Why would a farmer want to enter into a long-term land conservation agreement with a non-farm organization?

Also called conservation easement agreements, these voluntary, legally binding agreements between a landowner and a land trust organization or government agency permanently restrict certain uses of that land — which can sound kind of scary and, well, permanent.

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But conservation agreements can help an agricultural landowner protect their land from development and can also be used as a part of their succession or exit plan.

“The landowner still gets to retain ownership of the land, so they can have some protections put in place, and they know that if they pass the farm on or sell the farm, it won’t get converted into non-agricultural uses,” says Joel Enman, farmland protection and stewardship program manager at Ontario Farmland Trust.

“In Ontario we see a lot of risk of urban sprawl and also aggregate extraction that, depending on how deep the pit is, can breach the water table which affects the local aquifer, so a lot of landowners are worried about that.”

For others, recognition of the habitat value is a driving motivator for a conservation agreement.

“One of the main reasons is that they (landowners) want to maintain that habitat value and ensure that the family is able to protect the wildlife habitat affiliated with those parcels,” says Carol Graham, conservation program manager with Manitoba Habitat Conservancy.

“Sometimes it is in reaction to seeing a lot of land conversion occurring and they recognize this is a mechanism to conserve what habitats are remaining on the landscape. Some use it in recognition of the best use of the land and realize the option to generate revenue from that habitat by entering into a conservation agreement.”

Manitoba Habitat Conservancy is one organization that can offer to purchase a piece of land, but a lot depends on the landowner’s wishes and priorities.

“Landowners come to us and indicate what portions or which habitats they’re most interested in conserving, and based on funding available, we can provide for payment for that habitat,” Graham says. “Wetlands and species-at-risk habitat, which typically is grasslands, are priority habitats that receive support from funders. Or they (landowner) may choose to donate the habitat interest and receive a tax receipt, creating opportunity to conserve additional habitat types. In either case, terms of the agreement are the same.”

A number of tax advantages to land easement agreements

Not all land trusts or conservation organizations have the funding available to compensate landowners by purchasing habitat interest under an agreement. However, there are some enhanced tax incentives for land under conservation easements that can be beneficial, especially for retiring farmers and the next generation. These include the Ecological Gifts program, a federal tax incentive program that waives capital gains tax for qualified farm property when farmers register an easement on it.

This incentive doesn’t just apply to farmers (who also qualify for a one-time, lifetime capital gains tax exemption upon the disposal of farm property).

“Under a conservation easement agreement, if the land does qualify for the Ecological Gifts Program, meaning that it’s ecologically sensitive … the capital gains tax (can be waived) at the time of protection,” Enman says.

There are situations where landowners donate the property directly to a land trust or other conservation organization that then manages the land. However, even when the landowner retains ownership, they can receive a charitable tax receipt for the appraised value of the conservation interests that can be used against their income tax.

“For a standard easement agreement that’s able to be used over five fiscal years, and any property that qualifies for the Eco Gifts Program, those tax benefits can be used up to 10 years so that’s also an incentive,” Enman says.

Flexibility built in to land easement agreements

Every conservation easement agreement is unique because every property is unique.

Some components are common to most agreements, building in flexibility for current and future landowners in how the land is used.

At the Ontario Farmland Trust there are typically two easement styles. For some farms it makes the most sense to create a single protected zone which applies standard protections that sit across the whole property, including preventing future severances of the property and aggregate extraction. There is also a style of easement which delineates zones of protection.

“We typically have three zones that have increasing levels of restrictions on the land,” Enman says. “We have the farmstead area which is the area that’s typically around the building cluster close to the road that will allow for some non-agriculture development if somebody wants to develop a secondary residence or a pool or a woodworking shop in the future.”

The agricultural zone that includes the fields and pastures allows for normal agricultural practices. The third and highest level of restriction includes wetlands, native grasslands, forested and other natural areas that the landowner wants to ensure are fully protected and cannot be converted into agricultural or other uses in perpetuity.

“The intention, at least of the Ontario Farmland Trust, is to protect farmland forever, so we want easement agreements to be restrictive enough that the farmland doesn’t get lost in the future, but flexible enough that future changes in farming practices will still be acceptable and usable by the farmer because we want to make sure that these lands continue to be farmed,” Enman says.

Instead of putting a large area of land under a conservation agreement right off the bat, it can be done over time on multiple parcels of land.

“If you have a 600-acre farm made up of four different parcels, the easements could correspond with each one of those parcels,” say Enman. “If it makes the most sense tax-wise to do two parcels one year, then two parcels five years later, it doesn’t have to be all or nothing.”

Steady demand for land conservation agreements

Interest in conservation agreements has held steady over the past 25 years or so since they were introduced, and for Manitoba Habitat Conservancy, with over 200,000 acres of wetlands, grasslands and other habitats under agreements across the province, there is usually more demand than available funding.

“We are not noticing any indication that interest in conserving habitat with a conservation agreement is declining,” Graham says. “You do see trends: different regions have demonstrated high interest in the conservation of habitat and are not as intimidated by the presence of an agreement. Having the ability to talk directly with someone with an agreement, like a neighbour, has helped communicate the benefits, which has probably led to a lot of the success we’ve had in the province.”

Although a conservation agreement restricts what can be done on the land in terms of removal of protected habitat, it doesn’t prevent farmers from using it to make an income or for recreation.

“Agricultural activities such as haying and grazing are permitted, and farmland surrounding the habitat can remain as farmland,” Graham says. “We are often asked about recreational use, such as hunting, which is also permitted on conservation lands at the landowner’s discretion. How your land is being used today can continue to be used in that manner with the agreement on it.”

It is important to remember that the agreement stays on the title of the land, so if the land changes hands either by intergenerational transfer or sale to a third party, the new owner will be subject to the agreement. Some farmers may be concerned that will affect the value of the land itself.

“There appears to be less concern by those interested in purchasing land with a caveat on title,” Graham says. “Sometimes there is a worry about restricting opportunity in the future, but we have developed a good partnership with local industry to allow for a balance between conservation and economic development.”

Things to consider before you enter into a conservation easement agreement

Be aware of who is on the title of the land because every party will have to sign off on the agreement. Make sure anyone who should not be on the title (e.g., a deceased person) is removed from the title.
If there is a mortgage or line of credit secured by the property, the lender will need to give permission for an easement to be registered, so make them aware that you are thinking of doing this.
What is the landowner’s vision for the future conservation of the land? If there are multiple landowners on the title, do their visions all align? Make sure you discuss this ahead of time.
Make sure your children, grandchildren and any other family members who might have an interest in the property are involved in the discussion. They will inherit the property and the restrictions in the future, so they should be a part of the process.
Seek legal and financial advice so that you know how to manage the terms of the agreement and can make sure it meets the family’s expectations, especially if the land will stay in the family.
Ensure your family’s interests are not compromised by the conservation agreement. Build in options to allow for things like construction of a house or cabin on a certain portion of the land to allow for flexibility in the future.
Do it in stages. You don’t have to commit to all or nothing. Consider doing a certain number of acres at a time over several years to make sure you are comfortable with the agreements.
Be patient. It can take time for an agreement to be completed because there is a lot of administrative and legal requirements behind it.
Shop around. There are many organizations offering conservation easement agreements, so if the first one you speak with doesn’t fit what you want, try another one that may be better aligned with your vision for protecting the land.