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HomeMy WebLinkAboutC19-343 Colorado Open Lands July 12, 2019 Diane Mauriello Director, Eagle County Open Space 500 Broadway Post Office Box 850 Eagle, CO 81631 Dear Diane, We applaud Eagle County Open Space’s commitment to preserve the Miller Ranch Tract I property in perpetuity with a conservation easement. I had a nice visit to with Peter Suneson last week to the property week and concur with the importance of its conservation values. The purpose of this letter is to further explain in writing the requirements, roles & responsibilities regarding the potential conveyance of a conservation easement on this property. As a reminder, a conservation easement is a legal contract between a landowner and a nonprofit land trust or government entity that places permanent restrictions on the development and use of the property. Conservation easements are designed to protect certain values associated with a piece of property, defined by the IRS as “conservation values,” that include wildlife habitat, scenic open space, and agriculture, among others. Colorado Open Lands is qualified to hold conservation easements under Section 170(h) of the Internal Revenue Code of 1986, and is certified as a conservation easement holder by the Colorado Division of Real Estate. We adhere to the Land Trust Standards and Practices established by the Land Trust Alliance, the national association of land trusts, and are accredited as meeting national quality standards set by the independent Land Trust Accreditation Commission. We understand that this conservation easement donation will not generate any compensation for Eagle County through tax benefits, cash payments, credits, or any other revenue. Despite that, COL will follow all local, state and federal rules and regulations related to the donation of a conservation easement to comply with §170(h) of the Internal Revenue Code and accompanying Treasury Regulations, and §38-30.5-102 et seq. of the Colorado Revised Statutes, which track and adhere to the Code and Regulations, as well as with accreditation standards.. In accordance with the Colorado Code of Regulations 4 CCR 725-4, Rule A-1, Colorado Open Lands does not guarantee the qualification of any conservation easement as a charitable contribution for federal or state income, state tax credit or estate tax purposes, and we urge you to seek professional legal, financial and tax advice on this matter. DocuSign Envelope ID: 08E07783-76A4-4CB0-8D35-537DC60CFFAA As you know, there are a number of specific tasks, several of which require the services of professional consultants, that must be completed in order to convey a qualified conservation easement. Please see the enclosed list of tasks that may be required for your conveyance, with cost estimates. Colorado Open Lands can provide you with a list of consultants and their contact information. Colorado Open Lands will work with you to coordinate the required tasks, but you are ultimately responsible for payment of all associated costs. Colorado Open Lands charges a $7,500 fee for every project we do. This fee pays for a portion of the staff time and resources required to complete the conveyance of a conservation easement. We also request a donation to endow the stewardship of the property in perpetuity. The stewardship reserve is calculated based on the location of your property and specific terms of your easement and is calculated to be $15,550. We are happy to provide the calculations if desired. The fee and reserve are payable upon closing of the conservation easement. If a conservation easement is not conveyed, Colorado Open Lands will invoice you a prorated project fee based upon the amount of time and resources spent by our staff at the time the project terminates. Again, thank you for the chance to work together to pursue a conservation outcome that meets your needs. Please don’t hesitate to call me at 970-819-4737 to discuss any questions you may have. Sincerely, Ben Lenth Enc: Costs and Tasks Associated with Conveying a Conservation Easement By signing below, you are acknowledging that you have read and understood this letter and the enclosed attachments, and agree to the terms contained herein. LANDOWNER Date DocuSign Envelope ID: 08E07783-76A4-4CB0-8D35-537DC60CFFAA 10/11/2019 Costs and Tasks Associated with Conveying a Conservation Easement Based on past projects, Colorado Open Lands estimates the following costs associated with the conveyance of a conservation easement. These costs do not represent quotes from service providers, rather they are solely based on our experience. The costs of your project may vary from the estimates provided below. Unless otherwise agreed upon and documented, these costs are payable by the landowner. 1. Colorado Open Lands Project Fee. This fee pays for a portion of the staff time and resources required to complete the conveyance of a conservation easement and is payable upon closing of the easement or upon the transfer of a State tax credit. $7,500 (donated conservation easement)-$15,000 (bargain sale conservation easement). 2. Title Commitment. Colorado Open Lands will need a copy of any documentation you have regarding title (ownership) to your property. Colorado Open Lands will also need to contact a title company to obtain a current title commitment. There may be a cost to you for obtaining the title commitment. $100-300 (Sometimes this cost is included in the title insurance premium paid at time of easement closing, see paragraph 3 below) COL will review all available title information for the following matters relevant to the conveyance of a conservation easement. 2.1 Subordination Agreement. Colorado Open Lands will review the title commitment for mortgages or liens on the property. If mortgages or liens are shown, the lender or lienholder must agree to subordinate the mortgage or lien to the easement. A subordination agreement will need to be signed by the lender or lienholder, notarized, and recorded with the easement. If your lender or lienholder refuses to subordinate, then your easement conveyance will not be a qualified conservation contribution under the Internal Revenue Code. Colorado Open Lands will be available for consultation with the lender or lienholder if necessary. There may be an administrative fee charged by the lender or lienholder to execute the Subordination Agreement. 2.2 Property Boundary Survey. Colorado Open Lands will review the legal description of your property in the title commitment to determine whether a survey is necessary to complete the project. Note: surveys are seldom required. 2.3 Mineral Rights. Colorado Open Lands will review the title commitment to determine the status of any mineral rights ownership. If you do not own 100% of the mineral rights on or under the property, the Internal Revenue Code requires that a “mineral remoteness” letter be prepared that indicates the probability of extraction or removal of minerals from the property by surface mining by a third party is “so remote as to be negligible” (language in quotations is from the Code). If the report doesn’t reach this determination, than your project will not be a qualified conservation contribution. This report needs to be prepared by a geologist, and the cost of preparing the report will be payable by you. $2,000-3,000 DocuSign Envelope ID: 08E07783-76A4-4CB0-8D35-537DC60CFFAA 3. Title Insurance Policy. A title insurance policy naming Colorado Open Lands as an insured party must be purchased for all conservation easements it holds. Although the title commitment identifies any recorded exceptions to title, it does not guarantee there are not unrecorded defects to title, or that there are not mistakes or oversights in the title commitment. The purpose of title insurance is to protect Colorado Open Lands from loss due to defects in the title other than those specifically excluded in the policy. The amount of the policy should equal the appraised value of the conservation easement. Policy premiums depend on the amount of insurance being purchased and how long it took the title company to prepare the title commitment. The cost of the premium is payable by you. Generally, the premium is in the range of $1,200- 2,500. 4. Appraisal. The Internal Revenue Code requires that the conservation easement donor obtain a qualified appraisal prepared by a qualified appraiser for donations of non-cash property worth more than $5,000. A qualified appraisal must be made no earlier than 60 days prior to the date of the gift or no later than the due date of the donors tax return, does not involve prohibited appraisal fees, includes the required information, is prepared in accordance with generally accepted appraisal standards (as defined by the Uniform Standards of Professional Appraisal Practice), and is prepared, signed and dated by a qualified appraiser. A qualified appraiser has earned an appraisal designation from a recognized professional appraisal organization, regularly performs appraisals for which he/she is compensated, can demonstrate verifiable education and experience in valuing the type of property subject to the appraisal, and has not been prohibited from practicing before the IRS for three years preceding the appraisal. Colorado Open Lands will require a copy of the completed appraisal, and will not knowingly participate in projects where we have significant concerns about the tax deduction. The cost of the appraisal will be payable by you. $12,000-25,000 5. Deed of Conservation Easement. Colorado Open Lands will provide the deed that conveys the conservation easement. We strongly encourage you to have the deed reviewed by your attorney (see paragraph 11 below). It may also be necessary for Colorado Open Lands to hire our own legal counsel for advice on certain provisions of the deed, the cost of which will be payable by you (see paragraph 10 below). The deed will be recorded after its execution at the courthouse in the county in which your property is located. There will be fees for recording the Deed once it is signed. 6. Baseline Report. A baseline report that describes the condition of the property at the time the easement is conveyed is required by the Internal Revenue Code. The baseline report should include an inventory and narrative description of the characteristics, current use, and status of improvements on the property with supporting maps and photographs. In addition to being a requirement of the Code, the baseline report is the benchmark against which any violations of the terms of the easement are measured. The baseline report will need to be prepared by a qualified preparer and approved as accurate by the Landowner. A copy of the baseline report will be provided to you and to Colorado Open Lands. $3,000 - $6,000 7. Environmental Assessment. It may be necessary to complete an environmental assessment for the property to determine the probability that the property has been contaminated DocuSign Envelope ID: 08E07783-76A4-4CB0-8D35-537DC60CFFAA with toxic waste or hazardous materials. This report is required in connection with limiting certain liabilities, and must be prepared by a qualified consultant. $2,000-5,000 Note: Environmental Assessments are seldom required. 8. IRS Tax Form 8283. Upon completion of the project, Colorado Open Lands will work with you and your professional advisors to complete the appropriate portions of IRS Form 8283 for Non-Cash Charitable Contributions. Form 8283 must be signed by the appraiser and Colorado Open Lands. There is no fee. 9. Legal Advice to Colorado Open Lands. Although Colorado Open Lands strives to keep legal costs down, we may incur legal expenses related to: 1) variances from our standard easement provisions; 2) title issues; 3) closing instructions or 4) other issues with legal implications. The routine legal costs are estimated at $3,000-12,000. If your conveyance is unusually complicated or there is a specific issue of concern, Colorado Open Lands will discuss potential extra legal costs needed to address those issues with you before incurring them. Although all such legal services are provided to Colorado Open Lands, the costs are payable by you. 10. Landowner Professional Advice. As mentioned above, we strongly encourage you to seek independent professional advice concerning legal, financial, tax, estate planning, real estate, and accounting matters associated with the conveyance. $1,000-5,000 11. Stewardship Endowment. Colorado Open Lands requests a one-time contribution from landowners upon completion of the conveyance. This contribution is necessary to cover expenses related to annual monitoring of the property, as well as possible legal costs associated with defending the terms of the easement in perpetuity. Colorado Open Lands has developed a formula that calculates the necessary amount based on a number of factors related to the easement, including the number of reserved rights and the distance of the property from our office. Colorado Open Lands will provide you with an estimate of what it will cost to endow your easement in perpetuity and we will request that you sign a pledge agreement prior to closing. $15,000-22,000 12. State Tax Credit Certificate Application. In order to claim a Colorado Tax Credit for a conservation easement donation, a donor must obtain a tax credit certificate from the State. The application for the tax certificate is made to the Colorado Division of Real Estate, which reviews the conservation easement, appraisal and other documentation to determine if it meets State requirements for a tax credit. There is a non-negotiable processing fee of $8,000 payable to the State. Also, a preliminary application opinion can be made to obtain advice from the Division prior to project closing. The preliminary application opinion can be made for the conservation easement appraisal for $10,000 and for the conservation purposes of the easement, each for $2,0005. 13. Transfer of State Tax Credit. If you are interested in transferring a State tax credit to another taxpayer, there is usually a fee associated with the transfer. The cost of transferring the credit will vary by broker. Generally, brokers will charge a percentage of the value of the tax credit (3-5%). DocuSign Envelope ID: 08E07783-76A4-4CB0-8D35-537DC60CFFAA Estimated revenue and costs for a conservation easement donation valued in excess of $1,000,000: *The maximum tax credit that can be claimed is $1.5 million (appraised conservation easement value of $2,950,000 or greater) per year of the donation. HB 19-1264 allows tax credits in excess of $1.5 million to be carried over for two subsequent tax years, with a total tax credit of up to $5 million. **Please remember that income received from the transfer of your State tax credit is taxable. You should consult with your tax adviser to determine your after-tax situation. **This does not include the value of any cost savings realized from federal tax benefits. Individual circumstances will vary. Please consult qualified legal and financial advisors familiar with your circumstances before proceeding. Estimated Range of Costs: COL Project Fee $7,500 -$20,000 Mineral Remoteness Report $2,000 -$3,000 Title Insurance Policy $1,200 -$2,500 Appraisal $12,000 -$20,000 Baseline Report $2,500 -$5,000 COL Legal Fees $3,000 -$12,000 Landowner Legal Fees $1,000 -$5,000 Easement Recording $100 -$200 Stewardship Endowment $15,000 -$22,000 State appraisal pre-application $0 $10,000 State Tax Credit Application $8,000 Total $52,300 -$97,700 Estimated Revenue Tax Credit $525,000 * Profit from sale of credit @ 83%$435,750 ** Minus Total Costs $52,300 -$97,700 Net Income***$383,450 -$338,050 DocuSign Envelope ID: 08E07783-76A4-4CB0-8D35-537DC60CFFAA