An Introduction to Preservation Law + Easements

An Introduction to Preservation Law + EasementsNational Trust Law DivisionSeptember 28, 2:00 – 4:00 PM

Welcome + Overview

• Welcome + Introductions: Tom Mayes, Chief Legal Officer + General Counsel

• Federal Preservation Law: Betsy Merritt, Deputy General Counsel

• Constitutional Issueso Takings: Anne Nelson, Senior Associate General Counsel o Due Process: Anne Nelsono Religious Properties: Ross Bradford, Deputy General Counsel

• Local Ordinances: Chris Cody, Associate General Counsel

• Preservation Easements: Raina Regan, Director, Easement Program + Ross Bradford

Agenda

November 1• Easement Roundtable, 2:00 – 3:00 PMNovember 3• Diversity in the National Register: “How will they know it’s us”, 3:15 – 4:30 PM• Saving the Phillips Community, 3:15 – 4:30 PMNovember 4• Financing Historic Preservation: The Historic Tax Credit, 3:15 – 4:30 PM November 5• Using Building Codes to Save Historic Buildings, 1:30 – 2:45 PM• Monuments and Memorializing the Difficult Past, 1:30 – 2:45 PM• Learning from Historic School Buildings: Case Studies from the Historic Tax Credit

Incentives Program, 3:15 – 4:30 PM• Making Local Preservation Policy Work, 3:15 – 4:30 PM

PastForward Law-Related Sessions

Federal Preservation Laws

Betsy Merritt, Deputy General Counsel

• National Historic Preservation Act of 1966 (NHPA)o 54 U.S.C. § 300101-307108o 36 C.F.R. Part 800 (Section 106 Regulations - ACHP)o 63 F.R. 20496 (Section 110 Guidelines - NPS)

• National Environmental Policy Act of 1970 (NEPA)o 42 U.S.C. § 4321-4370ho 40 C.F.R. Parts 1500-1508 (1978 version vs. 2020 version)

• Section 4(f) of the U.S. Dept. of Transportation Act of 1966 (4(f))o 49 U.S.C. § 303(c) and 23 U.S.C. § 138(a)o 23 C.F.R. Part 774

Key Federal Preservation Laws

• National Register program• Created the federal Advisory

Council on Historic Preservation, SHPOs, CLGs, and the Historic Preservation Fund

• Section 106 – Stop, Look + Listen• Section 110 – Federal Agency

stewardship obligations + higher standard for NHLs (1980)

National Historic Preservation Act

“The head of any federal agency having direct or indirect jurisdiction over a proposed federal or federally assisted undertaking…shall, prior to the approval of the expenditure of federal funds on the undertaking or prior tothe issuance of any license,… take into account the effect of the undertaking on any [historic property] that is included in or eligible for inclusion in the National Register.”

Section 106 (54 U.S.C. § 306108)

Step 1: Initiate the Section 106 ProcessStep 2: Identify Historic Properties within the Area of Potential EffectsStep 3: Assess Potential Adverse EffectsStep 4: Resolve Adverse Effects

Four Step Process—

1. Is there a federal undertaking?2. Will the undertaking affect historic

properties (listed or eligible for NR)?3. If yes, how will the adverse effects

be minimized, mitigated, or avoided?

Threshold—

Prior to the approval of any Federal undertaking that may directly and adversely affect any [NHL], the head of the responsible agency shall to the maximum extent possible undertake such planning and actions as may be necessary to minimize harm to the landmark. The head of the Federal agency shall afford the [ACHP] a reasonable opportunity to comment ….”

Section 110(f) (54 U.S.C. § 306107)

• Establishes national policy to protect the “environment”

o“assure for all Americans safe, healthful, productive, and esthetically and culturally pleasing surroundings”

o“preserve important historic, cultural, and natural aspects of our national cultural heritage”

• Council on Environmental Quality (CEQ)

National Environmental Policy Act

• Passed in 1969/1970—more than 3 years after NHPA & Section 4(f)• Requires disclosure and consideration of impacts, mitigation and alternatives• However, the agency is not required to change the project or adopt mitigation—“procedural,” not

“substantive”• Applies only to “federal” action• Applies to all environmental resources, including historic and cultural properties• Public input process—could lead to political pressure, but no consultation required.• Weakness:

o Enforceable only by litigation (costly, risky, court interpretations vary)o Does not REQUIRE mitigation or less harmful alternativeo Agency practices are inconsistent

NEPA (cont.)

• When is NEPA triggered?o “major Federal actions significantly affecting the quality of the human

environment”• What is required?

o Preparation of a “detailed statement” about the environmental impacts of a proposal

o Unavoidable adverse environmental effectso Alternatives to proposed actiono Irreversible and irretrievable commitments of resources

• What agency is responsible?o Federal agency with decision-making authority

NEPA Process

• Requires Environmental Impact Statement (EIS) for “major federal action” “significantly affecting the quality of the human environment”

o EIS as “framework” document for other lawso EPA comments

• Environmental Assessment (EA) to evaluate whether effects would be significant

EA and/or EIS

1. Threshold Question: Will the project have a “significant impact” on the environment? If yes → EIS required If unknown → prepare EA If no potential → document Categorical Exclusion

2. EA If no significant impacts → Agency issues Finding of No Significant Impact (FONSI) If impacts are significant, then ↓

3. EIS – Comprehensive document circulated for public and agency review in draft and final form for comment, to consider impacts of alternatives, then↓

4. Record of Decision (ROD) – Final approval, including mitigation plan.

NEPA Flow Chart

Prohibits the “use” of historic sites, or publicly owned parks, recreation areas, or wildlife refuges, for a transportation project, unless:1) There is no prudent and feasible alternative to using that land;

and2) The project includes all possible planning to minimize harm.49 U.S.C. § 303(c); 23 U.S.C. 138(a)

Section 4(f) of the U.S. Dept. of Transportation Act

Step 1: Identification of Section 4(f) resourcesStep 2: Determine whether project will “use” 4(f) resources

• Direct and/or constructive use

Step 3: Determine if “use” is de minimis • No historic resources impacts or no adverse effects

Step 4: Evaluate prudent and feasible alternatives to “use” of 4(f) resourcesStep 5: Provide all possible planning to minimize harm if there are no prudent and feasible alternatives

Steps of Section 4(f) Analysis

• An alternative is not feasible if it cannot be built as a matter of sound engineering judgement

• An alternative is not prudent if it:• Unreasonably compromises the project in light of its stated

purpose and need;• Results in unacceptable safety or operational problems;• After reasonable mitigation, it still causes severe impacts to

other resources;• Results in additional construction, maintenance, or operational

costs of an extraordinary magnitude;• Causes other unique problems or unusual factors; and/or• Collectively, the above factors result in a cumulative unique

problem or one of extraordinary magnitude.

Prudent and Feasible

Constitutional Issues in Preservation

Ross Bradford, Deputy General CounselAnne Nelson, Senior Associate General Counsel

5th Amendment

“nor shall private property be taken for public use, without just compensation.”

14th Amendment

“No State shall…deprive any person of life, liberty, or property, without due process of law.”

TakingsConstitutional Provisions

• Takings - protects individual’s right to not have property taken by government without payment of just compensation

• Eminent Domain – government right to take property for public use with payment of just compensation

Takings v. Eminent Domain

• Physical Taking—Government confiscates or physically occupies property.• Regulatory Taking—Government regulation leaves no reasonable economically

viable use of property.

(know standards of state, if different)

Constitutional Standards

The Mahon Takings Spectrum

• If regulation goes “too far” it constitutes a taking and compensation must be paid.

• Government doesn’t have to pay for every regulation that diminishes property value. If it did, government “could hardly go on.”

Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978)

Reed & Stem, Original Plan I.M. Pei Proposal, 1956Marcel Breuer Proposal, 1968

1. Economic Impact: The more impact, the more likelihood there may be a taking.

2. Investment-Backed Expectations: The degree of interference with “reasonable investment-backed expectations.”

3. Character of Government Action: The character of the governmental action, such as whether it authorizes a direct physical occupation.

Penn Central 3-Part Test

• Historic preservation is a valid basis for exercising the police power. (Landmark regulation “enhances the quality of life for all.”)

• A preservation ordinance may affect different people differently, but this does not mean that it is unconstitutional. (Burdens and benefits of the law do not need to balance out precisely, so long as the overall regulation program has been designed to apply consistently to similarly-situated landmarks.)

• The mere diminution of property values, even if substantial, is not equivalent to a taking. (Denial of the highest and best use is not a taking.)

• The effect of preservation regulation must be measured in terms of the entire parcel, and not just one property interest—“parcel as a whole”

• Incentives are important. Not dispositive, but a significant factor.

Additional Penn Central Principles:

Taking are evaluated under the facts and circumstances of each case. Courts will look at:1. The economic impact on the owner;2. The effect on “reasonable investment-backed expectations;” and3. The character of the governmental action, such as whether it authorizes a direct

physical occupation. However, a per se taking may result if the regulations require an owner to suffer a permanent physical invasion of his or her property, or the regulations “completely deprive the owner of ‘all economically beneficial use’” of his or her property.

Takings Test (Penn Central, as evolved)

• 5th Amendment: “No person shall ... be deprived of life, liberty, or property, without due process of law

• 14th Amendment: “[N]or shall any State deprive any person of life, liberty, or property, without due process of law”

Procedural Due ProcessConstitutional Provisions

Procedural due process requires:• Adequate notice of something affecting your rights by:

mail, newspaper publication, and/or sign posting• A chance to be heard, e.g. at a public hearing• Uniform procedures, fairly applied

When does this apply to historic properties:• Designations• Certificates of appropriateness • Zoning reviews

Two Areas Where Due Process + Preservation Intersect

State Statutory Requirementso Open meeting or sunshine lawso Notice and Hearing requirements

Local Ordinanceso Notice and hearing requirementso Substantive requirements of preservation ordinances

Commission Bylawso Procedural rules like quorums, voting procedures, presiding officer

And what about during the COVID-19 pandemic….

Where to Find Due Process Requirements

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…”

– First Amendment

• Establishment Clauseo Ensures that the government does not favor/promote

religion over nonreligion.

• Free Exercise Clauseo Ensures that individuals can practice their religion

without undue burden from the government.

Religious Properties

• Establishment Clause Inquiryo Does the government action have a secular legislative purpose?o Is the principal or primary effect of the government action one that neither

advances nor inhibits religion?o Does the government action foster an excessive government entanglement

with religion?

Establishment Clause

Photo by Seth Buckley

Free Exercise Clause• Two Basic Concepts

o Freedom to believe Absolute- government can’t force you to believe or to adhere

to a belief system. What is a belief?

• Not defined.• Belief doesn’t require recognition of a supreme being and

doesn’t need to arise from a tradition or even an organized religion.

• Religious beliefs may not be found to be false.• Sincerity of belief may be evaluated, which is difficult to do

without examining truth or falsity.

o Freedom to act Not absolute, government can regulate conduct.

• Scope o Applies only to

land use regulations (includes zoning and landmarking laws) and institutionalized persons.

• Prohibited Actiono Imposing or implementing a substantial burden on religious exercise unless

there’s a compelling governmental interest; and is the least restrictive means of furthering that interest.

• Attorneys Feeso If plaintiff prevails can seek attorneys' fees from local government.

Religious Land Use and Institutionalized Persons Act (RLUIPA)

• What is a Substantial Burden?o Legislative history provides limited guidance

Look to Supreme Court cases for insight.

o No single standard exists Degree of coercion or constraint on religious exercise. Significantly inhibit or constrain conduct or expression. Significantly modify behavior or violate beliefs that denies a reasonable opportunity to

engage in those activities that are fundamental to religious beliefs. Regulation bears a direct, primary, and fundamental responsibility for rendering religious

exercise effectively impracticable.

RLUIPA

• Burdens of Proofo Plaintiff’s Burden: must show that a

substantial burden on religious exercise exists.

o If plaintiff is successful in showing that a substantial burden is present, then the burden shifts to the government to show: that a compelling state interest is met

and that it is met through the least restrictive means. (Strict Scrutiny).

RLUIPA

1. Don’t restrict religious activities more than you would nonreligious activities of the same type.

2. Don’t “cave” to church claims that they are exempt or immune from ordinances or regulations.

3. Be cautious of interior designations of religious properties (without consent).

4. Make sure ordinance has appropriate economic hardship provisions.

5. Most importantly: Accommodate!

RLUIPA Local Government Advice:

1. Substantially burden religious exercise2. Treat a religious assembly on less than

equal terms with a nonreligious assembly or institution

3. Discriminate against an assembly on the basis of religion or denomination

A local preservation ordinance cannot:

• Trinity Lutheran v. Comer (2017) – can’t exclude churches from playground funding grants• Morris County v. Freedom From Religion Foundation (2019) – Cert. Denied – NJSC: preservation grants can’t be used for

churches under NJ Constitutiono Kavanaugh Statement

“Barring religious organizations because they are religious from a general historic preservation grants program is pure discrimination against religion.”

“In my view, prohibiting historic preservation grants to religious organizations simply because the organizations are religious would raise serious questions under this Court’s precedents and the Constitution’s fundamental guarantee of equality.”

• Tandem v. Newsom (2021) – Injunctive Relief Granted – CA COVID orders restrictions on in-home gatherings o Advances most favored national status theory

• Fulton v. City of Philadelphia (2021) – City can’t bar religious foster-care agency because of refusal to place with same sex couples

o Applies Employment Division v. Smith (1990) Makes clear that general applicability is a separate requirement from neutrality; both must be satisfied.

United States Supreme Court Trends

Local Ordinances

Chris Cody, Associate General Counsel

• Enabled by State Statuteo State Planning Actso State Historic Preservation Acts

• Other Important State Lawso Open Meetings Lawso Real Property Lawso Takings Lawso STR Lawso Demolition By Neglect Laws

State Laws Affecting Local Ordinances

• City Council

• Planning Commission

• Zoning Appeals Board

• Historic Preservation Commission

Boards, Commissions, and Councils

City Council Meeting, Charleston, SC

• Makes recommendations to City Council• Hears applications for rezoning and subdivisions

o PUDs• Evaluates applications based on adherence

to general/comprehensive/master plan• Engages in planning activities and initiatives

o STRs, HP planning documents

Planning Commissions

The following is excerpted from Section 54-924 of the City of Charleston Zoning Ordinance. This test is based on S.C. Code Ann. § 6-29-800.A variance may be granted by the Board of Zoning Appeals in an individual case of unnecessary hardship if the Board makes the following findings:a. there are extraordinary and exceptional conditions pertaining to the particular piece of property;b. these conditions do not generally apply to other property in the vicinity;c. because of these conditions, the application of the ordinance to the particular piece of property would effectively prohibit or unreasonably restrict the utilization of the property; andd. the authorization of a variance will not be of substantial detriment to adjacent property or to the public good, and the character of the district will not be harmed by the granting of the variance.

Zoning Boards• Grants variances from

underlying zoning• Zoning Overlay tests• Evaluates applications based

on specific standards codified in ordinance

• Appeals to Circuit Court

• Established in local zoning codes• Responsible for historic preservation planning and designation initiatives• Most participate in NPS Certified Local Government Program (CLG)

o Requires a local historic preservation ordinance• Can have design review authority within local historic districts

o Requires an enabling ordinance and guidelines• Appeals to Circuit Court

Historic Preservation Commissions

Generation One• 1930s-1980s• Broad, non-specific language• As short as one sentence• "ensure compatability"

Local Historic Preservation Ordinances

Generation Two• 1980s-2010s• Detailed written guidelines• References to specific local

contexts

Generation Three• 2010s-Present• Even more detailed written

guidelines• Even more references to

specific local contexts• All vague language

removed• Tools and examples to help

the public

Williams Historic Business District

Design GuideA Resource for the Management of the Williams Historic

National Register District

ABSTRACTThis document provides developmental guidelines to promote the educational, cultural, economic benefit and welfare of the community and to encourage preservation of the Williams Historic Business District. It also contains guidelines and submittal requirements on the maintenance, rehabilitation and remodeling of buildings within the historic preservation district to ensure harmonious development that will preserve the heritage of the district and the City of Williams.

Complied byCity of Williams Historic Commission

Designed Guide developed by Bill Otwell Associates Architects

P a g e | 27

Figure 17: SecondFloor VerticalWindowsFigure 18: Storefront withTransom

Figure 13: One-Story Building Massing Figure 14: Two-Story Building Massing

Figure 15: Preservation of Original Wood Window Figure 16: Vertical Window withTransom

P a g e | 29

Figure 29: Stucco (as an accent only) Figure 30: Wood Trim

Figure 25: Mixed Masonry Types (brick and stone) Figure 26: Brick Facade/Wood and Glass Storefront

Figure 27: Painted Brick Facade (acceptable but unfinished preferred)

Figure 28: Stone Facade

Common Issues

• Demolition By Neglect• Accessory Dwelling Units• Height: Feet vs. Stories• Window Replacements• Availability of Historic Materials and Skilled

Contractors• Climate Change Considerations

Local Historic Preservation Ordinances

1889 Steineggar Lodging House,Phoenix. Demolished July 13, 2020

Preservation Easements

Ross Bradford, Deputy General CounselRaina Regan, Director, Easement Program

55

What is a Preservation and Conservation Easement?

An agreement between a landowner and a nonprofit organization or government agency that limits the use of

property for the purpose of protecting a property’s preservation/historic and/or conservation value/resources.

Easements can protect various conservation and preservation values

• Covenant to Maintain

• Prohibited Activities

• Conditional Rights Requiring Approval

• Reserved Rights Not Requiring Approval

Common Preservation Covenants & Restrictions

Benefits• Owner

– Landowner has continued ownership and use of property

– Landowner can sell property or pass it on to heirs

• Preservation Organization– Financial investment is small with large

preservation value

• Protection without purchasing the property

– Perpetual (in most cases)

Risks• Monitoring and project review

• Enforcement/legal action

Preservation Easements Local Ordinances

Private agreement (owner consent) Government regulation (owner consent not always required)

Perpetual Laws subject to change

Demolition prohibited Economic hardship provisions

Maintenance obligations Demolition by neglect

Regular inspections Regular inspections not always required

Review request for changes or alterations by independent easement‐holding organization

Review by city staff and/or commission

Can be more restrictive than local zoning Comply with local zoning

Protected features may be expansive Protected features may be limited

Federal tax deduction, lower property taxes Lower property taxes, transferable rights, flexibility in land use laws, and federal tax deduction in Registered Districts

Appeals to court Appeal process to other agency, city council, then courts

Preservation Easements vs. Local Preservation Ordinances (Generally)

Federal tax deduction may be available for the donation of a “qualified” preservation easement to a “qualified” easement-holding organization under Section 170(h) of I.R.C.

A qualified conservation contribution means a contribution:– Of a qualified real property interest;

• A perpetual restriction on the property’s use

– To a qualified organization; and

• Typically 501(c)(3) and meets requirements of Section 509(a)(2) or (3)

– Exclusively for conservation purposes.

• Preservation of a historically important land area or a certified historic structure

Tax Benefits of Easement DonationsQualified Conservation Contribution Sec. 170(h)

Trends in IRS Enforcement Efforts

• Proceeds Clauses (Treas. Reg. 1.170A-14(g)(6)(i))o Easement holder is entitled to a specific share of proceeds.o Post easement donation improvements cannot be netted out.o Issue is still being litigatedo Resources

Chief Counsel Opinion 202130014 Carroll v. Commissioner PBBM- Rose Hill, Ltd. v. Commissioner Coal Property Holdings, LLC v. Commissioner

Trends in IRS Easement Enforcement

• Automatic Approval Clauseso Easement sets deadline for response from easement holder and if no

response is received then the request is approved. Conflicts with perpetuity requirement. Sixth Circuit agreed with the Tax Court Hoffman Properties v. Commissioner

o Drafting Tip: Structure deadline clauses as constructive denials rather than constructive approvals.


• Amendment Clauseso Amendment clauses do not conflict with perpetuity requirement.o IRS challenged in 11th Circuit and lost

Pine Mountain Preserve v. Commissionero Drafting Tip:

Amendment clauses should ensure changes have only a neutral or beneficial effect and do not result in private inurement or impermissible private benefit.


• Syndication of Conservation and Preservation Easementso Investor buys into a promoted & marketed tax shelter disguised as a easement

donation. Investment of one dollar into a property & investor receives five dollars in tax deductions based

on overinflated easement valuation.o Senate Finance Committee - Report on Syndicated Conservation Easement

Transactionso IRS Notice 2017–10

• Conservation Easement Audit Technique Guideo Substantive updates in 2020 & 2021


Preservation EasementProgram Administration

Transactions

Stewardship

Responsibilities of Easement-Holding Organizations

A qualified organization as defined by 170(h):“To be considered an eligible donee under this section, an organization must be a qualified organization, have a commitment to protect the conservation purposes of the donation, and have the resources to enforce the restrictions.”

• How does an easement program fit within your organization’s mission?

• What are the goals of starting an easement program?

• Can you establish resources to monitor and enforce the easements over time?

Starting or Reestablishing an Easement Program

• Non-profit organization acquires property and sells subject to preservation easement or covenants

• Donated by property owner (tax motivated and non-tax motivated)

• Condition of grant (usually term or years; not in perpetuity)

• Condition of government disposition of real estate (e.g. Section 106 process)

Acquisition of Preservation Easements

Funding an Easement Program

Case-by-case Calculation of Projected Annual Costs• Estimating the actual annual stewardship costs (i.e. staff time, travel expenses,

organizational overhead, and legal enforcement).• Capitalized to an amount to generate the funds needed annually from endowment

investment income.

Fixed percentage of Property’s Fair Market Value (FMV)

Flat Rate / Range of Rates• Setting a flat rate, or a range of flat rates, based upon certain factors.• i.e. rates based upon the property’s FMV, such as $5,000 for properties with a

FMV up to $250,000; $10,000 for properties with a FMV from $250,000 to $500,000, etc.

An essential part of good stewardship starts when an easement is being developed.

• Establish good relationship with easement donor.• Individually evaluate each property to identify its

preservation and conservation values. • Ensure that the terms can be effectively monitored. • Balancing the restrictions, but not overly limiting that

would affect the future preservation and marketability of a property.

Acquisitions

• Project Selection and Evaluation• Due Diligence • Legal Review • Easement Drafting • Baseline Documentation• Title Investigation and Insurance• Tax Benefits and Appraisals• Mortgage Subordination • Recording• Contemporaneous Written Acknowledgement • Signing IRS Form 8283

Easement Donations: Transaction Process

StewardshipFor the easement holding organization, stewardship entails the activities necessary to ensure that the terms of the easement are upheld.

• Developing easement terms that can be monitored/enforced

• Building good property owner relationships• Monitoring regularly• Keeping reliable records • Reviewing/approving requests for approval • Endowment/Funding Stewardship• Enforcement of easements

EnforcementIf a property owner is violating the terms of the easement, the easement holding organization will seek to enforce the easement.

• Violations can range from deferred maintenance, to unapproved alterations, or unapproved uses.

• We try to work with the owner to remedy the violations voluntarily before pursing legal action.

• Keys to preventing violations – good property owner relationships, regular easement inspections.

• Inventory your existing easements • Develop recordkeeping process (database, archiving

communications and photographs)• Revise/draft Easement Policy, Acquisition Selection

Criteria, Standard Operating Procedures • Establish regular monitoring program • Consistently communicate with your easement

property owners or representatives

Revive your Easement Program

Questions?

PastForward Law-Related Sessions:November 1• Easement Roundtable, 2:00 – 3:00 PMNovember 3• Diversity in the National Register: “How will they know it’s us”, 3:15 – 4:30 PM• Saving the Phillips Community, 3:15 – 4:30 PMNovember 4• Financing Historic Preservation: The Historic Tax Credit, 3:15 – 4:30 PM November 5• Using Building Codes to Save Historic Buildings, 1:30 – 2:45 PM• Monuments and Memorializing the Difficult Past, 1:30 – 2:45 PM• Learning from Historic School Buildings: Case Studies from the Historic Tax

Credit Incentives Program, 3:15 – 4:30 PM• Making Local Preservation Policy Work, 3:15 – 4:30 PM

An Introduction to Preservation Law + Easements

Documents