The Future of the Past: Historic Preservation Easements

Abstract

This brief article summarizes recent case law related to historic preservation easements. As historic preservation easements and other conservation easements age, the number of legal disputes involving them has grown. Challenges to historic conservation easements generally arise in the tax court because many of them are donations. The IRS is taking a close looks at conservation easements generally, appearing to focus particularly on façade easements.

Most states (and the IRS) require historic preservation easements to be perpetual. Courts are beginning to scrutinize what perpetuity means and are looking closely at easement language regarding mortgage subordination, condemnation, and extinguishment. This move by the IRS should indicate to landowners, land trusts, and funders that historic preservation easements should be carefully written to comply with all state and federal regulations with an eye to ensuring their long-term viability. Additionally, the IRS and courts have been particularly concerned with the accuracy of appraisals, which reach millions of dollars. Appraisals need to delineate their method and basis for calculation. The IRS’ scrutiny, however, has been tougher than the courts’. While the Tax Court has often sided with the IRS (on issues of perpetuity, particularly), the circuit courts seem to err in favor of upholding conservation easements and allowing deductions.

Keywords: conservation easements, historic preservation, perpetuity