Conservation Easements as Business Strategy: Part 1
When David Coltrane, who has served as a director of Carolina Farm Credit since 2009, needed to expand his 800-acre farm by nearly 250 acres, he turned to an option that helped him not only add acreage but pay it off in 5 years instead of 15.
That option? A conservation easement.
A conservation easement is a tool designed to protect farmland from development and provide financial benefits to farmers. For David, it was part of a business strategy. With a son in college and twin sons who are juniors in high school, each wanting to return to the family’s 600-cow dairy operation, David knew he needed to expand his business.
His farm is in Pleasant Garden, a prime and growing location between Greensboro and Asheboro that is quickly being developed. The challenges are plentiful. Among them, escalating land prices and disappearing farmland. With a loan from Carolina Farm Credit, David purchased two different adjoining tracts to his family farm. He then began the process of getting the property into a conservation easement.
Because both the state and federal government have an interest in helping conserve farmland, and aid farmers, they ended up helping pay for the new property through the conservation easement arrangement. David says there was some risk that his application and property would not get accepted. “In our case, we wanted the land and would be glad to pay it off over the life of the loan. The reason the conservation easement works out good for us is because we can turn that money over more quickly and then will possibly be able to buy more land in the future.”
A fourth-generation farmer, David acknowledges that conservation easements are not for everyone. It’s important to do your homework, he stresses.
David shares pros and cons to consider and other helpful advice:
- Conservation easements help save farmland and help farmers.
- They can be an important business strategy. In David’s case, he was able to buy adjoining parcels to his farm, allowing him to expand his operation.
- If selected to participate in a conservation easement program (not every property is eligible), it may help you pay off your land loan more quickly. In David’s case, the state paid ¼ of the land costs, the federal government paid ½, and David was responsible for ¼. “Instead of us having a 15-year loan, we can get the land paid for a lot quicker, in 4 to 5 years, and then we can turn around and buy more land if it comes up for sale around us.”
- You can claim a tax write-off on your portion of the loan. Despite it being called a donation, you own the land, though there are restrictions. Even though the government paid ¾ of the loan, David owns the land and can pass it to his sons or sell it, with the stipulation it remain as some type of farm and not be developed.
- Conservation easements may help farm families continue farming, giving younger generations greater business potential. With many farmers aging out, the conservation easement option for David and his family helps position a younger generation, three young farmers, for success.
- You can sell the property in the future, but it must be sold to someone who will maintain it as a farm.
- With a conservation easement, you waive your rights to future development.
- Before signing an agreement, it is imperative to think through what future needs you may have for the property, which can be good but also difficult. For example, if you expect to build a house or farm structures, you will need to specify what and where on the property that may occur in the future. If you do not specify certain areas of the property for possible future building sites, you may not have that option later. “You really have to think through what you expect the farm to be, how it’s laid out, if you ever want to do something down the road,” says David.
- While you can sell the land in the future, it must be to someone who must maintain it as a farm. That may mean the sale will be for less than land that can be developed.
- A limited number of conservation easements may be granted each year, depending on funds of each land trust. Priority may be given to those buying land close to areas with quickly disappearing or highly threatened farmland.
In part 2, David shares helpful advice to anyone considering conservation easements.
By Leah Chester-Davis