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What is an Easement?
A historic preservation easement is a flexible,
negotiated preservation tool that provides perpetual protection of a building.
An easement
is a legal agreement between a property owner (grantor) and a
preservation organization (grantee) that gives the organization
the right to monitor and protect the architectural and historical
character of the property. (The Cleveland Restoration Society
(CRS) can be a grantee for an easement.) When granting an easement,
the owner agrees not to alter specified portions of the property
without permission of the recipient organization. Because the
easement “runs with the land,” it is binding on all
future owners.
Easements are designed to provide the perpetual protection and
preservation of significant historic structures. Easements are
tailored to each individual property and may cover interiors and/or
exteriors, specific features of a building and its setting. Just
as every property is unique, so too should be an easement.
How Can My Building Qualify?
Though any historic building can be the subject of a historic preservation
easement, the current tax laws restrict charitable deductions
for easement contributions to only properties listed on the National
Register of Historic Places, either individually or as a contributing
building within a historic district. The grantee organization
may decline acceptance of an easement for a property where the
physical integrity has been severely compromised or where serious
maintenance problems are anticipated.
How Does an Easement Work?
The easement is filed with the deed for the property and is perpetual.
An easement does not effect zoning regulations and/or ordinances.
Grantors must notify all mortgage holders of the proposed easement
donation; the easement is filed ahead of the lender’s lien.
Because an easement will likely reduce the appraised value of
the property, owners should experience a reduction in the property
tax assessment. (Note: this may not happen automatically; it
may be necessary to request a re-valuation).
What Are the Benefits of an Easement to a Donor?
Donors are usually eligible for a federal income tax deduction
equal to the fair market value of the easement. For example,
if a property is appraised at $50,000 prior to the donation of
the easement and following the easement donation is appraised
at $40,000, the owner is eligible for a federal charitable contribution
deduction in the amount of $10,000. In some cases, property tax
assessments are reduced after donation of an easement, benefiting
the donor as well as subsequent owners. An easement may reduce
the value of a property owner’s estate for federal estate
tax purposes. The donor, as well as all subsequent owners, receive
technical assistance from CRS. The findings of annual inspections
by CRS assist owners with identifying and prioritizing maintenance
and provide guidance as to appropriate treatment.
What Are the Obligations of the Owner/Grantor?
The owner is required to meet minimum maintenance standards and
seek approval of any proposed alterations and/or additions in advance
of commencing work. The grantor and all subsequent owners will
be prohibited from demolishing the property, may be limited regarding
subdivision of the property and must seek approval from the grantee
for alterations.
What Are the Obligations of the Grantee Organization?
CRS is required to make regular inspections, to provide written
inspection reports and recommendations to the owner regarding
appropriate maintenance, repair and treatment practices. Further,
consultation with the grantee is available upon request and as
needed, and is not limited to the annual inspection. The grantee
assumes responsibility for enforcement of the easement.
How Do I Apply for an Easement?
Contact the Cleveland Restoration Society and complete an easement
application. CRS staff will inspect the property and the CRS
Board of Trustees will determine whether or not to accept the
easement donation. The owner must then obtain appraisals to determine
the easement value. CRS will photograph the building for purposes
of documentation. The terms of the easement are negotiated. An
easement document is then prepared and recorded.
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How Are Easements Valued?
The difference in the “before and after” fair market
value of the property determines the value of the easement. Using
this method of calculation, the fair market value of the property
after the granting of the easement is subtracted from the property’s
fair market value prior to the easement donation. The difference
is the value of the preservation easement for federal income, estate
and gift tax purposes. The actual value of a preservation
easement should be determined by a qualified appraiser. Donors
and their appraisers are advised to exercise care in determining
valuations
that can be defended if challenged by the Internal Revenue Service.
Nationally, “valuations of easements have ranged from 1 percent
of the fair market value of the land in fee simple, to 91 percent
for an easement in the middle of a high-density residential area.” *
When is the Best Time to Pursue an Easement?
An owner may utilize
both the Investment Tax Credit and a deduction for an easement
donation; often both are critical to the financing of a rehabilitation.
However, the timing of the easement donation must be carefully considered.
An easement may be given at any time, but to avoid recapture of tax credits,
it should be donated prior to the building being placed in service or
after the five-year recapture period. An easement donated within the
first five years following a building being placed in service would result
in a recapture of the Investment Tax Credit.
What is an Easement’s Relationship
to Liens?
The relationship of mortgage liens to easements depends on the order
of filing. If an easement is recorded after the recordation of a
mortgage lien, it follows the lien until it is paid. Alternatively,
if an easement is in place before the recordation of a lien, it takes
precedence. In the event that an easement follows a mortgage that
is refinanced, the easement would move ahead of the new lien.
What Are the Associated Costs of an Easement?
Costs associated with easement donations vary, but in general are minimal
relative to the financial benefit derived from donation. Donors can
expect to incur costs for appraisals, accountant, and attorney fees.
While fees are negotiable, CRS generally requires an application
fee and donation fee before acceptance of an easement. The donation
fee is used to offset the cost of monitoring the easement in perpetuity,
including annual inspections.
Sample Residential Fees:
Application Fee: $250
Donation Fee: Greater of $500 or 1% of auditors fair market value
produced by tax value on currently available tax duplicate
Sample Commercial Fees:
Application Fee: $2,000
Donation Fee: Greater of $1000 or 5% of easement value
Based on percentage of easement value; no annual fee.
Enabling Legislation: Ohio Revised Code Ann. § § 5301.67
to 5301.70 (page 1990).
NOTE: Owners contemplating the donation of an easement are advised
to consult with experienced and qualified real estate appraisers and
tax attorneys.
*Establishing
An Easement Program to Protect Historic Scenic, and National Resources,
Information Series No. 25, Washington, DC: National
Trust for Historic Preservation, 1991. when a person holds property,
he possesses a “bundle” of rights. The bundle is called
a “fee simple estate” and the owner is said to own the
property “in fee simple.” Each of the rights is sometimes
referred to as a “less-than-fee’interest.”
For additional information, contact:
Michael Fleenor
Director of Preservation Programs
The Cleveland Restoration Society
3751 Prospect Avenue
Cleveland, OH 44115-2705
(216) 426-3109
(216) 426-1975 fax
mfleenor@clevelandrestoration.org
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