted for in every year, but anticipating potential surprises is a lot better than actually being surprised. It is a good idea to include a contingency line in your budget, even if it is only 5–10 percent of the property or organizational stewardship budget, to allow for unforeseen events.

A detailed stewardship calculator has been developed for the Foothills Land Trust by the Miistakis Institute for the Rockies. See the Additional Resources section for information on where to obtain this resource.

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HOW MUCH IS ENOUGH?

It can be difficult and daunting to determine the size of dedicated stewardship funding necessary to steward land trust properties and CEs into perpetuity. Not only is each property unique in terms of stewardship requirements, but costs will vary depending on whether land trusts use staff, volunteers, contractors or partners to undertake stewardship. The guidelines below are based on stewardship budgets that include only annual and periodic costs and exclude start-up, capital costs and major legal defence funds.

It is desirable for a land trust to have an endowment or dedicated fund (yielding a 5 percent rate of return) sufficient to cover between 75 and 100 percent of its annual stewardship costs; or If the land trust does not calculate its annual stewardship costs, to have an endowment or dedicated fund sufficient to generate enough income to cover an annual cost of between $500 and $750 per property (equal to an endowment/dedicated fund amount per property of $10,000 to $15,000)

It is acceptable for a land trust to have an endowment or dedicated fund that covers less than 75 percent of its annual stewardship costs (or that has less than a minimum of $10,000 per property) if:

A. There is some other dedicated and secure source of income;

B. A credible fundraising plan that enables the land trust to raise the desirable funds

within five years; and

C. The funds required to be raised each year do not exceed 50 percent of the land

trust’s annual budget.

It is least desirable for a land trust to have no stewardship endowment or dedicated fund or for a land trust to have an endowment or dedicated fund that covers less than 75 percent of its annual stewardship costs (or that has less than a minimum of $10,000 per property) and the land trust is lacking either A, B or C, above.

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ARE THERE ALTERNATIVES TO A DEDICATED STEWARDSHIP

ENDOWMENT?

It can be discouraging to realize that the income from an endowment does not cover the annual costs of land stewardship. However, this situation is common. In these cases, the land trust is, in fact, subsidizing these activities through its operating budget, and some land trusts have consciously decided that this is an appropriate way for them to operate. For many older land trusts, early acquisitions came with minimal stewardship funding or the anticipated costs of stewardship were exceeded by the actual expenses as time progressed and costs increased. As a result the choice is to continue to subsidize stewardship or take steps to increase the dedicated fund.

As a guide, if there is no dedicated stewardship fund, a land trust should have:

• A strong operating reserve, a long history of member contributions to these causes

or dedication of special event money to stewardship, and fairly low stewardship

expenses compared to the overall budget, or

• A strong operating reserve supplemented by income generated from the property or

other sources.

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WHAT ARE THE POTENTIAL SOURCES OF FUNDING FOR LONG

TERM STEWARDSHIP?

Stewardship funding should be obtained at or before securement of a conservation property, whether CE or fee simple. If funding cannot be secured at that time, the land trust should have a plan to obtain those funds. Some land trusts plan to fund stewardship through their operating budgets and secure funding from appropriate sources annually.

Capital campaigns, grants, sales of nonconservation real estate, timber sales, agricultural leases, recreational leases and cooperative management agreements are all tools that have been successfully employed to ensure funds for proper long-term stewardship.

Some land trusts prefer to raise all the funds needed to provide an endowment of sufficient size to generate annual income for all stewardship needs, while others have crafted plans that depend on an endowment (or dedicated fund) along with annual income.

The following funding sources are those most commonly tapped by land trusts:

Landowner Contributions: Many land trusts ask their easement and property donors to consider making a contribution to the stewardship fund, either as a one-time gift or as a contribution made over time. Landowners can also assist with local fundraising particularly for fee simple purchases or in CE situations where neighbours may benefit from the values conserved in some way.

Income from the Property: Income can be generated from fee simple properties which may offset some of the many expenses. For example, the property could be leased for agricultural, forestry or recreational use. The income from leases should, at a minimum, be designed to cover the costs of administering the lease and ideally to generate income to cover other stewardship costs. Rarely will leases cover all of a property’s stewardship costs. Costs for administrating leases should be rolled into staff time budgets, legal expense budgets and perhaps administrative overhead.

Local Fundraising: Land trusts can seek stewardship funds from neighbours, municipalities and other project partners. Some create fundraising drives or events. When land or conservation easements are purchased, land trusts commonly mount a campaign to raise acquisition funds, rolling transaction costs and the stewardship contribution into overall fundraising goals.

Major Donors: Land trusts may cultivate major donors by educating them about the importance of stewardship and the challenges of raising stewardship funds.

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Grant Support: Certain public and private grant programs support land stewardship funds. For purchased land or conservation easements, grants may be an excellent source for stewardship funds when the stewardship fund contribution is presented as part of overall project costs.

Transfers from the Organizational Operating Budget: Some land trusts have built their easement stewardship funds using occasional and/or routine transfers from the operating budget. For example, some organizations have started their dedicated stewardship funds with a significant transfer of funds from the operating budget or from surplus funds. Others make an annual contribution based on a percentage of the operating budget so that all the land trust’s members and financial supporters share in long-term stewardship.

Planned Giving: Land trusts may seek planned gifts from major donors for the dedicated stewardship fund. Such gifts can include bequests of land and money, gifts of cash and securities, and noncash gifts that can be liquidated. This technique has been used successfully by land trusts that are “catching up” their stewardship endowment.

Conservation Buyer Programs: Donated lands protected by a conservation easement and sold to a conservation friendly purchaser is another way to raise funds for a dedicated stewardship fund.

Profit Making Business Arm: Some land trusts develop an affiliated subsidiary or organization that undertakes profitable ventures relating to the work of the land trust and donates or grants the profits from that business back into the land trust. The Land Conservancy of BC is an example of a land trust that undertakes fundraising through a business arm. TLC operates gift shops, mail and web order catalogues, tea rooms, heritage facility rentals, holiday cottage rentals, boat cruises and holiday programs.

The following table is taken from the Edmonton and Area Land Trust Business Plan 2006 -

2010 and provides a guideline for land trusts of potential funding sources that may be relevant to Alberta.

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In addition to fundraising, there are also methods to reduce funding requirements over the long term. Some of these techniques are summarized below:

• Consistent and regular communications with landowners improves and enhances

relationships with CE landowners and landowners neighbouring land trust

properties. Stewardship and education of landowners reduces the likelihood of CE

violations and encroachment onto fee simple lands. It can also reduce costs

associated with securing neighbouring properties.

• CE restrictions associated with wildlife habitat, affirmative obligations and reserved

rights are more likely to result in CE violations. Fee simple properties that allow

public access, especially in the absence of an onsite steward, are more likely to

suffer illegal damage or encroachment. Drafting CE agreements and property

management plans to avoid high risk clauses or activities can significantly reduce

stewardship and legal defence costs.

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What If Stewardship Funds Are Not Available at Closing?

Most land trust professionals find that it is preferable to have all of the stewardship funding in hand before a property is secured. However, there will be circumstances in which it is not possible to have the funds at closing, and flexibility is appropriate. If a land trust chooses to close without the necessary funds, it should have a solid plan for how they will be obtained, ideally within five years, and a board policy committing the funds for this purpose. Such plans may draw upon a variety of techniques, for example: Create and implement a long-term plan to raise stewardship funds from other sources. Some organizations determine that, overall, only a portion of their stewardship funding will come from landowners and acquisition-related fundraising at securement. These organizations make a policy decision to raise the balance over time from other sources. Fundraising from sources such as grants, bequests and operating budget transfers can be implemented over a period of years, supplementing contributions made at the time of easement acquisition and completing overall fundraising goals. Many land trusts that have substantial stewardship funds have built them over time using these alternative sources. In fact, most land trusts that are satisfied with the current size of their stewardship fund have used major gifts as a significant part of reaching their funding goals.

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RULES AROUND STEWARDSHIP ENDOWMENTS AND DEDICATED FUNDS

To comply with CRA regulations with respect to disbursement quotas for charitable organizations, all donations made to a true stewardship endowment must be accompanied by a direct statement from the donor stating that the donation is to be held in trust by the Land Trust for a minimum of ten years in order to meet the enduring property definition in the Income Tax Act (http://www.cra-arc.gc.ca/tx/chrts/plcy/csp/csp-t06-eng.html). In a fundraising campaign for the securement of a specific property, it is important to specify in all public campaign literature, letters to donors and communications with the public that funds received will be used for both acquisition costs and stewardship costs. These funds then become restricted to these uses and cannot be expended for any other purpose. If a land trust establishes a fundraising campaign exclusively for land stewardship purposes, it must decide whether to ask for funds only for a select property or properties, or for a general land stewardship fund. Either way, once those funds are donated, if the land trust has told a donor that his or her contribution will be used for a specific purpose, then those funds must be accounted for separately and used as specified. Similarly, if a land trust raises funds for land stewardship and tell donors that the funds will be used exclusively for an endowment, the land trust must have an endowment policy that includes investment guidelines, spending guidelines and a specific list of activities that can be supported by income from the endowment. Tracking donations to either “unrestricted” (board-designated) stewardship funds or “restricted” stewardship endowments is essential. Stewardship funding must be accounted accurately and periodically audited in order for the land trust to meet its responsibility to use its funds as it promised donors.

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HOW DOES A LAND TRUST BUILD A DEDICATED STEWARDSHIP

FUND?

When a land trust acquires a fee simple property or enters into a CE agreement, it essentially promises the landowner, land trust members and funders, the community, the CRA and the general public that it will fulfill its obligations to conserve that property in perpetuity. Making such promises requires the land trust to prepare on many levels, including financially. A land trust should create and implement a written policy that addresses how stewardship will be funded into perpetuity. The steps and policies for building a dedicated stewardship fund include:

1. Identify the wide array of tasks, and the associated time and expenses, needed to

monitor, defend and administer each conservation easement it holds.

2. Identify the wide array of activities and the associated time needed to monitor,

manage, and administer each fee simple property it owns.

3. Annually review its stewardship responsibilities, and make a determination as to

how it will meet those needs.

4. Hold periodic discussions with the board to discuss organizational funding needed

to run the stewardship program.

5. Track costs and staff and/or volunteer time spent on all aspects of easement

stewardship, not only monitoring time and expense.

6. Periodically revise the budget for stewardship expenses based upon the past

experience of the organization.

7. Determine the long-term stewardship and enforcement expenses for each property

before it is secured.

8. Secure funds sufficient to cover these expenses at the time of securement (or have a

plan to secure these funds and a policy committing funds to this purpose).

9. Have dedicated and separate funds or other sources of funds to support

stewardship and enforcement.

10. Monitor how stewardship expenses are funded in the organizational budget, and

proactively assess and evaluate if any adjustments need to be made. (Monitoring

expenses is particularly important if part or all of the stewardship funding comes

from operating or project income.)

11. Periodically assess current thinking and knowledge regarding this topic from the

larger land trust community, as land trusts across the country grow in their

understanding and sophistication of stewardship and its associated financial

implications.

12. Have a written stewardship fund policy.

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A written stewardship fund policy that a land trust follows is useful for a number of reasons:

• The policy provides direction to volunteers, staff and board members in its stewardship funding decisions.

• It ensures continuity over time as individuals involved with stewardship funding enter and leave the organization.

• It explains the land trust’s stewardship fund(s) expectations to donors, members and the general public.

• It demonstrates to land donors that the land trust is committed to manage every property that it acquires responsibly.

• It assures the land trust community, government entities and the media that the land trust is acting responsibly to care for the land assets for which is has been entrusted.

The components of a stewardship fund policy could include the following considerations:

1. Land trust philosophy: Why is a stewardship fund necessary?

2. Purpose of the fund: What stewardship costs will the fund cover? Will it be used to

support monitoring expenses for CEs only, or enforcement as well? Will it be used to

cover monitoring and management expenses for fee simple properties or will it also

cover capital expenditures? Are there separate funds for different purposes?

3. Managing the Fund

a. Building the fund: What methods are used to secure funds with the

easement, and what sources are used? What is the target amount per

easement or fee simple property to be deposited to the fund? How is the

target amount calculated? Under what circumstances will the land trust

secure a property without an accompanying stewardship contribution?

How will the land trust add appropriate funding later?

b. Fund management goals and guidelines: Can all of the income be used, or

will part of it be reinvested to grow the fund? What are the rules for

spending income? Is it a true endowment, in which principal cannot be

invaded? If it is not a true endowment and principal can be withdrawn,

what are the criteria for principal drawdown? Is specific board approval

required for principal drawdown? How much can be withdrawn?

Earnings or growth only? How will it be replenished?

c. Authority governing management of the fund: Who is in charge of

securing contributions, investing and managing the fund, and making

decisions? Who has authority to withdraw from the fund?

4. Review: What is the process by which the policy will be reviewed and updated?

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ADDITIONAL RESOURCES

A Stewardship, Monitoring and Costing Guide for Natural Heritage Conservation

Agreements: A manual developed to assist land trusts in owning natural heritage

properties and holding conservation agreements. Draft 2009. Ontario Heritage Trust and

the Ontario Land Trust Alliance. By Barbara Heidenreich.

Conservation Capacity and Enforcement Capability: A research report. 2007. The Land

Trust Alliance. By Sylvia Bates

Conservation Easement Stewardship. 2008. Standards and Practices Curriculum. The

Land Trust Alliance

Conservation Easement Stewardship Endowments. 2008. Land Trust Alliance Fact Sheet.

2 p.

Determining Stewardship Costs and Raising and Managing Dedicated Funds. 2007. The Land Trust Alliance. By Paul Doscher, Brenda Lind, Ellen Sturgis, and Chris West ISBN 978-0-943915-22-7

Stewardship Calculator & User Manual. 2010. Prepared for the Foothills Land Trust by

the Miistakis Institute for the Rockies. www.foothillslandtrust.org

Ten Most Frequently Asked Endowment Questions. 2008. Hamilton Community

Foundation. 2 p.

The Conservation Easement Handbook, 2nd Edition by Byers, Elizabeth and Karin

Marchetti Ponte

1

APPENDIX A: ENFORCEMENT AND LEGAL DEFENSE: PREPARED

FOR FOOTHILLS LAND TRUST BY MIISTAKIS INSTITUTE FOR THE

ROCKIES

Introduction

A land trust holding conservation easement agreement (CEA) is responsible for ensuring the purpose of the easement is maintained by monitoring for violations, enforcing the CEA when a violation occurs and defending the CEA in the event of a legal challenge. Enforcement and defense are essential components of a land trusts stewardship system. Enforcement is the result of the discovery of a violation and the resolution of the violation in a manner that upholds the purpose of the CEA. There are many tools at a landowner’s disposal to help settle violations amicably, although in rare cases a land trust may be in a situation where to uphold the purpose of the CEA litigation becomes necessary. Legal defense is a response by a land trust when the CEA is challenged by legal action from a landowner, neighbor or a third party, usually to modify or terminate the CEA.

A CEA is a legally binding contract between the landowner and a land trust that holds the CEA. Ideally this relationship is one that is cultivated and maintained over time and is initiated as soon as possible with new landowners. However, it is likely inevitable that over time disagreements may arise between the land trust responsible for upholding the terms of the CEA and the landowner. The issue may be a disagreement in interpreting the CEA restrictions, an intentional or accidental violation to the CEA by the landowner, neighbor or third party and/or a legal challenge to the CEA. The risk of a land trust having to defend an easement due to violations or a legal challenge is real and acquiring financial resources or putting plans in place to address legal defense is a key component to a land trusts long term financial planning. A land trust must ensure they have the funds to enforce and defend a CEA should they need to.

How common are violations?

It is difficult to calculate the risk a land trust faces in holding CEA’s, especially in Canada where the CEA is a relatively new tool (the oldest CE legislation in Canada is only 15 years old). There are no official statistics in Canada on how often minor or major violations occur, the number of cases settled out of court or cases that have gone to trial. These statistics are important for land trusts to cost out the expenses associated with enforcement and legal defense. However, lessons can be drawn from the United States where CEA have been used as a conservation tool for over 100 years.

The majority of easement violations are caused by the landowner or a third party who did not understand the easement restrictions or were not aware of the conservation easement. A 2007 research project by the LTA suggests that for every 20 CEA held by a land trust; the land trust should expect one violation to some degree annually. The LTA suggests as a guide, “a land trust can expect 1 litigated easement violation over a 10-year period for every 300 easements it holds. A land trust can also expect 1 easement enforcement action (not necessarily litigated) costing more than $2,500 to resolve, over a 10-year period, for every 100 easements it holds.” A review of this guideline by Land Trusts suggested easement violation rate will increase in the future and the above guidelines are modest.

Interestingly, a 2008 conservation defense insurance survey reported an increase in the rate of easement violations over previous years, this was likely due to a recent increase in land transfers to a next generation of landowners.

In most cases landowners are willing to correct the mistake. However sometimes this is not the case and a land trust responsible for resolution of the violation may need to use a series of approaches, such as communication and education, letters, amendments to CEA, mediation and in extreme cases, legal action to uphold the CEA. In 2004, a Conservation Easement Violation and Amendment Study tracked the results of 75 major violations in the US, 52 were resolved outside of court while 23 were resolved by the courts. Major violations included boundary disputes, timber harvest and/or structures being built outside CEA designated building envelopes. Of the 23 reported cases that were decided by the courts 20 had good conservation results.

The most common major violations included:

• prohibited surface alterations,

• prohibited cutting of vegetation, and

• construction of prohibited or unauthorized structures.

From these cases land trusts learned they needed to change polices and documentation including:

• documenting the landowner’s intent at the signing of the CEA,

• very clear language in easement documents,

• a notification process for new landowners,

• increased efforts to maintain open and communicative relationship with landowners and

• more frequent monitoring.

Variables influencing violation rates

There are a number of variables that can influence a land trusts easement violation rate, many of which the land trust can control.

The Land Trust Alliance (LTA) has identified a number of variables that may influence risk to a land trust:

• Number of CEA’s held by a land trust (more easements = more risk)

• Types of restrictions (affirmative obligations = more risks),

• Quality of CEA, baseline agreement and monitoring reports (clearly written CEA, baseline and monitoring report that follow a consistent policy = less risk)

• Consistency in monitoring (regular monitoring = less risk)

• Record keeping (well kept, clearly written records = less risk), and

• Relationship with landowner (open and communicative relationships with landowner = less risk).

Many of these variables can be influenced by land trusts to reduce the risk associated with a CEA. A land trust can reduce the risk of easement violations and increases its ability to defend an easement by maintaining healthy relationships with the landowner, ensuring good record keeping and developing a violation resolution policy and procedure to guide enforcement of conservation easements.

Maintain healthy landowner relations

Land trust experts consulted in Canada and the Land Trust Alliance literature stress the importance of building and maintaining healthy landowner relationships. Violations and challenges are often associated with second or third generation landowners who did not enter into the CEA with the land trust. A policy geared toward new landowners, such as meeting and reviewing the CEA with new landowners as soon as possible is important. Surveys in the US indicate violations by new landowners often occur prior to meetings held with the land trust holding the easement. Often, land trusts are not notified hand of an owner change and many land trust do not have a mechanism to be notified when threre is a new owner. Regular communication with the landowner will help to increase the likelihood that a land trust is aware of an ownership change. Regular communication with the landowner is the first line of

enforcement and legal defense and should be considered a high stewardship priority. Many land trusts work with landowners on habitat management projects (weed pulls, fence mending, and water systems), publish newsletters and host workshops to help communicate best management practices. Outreach activities with the landowner help to strengthen the relationship between landowners and land trusts and also establish communication channels reducing the risk of violations and challenges to the CEA.

Clarity of language and Record Keeping

Other areas where a land trust can help to reduce risk relates to the development and implementation of protocols around CEA, baseline documentation and monitoring reports. All of these documents may be needed to help uphold the easement in court. A land trust needs to consider all official documents as lines of defense and therefore remove all vague language from templates and protocols, ensure the intent or purpose of the CEA is well defined, maintain good records of all communications with landowners and maintain clear, consistent baseline and monitoring reports. It is highly advised that landowners and land trusts sign baselines and monitoring reports to help document communication and agreement over the condition of the land.

The wording of easement restrictions should be carefully considered . A landowner should be able to easily interpret the restrictions to increase likelihood of compliance. In addition, a land trust needs to have detailed documentation on how they are monitoring the property to determine if restrictions have been violated. Some CEA have affirmative obligations, whereby a clause in the CEA outlines management goals or conditions that need to be met. For example an affirmative obligation may be that range health condition must be maintained at a certain score. A land trust with affirmative obligations needs to consider how they will monitor and measure the clause to ensure property is in compliance.

Developing protocols for maintaining, storing and destroying records also represents an important line of defense for a land trust.

Creating a Conservation Easement Violation Policy

It is advisable for a land trust to develop a conservation easement violation policy and outline a procedure for responding to violations (see Handling Violation below). Conservation easement violation policies typically revolve around two key premises, a land trust seeks to communicate and address violations with a landowner in a non adversarial way and a land trust seeks to address violations quickly to uphold and protect the purpose of the easement. The policy includes information about who within the land trust - staff, volunteer or board member, is responsible for reporting the violation and communicating with the landowner. In addition the land trust should outline a procedure for resolving violations that would include at which point in the process a land trust contacts an attorney or seeks legal advice.

All violations are not created equally and it is advisable that a land trust be able to rate the severity of the violation in relation to the CEA purpose or intent. To assist in rating the severity and scope of a violation the LTA has identified different types of violations, such as minor, moderate and major.

A minor violation includes activities that negatively impacts the CEA purpose but can be restored to original condition at minor costs or activities where a slight amendment to the CEA to accommodate the violation would have little to no effect on the overall purposes of the CEA. For example a minor violation may include a building that occurs only slightly outside the permitted building envelope. Minor amendments can provide the land trust with more flexibility for resolving a violation but the land trust needs to be aware of Environment Canada requirements for amendments when the CEA was first granted under the Eco-gift program.

A moderate violation includes activities that negatively impact the purpose of the CEA, but can often be mitigated and may occur on a small area, such as prohibited improvements to a road. A major violation includes activities that have a significant negative impact on CEA purpose and are often relatively permanent. For example construction of a house that is not permitted within the CEA agreement or subdivision of the land when it is not permitted.

There are also violations where the terms or purposes of the CEA are not impacted by the violation; these are often referred to as technical lapses. For example, a landowner may replace a structure as permitted in the CEA but fail to notify the land trust as per the agreement. In this case there is no impact to the conservation value of the property and the intent of the CE is upheld.

The conservation easement violation policy can be designed to address violations according to their level of severity and scope.

Another factor to consider when developing a conservation easement violation policy is if the landowner is required to reimburse the land trust in the event of a violation requiring remediation. Some land trusts have clauses in the CEA whereby the landowner is required to reimburse the costs associated with enforcement by a land trust,

Handling Violations

The LTA suggests seven steps for addressing violations:

1. identify a potential violation (through monitoring), 2. document the potential violation, 3. review documentation, 4. determine if it is a violation and the severity of violation in relation to the purpose of the easement, 5. identify potential mitigation factors and choose the appropriate action, 6. work with the landowner to address violations, and 7. record the final resolution and lessons learned.

The goal for a land trust is to implement a violation resolution with the landowner that ensures the purpose of the CEA is upheld. There are a number of violation resolution tools that a land trust can employee to help resolve a violation, such as education, negotiation, remediation, amendments, mediation or judicial. Likely a land trust will use a combination of these tools to address each situation and the line between these tools is often blurred.

Violations are typically caused by landowners, who do not understand or have misinterpreted the CEA. Having a positive conversation with the landowners about their goals and needs and engaging in creative problem solving with the landowner can help to build relationships. If the violation is a result of a misinterpretation it may help to walk through the CEA with the landowner again.

It is important that a land trust have a person they trust negotiate with the landowner to resolve the violation. Negotiation involves understanding the landowners needs and goals and working with them to develop a solution that remediate the violation. Remediation is a process for ensuring the conservation value of the property is restored should the violation have negative impact. It is important for the land trust to be flexible when developing solutions, for example, a violation where a landowner builds outside of the building envelop may be resolved through mitigation or offsets else where on the property, such as giving up an areas where development was permitted in the CEA. This resolution would require amending the CEA to remove the building areas from the CEA and permit activity in the building envelope where the violation occurred. Over all the intent or purpose of the CEA is upheld. If the CEA is part of the Ecogift program, the land trust may need to seek advice from the program to ensure the amendment is acceptable.

If a resolution between the landowner and land trust can not be reached, an independent third party mediator may be appropriate. Mediation is not binding, so if a resolution is not achieved, the land trust may consider litigation.

Litigation is a tool of last resort, when all other options to work with a landowner have failed. Taking a landowner to court is costly, time consuming and damaging to relationship building. However, in rare cases there may be no other options.

Many land trusts have developed flowcharts on how to handle easement violations that assist the land trust in addressing the violation. In addition, some have developed procedural templates for dealing with violations (for examples of these templates refer to Managing CE in Perpetuity published by the LTA). Procedures for addressing violations should consider who determined the best course of action and who in the land trust organization should be in contact with the landowner to present a resolution. For violations deemed major, land trusts should consider legal advice before approaching a landowner.

A land trust should also identify who pays for the costs of addressing violations, in some cases the landowner is required to pay the costs back to the land trust associated with enforcement of easement violations or legal defense. However some land trusts prefer not to charge the landowner if a violation is settled through communication between a landowner and land trust as a way of maintaining good relations. However, many land trust have a clause in the CEA that requires the landowner pay for the legal costs associated with a law suit.

Amending a CEA

A land trust may recognize that an amendment to a CEA may strengthen the CEA or improve the ability of a land trust to defend the CEA. Usually a land trust has a policy that all amendments result in a neutral or positive change to the conservation value of the property. For example a landowner may want to remove the building rights from a CEA or change the location of a building envelope and it does not result in a negative impact to the intent of the CEA. The landowner in this case may request an amendment to the CEA. Most land trusts will face the issue of having to amend an easement to clarify language or intent of CEA or resolve a violation where there is no loss of conservation value to CEA. Amending a CEA is an evolving field and requires each situation to be assessed in the context of the CEA, local law and requires a balance approach of upholding the conservation interests of the property and maintaining good landowner relations.

Within the land trust community there is some disagreement on how often a land trust should consider an amendment; from almost never (it should always be discouraged), to amend at will. A land trust needs to engage in discussion with the board to decide on their philosophy and develop an amendment policy to guide future decisions.

External Risks

In addition to variables the land trust can control, a survey by the University of Wisconsin (Betterley Risk Consultants, 2008) highlights some external variables influencing the risk to a CEA being challenged legally, such as,

• Increasing real estate prices as a result of alternative land uses,

• Conversion rate: changes in surrounding land use, such as development pressure or cultivation

• Sales of conserved land to successor owners, and

• Third party trespass

A land trust may not be able to control external variables, but understanding these variables in the context of the local setting can assist a land trust in assessing the risk to a CEA. For example, although not a common occurrence, a property’s value for development may become so high, it becomes a possibility that a developer may purchase the land and try to terminate the CEA in court. The amount a developer could make from a development on the CEA property would enable the developer to justify the expense of litigation. Even though it is likely the CEA would be upheld, the land trust would need to have a substantial amount of funding available for legal defense in this case. Therefore a CEA associated with areas where land prices and land use conversion rates are high are at a higher risk and need more attentive monitoring and communication with landowners than other CE properties.

Risk also increases with landowner succession, therefore a land trust should have a mechanism in place whereby they know when land exchanges hands and are able to communicate and meet with the new landowner to review the

CEA as soon as possible. Land trusts have identified higher levels of violations associated with new landowners especially where communication between the landowner and land trust didn’t occur in a timely fashion.

In addition, there are cases where a third party trespasses and violates an easement, such as a neighbor, oil and gas development and/or utility company removing vegetation or trees. Many land trusts stress the importance of getting to know neighbors to CEA properties they hold. This can be done through meet and greet events or workshops hosted by the land trust. In addition, designing best practice manuals and working with the landowner and utilities or resource extraction companies can help to reduce the impact on the conservation value of the CEA.

How much is enough for enforcement and legal defense.

The costs to a land trust of addressing a violation is difficult to determine, the LTA suggests a land trust can expect to 1 violation per 20 conservation easements annually. The costs associated depend on a variety of factors, severity and scope of violation, relationship with landowner and tool used to resolve the violation. It is prudent that a land trust think about incorporating some funds into their stewardship calculations to cover enforcement of violations that are settled out of court. Guidelines from the LTA suggest that a land trust should have $5000 put away for enforcement actions (not litigation) and an addition 150-300 per easement once the land trust holds more than 15 easements.

Although a land trust aims to avoid going to court, sometimes to enforce a CEA or defend against a challenge a land trust may find it has no other choice. This can be costly for a land trust. A review in 2005 of US land trusts indicated that the average litigation costs “range from $25,000 to $250,000 for a typical trial in a typical jurisdiction. The average historic cost of all claims was $38,000 including those that did not go to a full trial. This does not capture the risk of an appeals process.” Although these are average costs, there are several examples where land trusts spent well over $250,000 on outside litigation fees to protect or enforce an easement.

The Land Trust Alliance has a guideline for legal defense for litigation purposes, whereby a land trust acquires at a minimum amount of $50,000. After a land trust has acquired fifteen CEA an additional $1,500-3,000 should be added to the fund for each CEA.

A land trust should consider costs associated with enforcement and legal defense as components of its stewardship programming. Many land trusts have developed dedicated stewardship funding to cover the costs of managing a land trust in perpetuity which includes funding for enforcement and defense. Most of the costs associated with stewardship can be accurately estimated, while costs associated with enforcement and legal defense are difficult to assess. If a land trust uses the principle of a stewardship fund to pay for legal defense, they need to have a plan in place to replenish it. Alternatively, a land trust may create a separate legal defense fund and institute a defense fund policy on how the money can be spent. There is some consideration that a dedicated legal defense fund may help to deter legal challenges by landowners.

There are various mechanisms for generating funds for defense funding and likely a combination of fundraising approaches can be used (refer to Module 3 for fundraising ideas). The Ontario Heritage Trust moves some of the interest generated annually from their stewardship endowment for each property (5 %) and transfers it to a legal defense fund to help the fund grow over time.

Defense Fund Policy

It is recommended that a land trust develop a policy around legal defense funding, that highlights how funds are acquired, identifies a financial model and when a land trust accesses legal defense funding. If a land trust develops separate stewardship and legal defense funds, there needs to be clarity on when an activity is considered stewardship vs. legal defense. Through consultation with individuals running land trusts in Alberta, the general consensus was that minor, moderate and major violations resolved between the land trust and landowner and legal council relating to interpretations of the CEA, amendments to the CEA are all considered stewardship. When an enforcement action requires mediation or litigation, or if the land trust is challenged legal defense funding is utilized.

Funding Legal Defense

Land trusts address enforcement and legal defense through different methods, such as

1. Self insuring- A land trust secured fund specifically set aside for legal defense. 2. In-house counsel 3. Retained and/or pro bono counsel

A common practice is for a land trust to self insure whereby they set up a fund for legal defense. However, a survey of the US land trust community in 2005 noted that many land trusts did not currently have adequate funding put aside to address legal defense. Only 19% of interviewed land trusts had sufficient funds to address one major legal defense resulting in a trial (based on $70,000 as a conservative cost for going to trial). It is important to consider how the land trust plans to raise funds for legal defense and how they might reimburse the funds should the funds be used.

Larger land trusts will usually have legal council on staff to provide advice and address challenges and enforcement issues. Smaller land trusts may consider acquiring board members that can provide some legal council pro bono.

A small land trust may not have the resources to adequately address legal defense. The LTA has been investigating community approaches for addressing and learning about enforcement and legal defense.

Community Approach to Legal Defense

There is some concern, that in the future there will be an increase in the risk of challenges to CEA’s as land prices increase, there is an increase in the number of second generation landowners, and/or land uses in the area change to be less conducive to conservation. These factors may contribute to a CEA being challenged in court as a landowner attempts to modify or overturn the CEA. A land trust needs to be in a position to legally defend and uphold an easement. It can be difficult for a land trust to build the resources to defend an easement, especially if the potential financial gain by the landowner is greater than what the land trust is able to contribute toward defense.

Research projects in the US have explored community approaches to reduce the burden of legal defense. Some of the activities include forums for sharing knowledge and lessons learned, relying on third party assistance or development of communal defense insurance. Discussion on communal approaches is less developed among Canadian land trusts likely because CEA are a newer conservation tool, landowners who signed the CEA are still on the property and cases of litigation in Canada are rare. Regardless, it is advisable that the land trust community prepare itself for the possibility of a challenge. The ideas explored below are to instigate discussion within the land trust community. Communal approaches have not been fully explored in the Canadian legal context.

Legal Defense Learning Centre

The LTA has developed a legal defense learning centre, whereby land trusts can review documents, reports and results of court cases to help inform their practices and reduce the risk of challenges. A Canadian equivalent whereby land trusts can share lessons learned from enforcement and challenges will help the community proactively reduce the risk of challenges.

Third Party Assistance

There are examples where a third party may help a land trust defend a CEA, such as government support, non-profits designed to protect conservation interests (e.g. Ecojustice),or pooled legal advice from law schools or law firms.

In the US, a number of states actively protect the intent of a CEA because it represents a public service. For example, the state of Massachusetts provides legal defense support to conservation easements, as all CEA are

approved by the state, which has a vested public interest in upholding easements. A research paper by Jessica Jay (2007), noted that “Massachusetts prepared to step into its first enforcement action in 1997, when the Attorney General wrote to landowners violating their conservation easement and indicated the Attorney General’s intent to become involved in the case. The landowners settled out of court shortly thereafter and it is thought that the perceived threat of government involvement in the enforcement action was enough to encourage these landowners to resolve the issue out of court.” Although this has proven to be an effective mechanism for protecting CEA, government involvement may scare some private landowners into entering an agreement or it may not be an option in many regions.

Another possibility is the exploration of pooled defense approach; this could take on many forms, but one approach could include land trust pooling resources and fundraising as a community to generate a fund to be used for legal defense. This type of approach would require the development of a set of criteria to enable the community to decide on when and the funds would be dispersed.

Additionally, groups such as Ecojustice (formally Sierra Legal Defense) could be approached to assist with legal defense cases.Their ability to help would depend on timing, how precedent setting the case is and Ecojustice’s capacity.

Communal Defense Insurance

The LTA has investigated a communal insurance program, whereby land trusts pay a fee per easement per year to ensure protection against challenges and assistance with enforcement of CEA when violations occur. The risks associated with these activities are often very difficult to assess and commercial insurance companies in the US were not interested in providing group insurance. The LTA is in the process of establishing its own captive insurance program and are currently seeking commitment from membership to proceed with a national communal defense program.

Some of the concerns expressed by land trust experts in Canada include the variability in standards between different land trusts (tying one’s fate to another), a smaller number of land trusts and CEA’s to contribute toward a communal defense approach and different insurance and CEA legislation between provinces. Therefore, a communal approach to legal defense are likely best explored by provincial / regional alliances aimed at supporting the land trust community.

Given the lessons learned from the US experience, it would seem prudent that the land trust community in Canada proactively explore options to assist the community to enforce and defend conservation easements in the future.

References

Aldrich, R. and J. Wyerman. 2005. National Land Trust Census Report. Land Trust Alliance.

Bates, Sylvia. 2007. Conservation Capacity and Enforcement Capability. Land Trust Alliance.

Betterley Risk Consultants Inc. 2008. An Analysis of Historic Data Relating to Easement Violations, Land Protection and Defense Insurance Feasibility. Land Trust Alliance.

Canadian Land Trust Alliance. 2005. Canadian Land Trust Alliance: Standards and Practices. Modified by the Canadian Land Trust Alliance from Land Trust Standards and Practices © 2004 by the Land Trust Alliance with permission from the Land Trust Alliance.

Doren, J.V. 2004. onservation Easement Violation & Amendment Study: Major Violation Follow-Up Questionnaire. Land Trust Alliance.

Doscher, P., B. Lind, E. Sturgis and C. West. 2007. Determining Stewardship Costs and Raising and managing Dedicated Funds. The Land Trust Alliance.

Heidenreisch, B. Draft 2009. A Stewardship, Monitoring and Costing Guide for Natural Heritage Conservation Agreements. Ontario Heritage Trust and Ontario Land Trust Alliance.

Michalsky, S. 2010. Dedicated Stewardship Funding Training Module 3. Alberta Land Trust Alliance.

Rately- Beach L. 2009. Managing Conservation Easements in Perpetuity: Fulfilling the Promise of Permanence through Keeping Records, Managing Amendments and Upholding Conservation Easement Integrity. Land Trust Alliance.

Watkins, M.J. 2007. The Management of Private Conservation Lands by Land Trusts in Canada. Faculty of Graduate Studies, University of Guelph.