March 01, 2014

Literary Resources

JoAnne L. Dunec


Conservation Easements: Tax and Real Estate Planning for Landowners and Advisors

David J. Dietrich and Christian Dietrich
ABA Section of Real Property, Trust & Estate Law, 2011

Conservation easements are widely used as a tool for conservation purposes, which may include those allowed under the Internal Revenue Code, and are generally as follows: preservation of land areas for outdoor recreation by, or the education of, the general public; protection of habitat for fish, wildlife, plants, or ecosystems; preservation of open space (including farmland and forest land); or preservation of historically important land or a certified historic structure. Such purposes may vary under applicable state law.

Conservation easements are statutorily created (sometimes referred to as “creatures of statute”), and combine attributes of common law with the laws of easements, covenants, and servitudes. According to the authors, common-law principles from charitable trust law may also apply to conservation easements. Tax considerations are also germane to conservation easements. Conservation easement statutes have been adopted in all fifty states and vary by state. Generally, they are viewed as negative easements in gross because they restrict certain land uses and, as noted by the authors, “are non-possessory interests in land that are not tied to ownership of any particular parcel of land.” Easement holders are generally nonprofits or governmental entities, but may be limited to one or the other by state law.

In the preface to Conservation Easements: Tax and Real Estate Planning for Landowners and Advisors, the authors acknowledge The Conservation Handbook (Second Edition, Land Trust Alliance and The Trust for Public Land, 2005) and note that its “stated goal . . . is to assist in ‘managing a successful conservation easement program,’ which reveals its intended audience to be lay land trust staff persons rather than attorneys.” By contrast, the authors note,

Conservation Easements . . . seeks to buttress the practical framework presented by the Handbook through inclusion of tips learned from decades of actual conservation easement practice, to provide a theoretical framework to assist attorneys in understanding the context in which conservation easements are placed, . . . to direct attorneys to the right resources for further study when length does not permit a fuller explanation[,to address] a wide variety of topics that may arise relating to conservation easements from a legal perspective, [and] to both supplement and move beyond the Handbook.

The introduction provides more information regarding the legal nature of conservation easements. Chapters 1 and 2 address conservation purposes, as well as certain uses that may seem contrary to the conservation purpose that may be permitted, such as limited development or certain means of mineral or energy development. Chapters 3 and 5 cover tax consequences and “tax traps,” such as meeting the donative intent requirement. Valuation and appraisal matters are addressed in chapter 4. Transactional matters, such as amending conservation easements, future considerations, and like-kind exchanges of conservation easements are addressed in chapter 7, as are violations and enforcement procedures. Chapter 8 explores “hidden dangers” such as eminent domain, various means of conservation easement extinguishment, and potential environmental liability. Chapter 9 covers additional state and federal programs, which may provide additional conservation benefits. Finally, similar to the Handbook, sample conservation easements are provided, as well as a CD-ROM.


On Shaky Ground: Fracking, Acidizing, and Increased Earthquake Risk in California

March 2014 report by Center of Biological Diversity, Clean Water Action, and Earthworks, available online at:

As described in both of the articles under “Energy” below, there is increased interest by the oil and gas industry to expand hydraulic fracturing or “fracking” in California’s Monterey Shale formation and increased concern about such fracking. The authors of the report, On Shaking Ground, fall squarely within the latter category.

As background, the report describes fracking and acidizing as follows:

Hydraulic fracturing or fracking, is a well stimulation technique that releases oil and gas from relatively impermeable formations, such as shale and tight sands, allowing for the extraction of previously unreachable hydrocarbons. Fracking typically involves pumping high volumes of water, sand and chemicals at high pressures into the rock formation, causing it to crack and release oil and gas. Although fracking has been done in the U.S. for many years, recent developments, such as directional and horizontal drilling and new chemical fluid mixtures, have facilitated an increase of drilling in previously uneconomic geologic formations.

Acidizing, another well stimulation technique, involves the injection of hydrochloric and/or hydrofluoric acids, along with some of the same fluids used for fracking. These chemicals modify the permeability of a geologic formation, allowing increased hydrocarbon flow. . . . Hydraulic fracturing [and] acidizing . . . create large quantities of wastewater—called flowback and produced water that contain contaminants, which can reach toxic concentrations. Flowback is the fluid that returns to the surface after fracturing or acidizing is completed, but before oil and gas is recovered from the well. Produced water is primarily composed of the formation fluid that comes to the surface once production of oil and gas has begun.

The primary concern expressed by the authors of the report involves the typical disposal method for wastewater, which according to the authors is difficult to treat and recycle. According to the report,

The wastewater produced during oil and gas extraction is either disposed of or reused for additional oil and gas extraction in a process called “secondary recovery” or “enhanced oil recovery (EOR).” In California and many other parts of the country, the most common wastewater disposal method is trucking or piping the wastewater for injection into deep wastewater injection wells, drilled into porous rock thousands of feet underground . . . categorized as Class II Underground Injection Wells. . . . In California, the Division of Oil, Gas, and Geothermal Resources (DOGGR) received primacy to directly regulate the states Class II underground injection wells in 1982.

According to the report, “[t]he underground injection of wastewater has long been documented to induce earthquakes.” If fracking increases in California, the authors note that “demand for wastewater injection wells [will] likely increase substantially.” As noted in the report, “[i]n many areas of the U.S. where fracking has proliferated, earthquake activity has increased dramatically [some of which has been attributed by scientists] to the underground injection of oil and gas wastewater in these regions.” According to the report, “[d]ue to its frequent seismic activity and large population centers, California has more citizens and infrastructure at risk from earthquakes than any other U.S. state.” The authors note, “DOGGR does not require any seismic monitoring at or near wastewater injection wells” and contend that “although the regulations state that DOGGR should maintain data ‘to establish that no damage to life, health, property, or natural resources is occurring by reason of the project,’ DOGGR does not require the collection and assessment of the geological or fluid injection data needed to adequately evaluate the risks from induced earthquakes, or detect whether induced earthquakes are occurring.”

As described in the articles below, DOGGR is engaged in the rulemaking process and is “actively working on issuing fracking regulations.” In addition, according to a commentator, DOGGR is in the process of preparing a statewide fracking Environmental Impact Report (EIR) required under Senate Bill 4 and Kern County (where most of the current fracking activity in California is taking place) is also preparing an EIR for an amendment to its oil and gas provisions that address, among other things, fracking.


Conservation Easements

Guerra, A. and Ivester, D., “Conservation Easements: Prohibiting Private Uses for the Preservation of Public Benefits in Perpetuity,” Vol. 22, No. 2 Environmental Law News (Fall 2013) and Vol. 31, No. 3 California Real Property Journal, a special joint publication of the Environmental and Real Property Law Section of the State Bar of California, “explores the role of conservation easements as a tool for preserving and protecting habitat mitigation sites and agricultural lands to satisfy state and federal resource agency permit requirements.”

As in Conservation Easements described above, the authors provide an explanation of the statutory nature of conservation easements. They also describe other laws affecting conservation easements, such as revenue and taxation codes. Then the authors consider “the mechanics of drafting and negotiating conservation easements for mitigation sites to satisfy state and federal resource agency requirements,” which may also include drafting and negotiating a separate habitat management agreement.

The final portion of the article explores key considerations affecting easements, which the authors note, “can affect the nature and scope of the conservation easement and (a) result in unintended burdens on the underlying fee title, (b) affect the management obligations assigned to the management entity, or (c) potentially jeopardize the validity of the permittee’s permits.” This portion is divided into two sections. The first section addresses guarantees and assurances state and federal agencies may require for the long-term implementation of the habitat management agreement. In the short term, note the authors, “security for initial construction and habitat management activities may include performance bonds, cash bonds, letters of credit and other security interests.” According to the article,

the Center for Natural Lands Management (“CNLM”), a non-profit conservation organization, has developed a tool for computing the endowment referred to as, the “property analysis record” (the “PAR”). Many state and federal agencies use the PAR as the accepted tool for calculating the endowment amount. The PAR is a computerized database program that helps CNLM and other land managers to estimate the cost of habitat management and stewardship over time.

However, the authors note that “the endowment amount can, at times, exceed the cost of purchase of mitigation credits at a mitigation bank, and thus, ultimately may discourage a permit applicant from providing a conservation easement.”

The second section addresses challenges with long-term ownership of the underlying fee, such as conflicts with other easements and encumbrances, impacts to neighboring properties, and extinguishment of conservation easements and merger of interests.

In conclusion, the authors caution practitioners “to consult general principles of easement law, in addition to the specific components of conservation easements, while considering the relevant State or Federal agency requirements necessary to assure that the open space, habitat or agricultural lands will be protected in perpetuity.”



Bertrand, J.L. and Berg, L.N., “Fracking: Expected Lawsuits,” Vol. 22, No. 2 Environmental Law News (Fall 2013) and Vol. 31, No. 3 California Real Property Journal, a special joint publication of the Environmental and Real Property Law Section of the State Bar of California, provides “an overview of the increased interest in utilizing fracking in California and the legal challenges previously raised by opponents to fracking in states such as New York, Pennsylvania, [Texas,] and New Mexico where fracking is more prevalent . . . then analyzes how California courts will likely resolve those same challenges and related issues under California law.”

The first section covers constitutional challenges to state and local laws regulating the fracking industry. The authors note that

[b]ased on previous fracking challenges in New York and Pennsylvania, local governments in California will try to control fracking through local regulation, including zoning ordinances. In other states, oil and gas companies previously opposed these local efforts to restrict fracking by arguing that state laws and/or constitutional provisions preempt local zoning ordinances.

As fracking becomes more prevalent in California, leasing issues will likely arise in addition to constitutional challenges. According to the authors,

[i]n interpreting land lease contracts, courts traditionally consider (1) the effect of older deeds and delayed rental payments on the rights to natural gas, (2) the effect of force majeure provisions on lease terms, and (3) traditional property issues, including the rule of capture and the payment of royalty interests.

The article examines Pennsylvania cases with respect to the interpretation of land contracts. The authors note that “California already has a history tied to oil production and the mining of other materials. It also has a history of litigation over the interpretation of terms within older land lease contracts and deeds,” which the authors subsequently describe. Force majeure provisions are examined through New York and California case law and the rule of capture is addressed through Texas and California case law.

Next, the authors examine private tort actions through “environmental litigation surrounding fracking” in Pennsylvania and Texas. The authors observe that “[b]ecause California courts recognize private tort actions, which are common [in California], practitioners are sure to see similar issues arise in future California fracking litigation.”

California environmental acts and regulations are addressed in the subsequent section in which the authors observe,

[l]itigants in other states have commonly brought claims against federal agencies and private entities under the federal National Environmental Policy Act (“NEPA”). Like NEPA, [the California Environmental Quality Act (“CEQA”)] expressly requires the incorporation of environmental values into governmental decision-making. . . . Because CEQA requires government agencies to disclose every “significant effect” upon the environment, California litigants are likely to prefer to bring CEQA claims arising from an agencies’ alleged failure to properly consider the effects of fracking activities, over NEPA claims. It is fair to predict that CEQA’s stringent disclosure standard will make fracking more difficult for oil and gas companies in California than other states.

The authors also “expect to see challenges to fracking activities under developing regulations by California’s Department of Conservation’s Division of Oil, Gas, and Geothermal Resources (“DOGGR”)” due to the “strong reaction” to DOGGR’s draft regulations.

Finally, the article examines NEPA challenges through New Mexico and California cases. The authors note that there may be “an increase in federal statutory-based claims against private entities and government agencies” under not only NEPA but also other federal statutes, including the National Historic Preservation Act, the Federal Land Policy and Management Act, the Endangered Species Act, the Safe Drinking Water Act, the Clean Water Act, and the Mineral Leasing Act of 1920.

In conclusion, the authors note that “[t]he issues and cases addressed in this article provide some framework for the types of challenges both proponents and opponents of fracking are likely to bring in California.”

Martin, G., “All Fracked Up: Mixing Oil and Water Rattles the Golden State,” Vol. 33, No. 11 California Lawyer (November 2013), published by the Daily Journal Corporation, covers the pros and cons of increased fracking in California. Hydraulic fracturing or “fracking” has been undertaken in California on a comparatively small scale in comparison with other states such as “a natural gas boom” in Pennsylvania’s Marcellus Shale and “an oil rush” in North Dakota’s Bakken Shale, however the potential of California’s Monterey Shale is attracting attention from the oil industry. According to the author, “[s]ome believe fracking will produce an economic bonanza. Others predict environmental disasters on a biblical scale. At this juncture, both scenarios seem possible.”

As described in the article above, the “Monterey Shale spans much of the Central Valley and the Central Coast, along with Los Angeles. According to United States government estimates, the Monterey Shale contains as much as 15.4 billion barrels of oil.” Author Martin notes,

According to a University of Southern California study, an all-out “frack” of the formation could boost the state’s economy by more than 14 percent, generate more than $24 billion in state and local tax revenues, and add nearly three million new jobs. The downside? Critics of fracking say it poses a number of hazards: depleting already overcommitted surface water, contaminating aquifers, spilling crude at coastline rigs, degrading air quality, and conceivably, inducing earthquakes.

Although California is regarded as one of the most regulated states with respect to environmental laws, the author notes “much of the Monterey Shale lies under land administered by the U.S. Forest Service and the Bureau of Land Management (BLM).” As a result, according to the author, federal law will govern. He notes:

In 2005 Congress enacted the Energy Policy Act (Pub. L. No. 109-158), which includes the so-called Haliburton loophole. A product of then-Vice President Dick Cheney’s Energy Task Force, the statute, among other changes excludes from Safe Drinking Water Act regulations “the underground injecting of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities.” (42 U.S.C. § 300h(d)(1)(B)(ii).) This left hydraulic fracturing largely unregulated.

However, according to the author, the U.S. Environmental Protection Agency and BLM have adopted certain rules governing air emissions and disclosure and BLM “recently extended its public comment period on fracking regulations proposed for federal and tribal trust lands.” The author notes, “environmentalists and oil industry representatives both anticipate more stringent oversight.”

JoAnne L. Dunec

JoAnne L. Dunec is a real estate and land use transactional attorney who is a shareholder in Miller Starr Regalia’s Walnut Creekoffice.