Land Trusts - an Introduction and Overview

INTRODUCTION

While land trusts can trace their roots back to the United States of the 1800s and are by no means a new phenomenon in other common law jurisdictions, the recent interest in Smart Growth initiatives has fostered a new awareness of the land trust and the promise it holds for implementing Smart Growth initiatives. This paper offers a brief overview of, and, introduction to land trusts.

WHAT IS A LAND TRUST

Land trusts are commonly described as non-government, non-profit, community based organizations established to protect land and water resources for the general benefit of the public. Land trusts can be used to protect biosphere, farm land, forest land and shorelines; to rehabilitate water courses; to protect historic sites and scenic vistas; to protect unique geological formations; to protect and encourage the preservation of historic buildings; and, as well, in a more urban setting, provide and protect supplies of affordable housing. In general terms, a land trust is an organization established for the purpose of achieving certain land use objectives and should not be confused with the tools that a land trust can employ to achieve its land use objectives. The tools available to the land trust are discussed later on in this paper.

The use of the word "trust" is perhaps misleading in connection with land trusts. While a land trust can take the form of a trust in the true legal sense of the word, where property is settled by a settlor on a trustee for the benefit of certain parties and while individuals may use an inter vivos or testamentary trust to see that certain land use objectives for their lands are attained and maintained during their lifetime or after their death, most land trusts in Canada are not trusts in this sense but rather are usually established as not-for-profit corporations under provincial or federal corporation legislation. Most will also be established and operated so that they qualify as a charity for the purposes of the Income Tax Act (Canada). As long as the trust maintains its charitable status, it will be exempt from income tax and will be able to issue tax receipts for donations received that further its objects.

While it is beyond the scope of this paper to deal with the organization and governance of not-for-profit corporations, there is essentially no difference between a non profit corporation established for the purpose of carrying out the objects of a land trust and any other non profit corporation with charitable objects.

ROLE OF THE LAND TRUST

Simply stated, a land trust attains its objective to preserve or conserve by regulating land use.

Before governments at the provincial and municipal level became involved in regulating land use and the planning process, land use was governed by a private system. Land was either leased for a specific purpose or, more commonly, owners employed restrictive covenants to protect the physical aspects or economic value of land or activities carried out on the land.

In Ontario, the earliest public regulation of land use was initiated for public safety purposes. For example, laws were passed requiring brick construction as opposed to timber in order to retard the spread of fires. Early regulation also involved water and sewage requirements. As pressure on serviced land increased and suburban development started, land use controls requiring the provision of roads and service infrastructure developed. Over time this blossomed into today’s sometimes bewildering land use regulation regime.

The public process of land use regulation, in addition to being complex, is also an expensive and lengthy process that does not necessarily offer any certainty of outcome. While lands may be zoned for a certain purpose, there exists, as part of the public regulation of land use, processes that can result in changes in zoning that over time will change land use.

Some commentators have suggested that the complexity of public land use regulation and its inherent expense and uncertainty provides a new impetus for the land trust which after all is no more than a private land use regulation scheme. As such, land trusts are not subject to the whims of direct political or public policy influences and can act quickly and decisively. Given present demands on government resources, the government’s ability to provide necessary land use regulation to preserve desirable land uses may also be diminished. While it is not suggested that the private regime afforded by the land trust would ever replace public land use regulation, most commentators agree that both schemes can compliment each other. There is, therefore, room in this area for imaginative public private partnerships.

TOOLS

There are a number of tools available to the land trust to accomplish its ends. For the most part, these are tools that are well known to the conveyancer. They include acquisition of: (i) the fee simple interest in land; (ii) rights of first refusal or options to purchase; (iii) leasehold interests; (iv) conservation easements or covenants (which, as we will see, have been made more attractive in Ontario due to amendments to the Conservation Land Act (Ontario)); (v) life estates; and (vi) profits à prendre. We will take a brief look in turn at each of these tools or interests in land that can be used to control land use.

(i) Purchase

Outright purchase of the fee simple ensures control over the use of the land. However, outright purchase is expensive and can create an inventory of land which will need to be managed going forward. This latter issue can be overcome if the purchased land is leased to a third party for specific purposes not inconsistent with the land use objectives of the land trust. Also, it may be possible to attain one’s ends by purchasing strategic pieces of real estate. For example, if the object is to block further corridor developments, perhaps only a key piece of the corridor need be acquired.

(ii) Options/Rights of First Refusal

Options and rights of first refusal can serve to "tie-up" land for future acquisition and may provide desired land use controls pending their exercise.

(iii) Lease

Essentially, the control that fee simple ownership provides can be obtained if land is acquired by way of a long-term lease. In the long run, this may be no cheaper than the outright purchase of land but may be more manageable from a cash flow perspective.

(iv) Covenants and Easements

It is also possible to control land use without being the owner or tenant under a long-term lease. Students of the common law will recall that in the common law world, there is no such thing as the absolute ownership of land. Rather, persons will own various bundles of rights in relation to land. The largest and most effective bundle of rights to have from a control point of view is a fee simple interest. A leasehold interest is a smaller bundle and hence a lesser interest in land. Interests in land can also be bundles of rights that constitute easements and/or covenants that run with and bind land.

Accordingly, easements and covenants can be employed by land trusts to acquire control over land for various purposes. For example, an easement may be obtained over property that permits the land trust to use the land as a hiking trail. This use will effectively displace other uses that might be made of the same lands.

While easements may only deal with part of a particular property, covenants can be used to deal with the whole property. For example, it is possible to obtain a covenant from a land owner that their lands will only used for certain purposes that satisfy the desired preservation or conservation ends of the land trust. Usually, easements and covenants are cheaper to acquire than the fee simple interest in the land.

Until recently, certain common law doctrines associated with easements and covenants made these tools less than attractive for use by a land trust. At common law, in order that subsequent owners of land are bound by the terms of an easement or covenant, they must "run with the land" as opposed to being merely personal or contractual obligations of the person who originally granted the easement or covenant.

The common law imposes certain requirements on both easements and covenants before they can be said to run with the land. Essentially, an easement must be seen to burden certain lands (the servient tenement) for the benefit of other specifically identified lands (the dominant tenement). While the servient and dominant tenement need not be contiguous, the easement cannot exist in the absence of a dominant tenement.

A covenant, in order to run with land, must be a restrictive covenant which means it must be negative in nature, or in other words, be an agreement not to do something. A covenant not to use land as a gas station would be a simple example. On the other hand, a positive covenant, such as an agreement to contribute to the upkeep of an access road, while enforceable as between the original parties as a contract, cannot run with land because it is a positive covenant.

These technical rules of the common law concerning easements and covenants have been removed in Ontario for certain entities, including land trusts, in respect of certain lands by amendments to the Conservation Land Act (Ontario).

The Act provides that the owner of land may grant an easement to or enter into a covenant with a conservation body. By definition, a conservation body now includes a corporation incorporated under Part III of the Corporations Act (Ontario) or Part II of the Canada Corporations Act (Canada), that is a charity registered under the Income Tax Act (Canada). The easement or covenant must be for the conservation, maintenance, restoration or enhancement of all or a portion of land or wild life on the land or for the provision of access to land for the foregoing purposes. One conservation body may assign the easement to another conservation body. Most importantly, however, the Act provides that the easement or covenant is valid whether or not the conservation body or its assignee owns land capable of being accommodated or benefited by the easement or covenant (i.e., a dominant tenement) and regardless of whether the easement or covenant is positive or negative in nature. This latter provision therefore overcomes the common law strictures relating to the creation of a valid easement or covenant that run with and bind lands. The Act further provides that once the easement or covenant is registered against title to the affected land, it will run with the land against which it is registered. Moreover, if the easement or covenant is registered, it may be enforced against any subsequent owner of the land against which it is registered. Finally, whether the covenant is positive or negative in nature, it will be deemed by the Act to be a restrictive covenant.

(v) Life Estate

A person who otherwise may wish to donate or otherwise transfer land to a land trust but wants to remain on the land during their life time, can convey the land to the land trust and reserve to themselves a life estate which allows them to remain on and enjoy the land during their lifetime.

(vi) Profit à Prendre

A profit of prendre is another example of a bundle of rights pertaining to real property. A straightforward example of a profit of prendre is the right to take timber from land. Accordingly, a land owner otherwise wishing to see their land reside with the land trust but wanting to retain the ability to harvest certain resources from the land can convey it but reserve a profit of prendre, such as the right to continue to cut and remove timber.

FINANCING

Canadian land trusts depend on public fund raising efforts to obtain operating and capital funds. This includes donations from the public at large as well as gifts and grants from established charitable foundations and businesses. In the United States, where the land trust movement is more mature, there appears to be more direct government support and support from established private umbrella organizations than is currently the case in Canada. However, as outlined in the following section, tax legislation may serve to encourage the donation of lands to land trusts which will reduce the land trust’s need to obtain funds for the acquisition of rights in land.

INCOME TAX CONSIDERATIONS

While it is beyond the scope of this paper to discuss the income tax ramifications of land trusts and, in particular, of donations or conveyances of land to land trusts, the following serves to outline a number of interesting points. Provided the land trust constitutes a registered charity for federal income tax purposes, a donor of land will be able to obtain a tax receipt to reduce taxes. A donation of land may also trigger capital gains tax for the donor. Notwithstanding the triggering of capital gains, recent changes to the tax laws may result in significant tax advantages to the donor. Where a donation is made through a will or where Environment Canada approves a gift to a charity of so-called "ecological sensitive lands", it may be possible to use a charitable receipt for up to a 100% of the donor’s net income in the year of donation. Otherwise, a 75% limit on that income might otherwise apply. In certain circumstances, gifts exceeding the latter limit may be carried forward to future years. While charitable donations generally have become of increasing interest as a tax-planning tool, there may well be added attraction where ecologically sensitive lands are concerned.

CONCLUSION

Given sufficient resources, land trusts will prove to be a valuable vehicle to implementing preservation and other Smart Growth initiatives in Ontario and in Canada.