Recent Legal Decisions Affecting Agricultural Land Conservation

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Recent Legal Decisions AffectingAgricultural Land ConservationSarah EverhartALEI Legal SpecialistKelly Winslow NuckollsALEI Extension Legal SpecialistMaryland Land ConservationConference, May 17, 2018

Agriculture LawEducation InitiativeThe Agriculture Law Education Initiative (ALEI) is a collaboration of the FrancisKing Carey School of Law at the University of Maryland, Baltimore (UMB); theCollege of Agriculture & Natural Resources at the University of Maryland(UMCP); and the School of Agriculture and Natural Sciences at the Universityof Maryland Eastern Shore (UMES).ALEI is an initiative of the University of Maryland Strategic Partnership:MPowering the State, a collaboration between UMB and UMCP. Thispartnership leverages the sizable strengths and complementary missions ofboth institutions to strengthen Maryland’s innovation economy, advanceinterdisciplinary research, create opportunities for students, and solveimportant problems for the people of Maryland and the nation.Website: www.umaglaw.orgTwitter: @MdAgLawFacebook:

DisclaimerThis presentation is intended to provide generalinformation and should not be construed as providing legaladvice. It should not be cited or relied upon as legalauthority. For advice about how these issues might apply toyour individual situation, consult an attorney.

Ag Land Conservation Who can enforce an agconservation easement? Can an eased farm bepartitioned? Who does the IRS considerto be a qualified farmer? What legislative changeswere made in 2018? What can be done toencourage conservationpractices on leasedfarmland?

I’m Still StandingLegal standing-whether theparty has the sufficientlegal interest to bring thecase-a property interest-an interest arising out of acontract-an interest that someonehas lost through a tortiousaction, or one founded inlaw.

I’m Still Standing With an agriculturalconservationeasement, clearly thegrantor and thegrantee have standing,but what about thirdparties?

Two’s company, three is acrowd Does a neighbor/3rd party have standing toenforce an agricultural conservationeasement?– Schwartz v. Chester County Agricultural LandPreservation Board, Nos., 180 A.3d 510 (2018)

Schwartz v. Chester CountyAgricultural Land Preservation Board Ag conservation easementwas granted to the localtownship, the County andthe Chester CountyAgricultural LandPreservation Board (Board)to limit development anduse of the land for nonagricultural purposes.

Schwartz v. Chester CountyAgricultural Land Preservation Board Farm operators began an organiccomposting business on a portion of landunder easement. Schwartz (neighbor) submitted a formalcomplaint to the Board claiming the usewas in violation of the easement andasked the Board to take enforcementaction.

Schwartz v. Chester CountyAgricultural Land Preservation Board Board conducted an inspection and held apublic hearing. Board sent Schwartz a letter explaining thatthe composting use was consistent with theterms of the easement.

Schwartz v. Chester CountyAgricultural Land Preservation Board Schwartz filed a Petition for Judicial Review ofBoard’s action. Common Pleas Court: denied the Board’sMotion to Dismiss the action (upheld standing)but ruled that the use did not violate theEasement. Both sides appealed.

Schwartz v. Chester County AgriculturalLand Preservation Board Commonwealth Court agreed with lower court’sinterpretation of the use but also granted theBoard’s Motion to Dismiss. 3rd party standing?– When the plaintiff is not a party to the easement,look to the easement language and the regulatoryframework.

The easement providesthe Board with the powerto determine if there hasbeen a violation of theeasement and does notprovide third-parties withan enforcement right. Neither the county’seasement program norstate law provides a thirdparty right ofenforcement.

Schwartz v. Chester CountyAgricultural Land Preservation Board The Board’s letter to Schwartz was not an“adjudication” subject to judicial review. There was no procedure for complaints to be filedwith the Board- that would have made the Board’sdecisions quasi judicial. “When an agency considers whether or not to takean enforcement action, itexercises prosecutorial discretion that is beyondjudicial review.”

Standing to Enforce Long Green Valley Ass'n v. Bellevale Farms, Inc.,432 Md. App. 292 (2013) Similar case to Schwartz Neighbors and a community association unhappywith the use of an eased property filed suit toforce MALPF to enforce an easement. CSA and COA examined whether the plaintiffs hadstanding.

Long Green Valley Ass'n v. BellevaleFarms, Inc.In CSA case- Plaintiffs claimed they wereintended 3rd party beneficiaries.They argued 3rd party beneficiaries included-The general public-Other parties with easements-Neighbors

Standing to EnforceQuizQuiz- What is one way totell if a 3rd party hasstanding? Answer- look to thelanguage of theeasement!

Long Green Valley Ass'n v. BellevaleFarms, Inc.The MALPF Easement Agreement provides that theState, as the grantee, may enforce the easement, andexpressly limits public access and use of the land.No express statement in the Easement that others whohave placed their property under MALPF easements,the general public, or adjoining property owners, areintended 3rd party beneficiaries to the Easement.

Long Green Valley Ass'n v. BellevaleFarms, Inc. Parties also claimed standing to enforce theeasement based on the charitable trust doctrine. COA- a MALPF easement did not constitute acharitable trust that could be enforceable by anyinterested person. Language of the easement and MALPF program'sstatutory scheme demonstrated that objective ofthe easement was maintaining agriculture as aprofitable endeavor not charitable.

More than a Neighbor, LessThan a Party with Standing Estate of Merrill P. Robbinsv. Chebeague &Cumberland Land Trust etal, 154 A.3d 1185 (2017) Marion Payson donated aconservation easementon 100 acres of coastalland to the Chebeague &Cumberland Land Trust(CCLT).

Estate of Merrill P. Robbins v. Chebeague &Cumberland Land Trust et al, Easement allowed for 10 building lots. Afterher death, Payson Estate agreed to sell thebulk of the protected property to a developer,and the family retained a two-acre parcel. Developer sold 25 acres of the property to theTown for a beachfront park, including pavingan existing dirt access road and grading aparking area and adding portable toilets and apier.

Estate of Merrill P. Robbins v. Chebeague& Cumberland Land Trust et al Payson Estate filed suit against CCLT and theTown, claiming that the park improvementsviolated the easement. The Town and CCLT filed motions to dismiss,contending the Estate had no standingbecause it owned only the two-acre parcel,which was separate from the beach parkparcel.

Standing to EnforceQuizQuiz- What is one way totell if a 3rd party hasstanding? Answer- look to theregulatory/legalframework!

Estate of Merrill P. Robbins v. Chebeague& Cumberland Land Trust et al The statute provides a grant of standing to “[a]nowner of an interest in the real propertyburdened by the easement” The Estate argued their interest in the 2 acreparcel gave them standing to enforce theeasement on the remainder of the land owned bythe Town.

Estate of Merrill P. Robbins v.Chebeague & Cumberland LandTrust et al What do you think? Does it mean an ownerof any real propertyburdened by theeasement or the ownerof the property subjectto the enforcementaction?

Estate of Merrill P. Robbins v.Chebeague & Cumberland LandTrust et al Court found: A landowner of one geographic portion of aneasement-protected property does not havestanding to enforce that easement as itpertains to a separate area of the protectedproperty owned by another person. Takeaway- Neighbors can seek to enforcelocal zoning regulations but have limitedauthority to enforce conservation easements.

Are you a farmer enough fora full deduction? Rutkoske, et al. v.Commissioner of InternalRevenue, 149 T.C. No. 6 (2017) Two brothers were membersof a limited liability company(LLC) established to ownfarmland. In the same year, the brotherssold a conservation easementand sold the farmland at issueto an unrelated third party.

Rutkoske, et al. v. Commissionerof Internal Revenue For income tax purposes the two brothersclassified themselves as “qualified farmers” asdefined by the Internal Revenue Code, eligible todeduct 100% of their contribution base. A “qualified farmer or rancher” is an individualwhose gross income from the trade or business offarming is greater than 50% of their gross incomefor the taxable year ((26 U.S. Code Section170(b)(1)(E)(v)).

Rutkoske, et al. v. Commissionerof Internal Revenue Farming includes (A) cultivating the soil or raising or harvesting anyagricultural or horticultural commodity (includinganimals) on a farm; (B) handling, drying, packing, grading or storing of anycommodity in its unmanufactured state if the ownerof the farm regularly produces more than one-half ofthe commodity so treated, and/or (C) planting, cultivating, caring for or cutting of treesor the preparation of trees for market (26 U.S. CodeSection 2032A(e)(5)).

Rutkoske, et al. v. Commissioner ofInternal Revenue The brothers in Rutkoske argued thatthe income derived from the sale ofthe conservation easement and fromthe sale of the land constitutedincome derived from the trade orbusiness of farming. The Court disagreed, explaining itwas confined to look to the incomederived from the sale of agriculturalproducts, not from the sale of landdevelopment rights or the land onwhich agricultural products aregrown.

Rutkoske, et al. v. Commissioner ofInternal Revenue The Court also explained that even if it had agreedwith the brothers’ reasoning, the brothers still wouldnot have prevailed because the LLC which sold theproperty was not in the business of farming; it was inthe business of leasing real estate. The LLC’s income from the sale of the property,which flowed to the brothers individually, did notconstitute income from the trade or business offarming.

Can Tenants in CommonSplit up? Taylor v. Taylor, 2018 Ohio Misc. LEXIS 1705 ( Ohio Ct.App. Apr. 23, 2018). Brother and Sister own farmland that includes aconservation easement as tenants in common Can the property be divided if the conservationeasement agreement prohibits division of theproperty?Photo by Edwin Remsberg

Taylor v. Taylor Trial Court held that the conservationeasement’s unlimited prohibition on dividingthe property was invalid under state law andthat the property could be divided Court of Appeals:– So long as it is not an absolute restraint onalienability the agreement to prohibit the divisionof property is valid The agreement does not prohibit the sale of theproperty

Partition Splits &Maryland Courts Tenants in Common have the right to compela partition in Maryland, but . . . Md. Real Property Code Ann. 1-104 &Balderston v. Balderston, 388 A.2d 183– Court of Special Appeals stated a co-owner cangive up their right to compel partition or sale ofproperty through an express agreement

Don’t Forget About Those LocalTax Benefits And Their Rules Woolford v. Virginia Dept. of Taxation, 806 S.E.2d398 (Va. 2017) Dept. of Taxation in Virginia tookback a 4.9 million landpreservation state tax credit 1. Was the appraiser “qualified” ? 2. Can the Department audit thetax credit after its approved?Photo by Edwin Remsberg

Woolford v. VirginiaDept. of Taxation “Qualified” appraiser as defined underfederal law governing charitablecontributions ( 26 U.S.C. § 170(f)(11)(E)(ii) ) Who can be a qualified appraiser?– Earned designation of appraiser from aprofessional appraiser organization– Receives compensation for appraisals on aregular basis– Must have verified education and experiencewith valuing that type of property

Woolford v. VirginiaDept. of Taxation Court stated:– A license alone doesn’tmean the appraiser is“qualified”– Must have experience inthat specific type ofproperty, not justgeneral experience inreal property– Need either formal class roomeducation or experience

Woolford v. VirginiaDept. of Taxation The law does not restrict the Department’saudit authority to only false or fraudulent claims

Woolford v. VirginiaDept. of TaxationIssues Still in Litigation: The Dept. of Taxation is also claiming theWoolford’s tax credit’s value is flawed because:– The mining area is not the type of land thatqualifies for this credit– If the mining area does qualify, it should only bea 25% FMV tax credit allowed for “landimprovements”– The need for the expansion of the special usepermit under county zoning laws reduces itsFMV under the law

Woolford v. VirginiaDept. of Taxation Court:– Unless the Dept. can prove the value of theconservation easement is zero, it must award atax credit based on the FMV of the donationPhoto by Edwin Remsberg

Maryland Income TaxCredit Requires a certified real estate appraiser nota “qualified appraiser” The amount of the Credit is different:– Limited to 5,000 per year and can carry forwardremaining credit amount up to 15 yearsPhoto by Edwin Remsberg

Income Tax Deductionin Maryland Same “qualified appraiser” rules asthe federal law Tips:– What type of land is this? Farmland,farmland with mineral rights,forested land, etc.– Keep in mind the appraiser’sexperiencePhoto by Edwin Remsberg

Legal Updates from theMD General AssemblyHB 1229/SB0571- Agricultural Land PreservationEasements- Signs, Billboards, and Outdoor AdvertisingAllows a MALPF easement landowner to erect a sign on thefarm without seeking the approval of the MALPF Board. Sign must be no larger than 4 feet by 4 feet. Advertise the name, address, occupant, farm or forestrelated uses or a home occupation (if previouslyapproved by the Board), and the sale of ag products.

What’s Your Sign? A sign may also be posted to advertise the sale orrent of the property, forbidding trespass or hunting,marking boundaries, identifying protected status ofthe land or supporting a political candidate. Larger signs must be approved by MALPF.

MALPF- Who is aChild?SB 1140 MALPF Definition of Child The term “child” is used under existing provisionsallowing a landowner whose land is subject to a MALPFeasement to apply for the release from the easement ofa lot for a dwelling house for the landowner or child ofthe landowner. As amended the law– defines “child” as a biologicalchild, an adopted child, or a stepchild, and specifiesthat “child” does not include a foster child, agrandchild, or a descendent more remote than agrandchild.

MALPF- Who is a Child? The bill will apply retroactively and be applied toand interpreted to affect any person who is subjectto the restrictions of an agricultural landpreservation easement held by MALPF.

Special OccasionsHB 1351 Agriculture- Easements- Special Occasion Events This bill will allow an owner of land that is under ag landpreservation easement to have a special occasion eventwhich includes a wedding, a lifetime milestone event,or other cultural or social event. To be allowed to have this event, the property musthave been under easement for at least 10 years, beapproved by the local land preservation board and theevent must be allowed by the federal, state and localregulations.

Inheritance TaxHB0198- Inheritance Tax- Perpetual ConservationEasement- Farming Purposes- Exemption This bill creates an exemption from the inheritance tax forreal property that has been placed in a perpetualconservation easement (such as MALPF and Rural Legacyeasements) that passes from a decedent to a niece ornephew of the decedent. A recapture would occur if theproperty ceases to be used for farming. The bill applies todecedents dying after December 31, 2017.

Maryland InheritanceTax Does NOT apply to:–A deceased person’s grandparents,parents, child, spouse, child’s spouse,grandchildren, grandchild’s spouse,sibling, a corporation, partnership, orLLC with only members that areexcluded from the tax, or a nonprofitorganizationWould apply to: an aunt or uncle,niece or nephew, friend10% of the “clear value” of theproperty (FMV – allowable expenses)Special Valuation for Farmlandapplies if meets requirements 5 yearsbefore the owner’s deathPhoto by Edwin Remsberg

Income Tax Changes H.B. 43– The first 50,000 of compensation received thattax year for the sale of a perpetual conservationeasement in the state must be subtracted fromthe amount of federal adjusted gross income youplan to deduct to determine your Marylandadjusted gross income

Agricultural ConservationLeasing Project

Agricultural ConservationLeasing Project The project will engage agricultural serviceproviders (University of Maryland Extension,NRCS, land trusts, etc.) in an educationprogram about agricultural conservationleasing.

Agricultural ConservationLeasing Project There will be an informational webinar and a seriesof five regional workshops Attendees will gain the knowledge, skills, toolsand confidence to educate and adviselandowners and farmers how to overcome thechallenges of implementing conservationpractices on leased farm land. Interested landowners and farmers are alsoencouraged to attend!

Agricultural ConservationLeasing Project Informational Webinar11/15/18 12:00 -1:00 Lower Shore Workshop 12/10/18 8:00 am -3:00Salisbury Mid-Shore Workshop 1/8/19 8:00 am - 3:00Wye Mills Western MD Workshop 1/23/19 8:00 am -3:00Frederick Central MD Workshop 1/28/2019 8:00 am - 3:00Cockeysville Southern MD Workshop TBD Waldorf

Agricultural ConservationLeasing Project For additionalinformation and/or toregister go to Anyone with questionsmay contact NancyNunn at 410-827-8056or

Questions/ThanksContact Information:Kelly Nuckollsknuckoll@umd.edu301-405-1295Sarah Everhartseverhart@law.umaryland.edu410-458-2475

the sale of the land constituted income derived from the trade or business of farming. The Court disagreed, explaining it was confined to look to the income derived from the sale of agricultural products, not from the sale of land development rights or the land on which agricultural products are grown. Rutkoske, et al. v. Commissioner of

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