SPECIAL FOCUS

Between the high costs of real estate and strong development interests, local governments increasingly need to be savvy about acquiring land for parks and recreation.

Land is at a premium these days, and competition to buy it is at an all-time high. Between the high costs of real estate and strong development interests, local governments increasingly need to be savvy about acquiring land for parks and recreation. They need an array of techniques at their disposal, and they often need to be able to act quickly. Fortunately, there are a number of approaches to acquiring land that make this possible.

Land Donations

Some landowners who would like to see their property become a park or other open space amenity simply donate the land to a local government. Or sometimes they donate a portion of their land and retain the rest. For example, consider the case of a retired couple who owns a house with a stream at the back of the property. They enjoy the beauty of the stream but no longer wish to maintain such a large piece of land. They might choose to donate that portion of their land to the local park district.

When owners donate land they receive a tax deduction for the value of the donation. The donation also reduces or eliminates their real estate taxes, depending on whether they donate all or part of their property. Similarly, since they no longer own the donated land, it is exempt from estate taxes.

One option is for the owner to sell a portion of the property to the park district and donate the rest. It is up to the park district and owner to determine which portion of the land will be donated and which will be sold. If the owner wants to sell an entire parcel to the park district, he or she may choose to sell it at a discount and deem the difference as a donation to the park district. If the parcel is worth $1 million, and the park district buys it for $500,000, the difference between the purchase price and the value can be considered a charitable donation.

In this situation, be careful not to offer the owner your opinion of the value of the donation for use in claiming an income tax deduction. Instead, you can provide a copy of an appraisal of the property. The owner can then consult a tax advisor.

If an owner wants to donate property, it is important to enter into a donation agreement spelling out the terms and conditions of the donation. The primary purpose of the agreement is to make a record of the intended transfer. The agreement enables you to research the property before you close on it. (Be sure to spell out what you intend to investigate in the agreement.)

Through such due diligence, you may learn that the property is contaminated, which could affect your decision to accept the donation or cause you to negotiate remediation steps. If you have a written agreement in hand, it may also prevent the owner from backing out of the deal.

The donation agreement also is important because it enables you to do a title search. The title search ensures that the person who wishes to donate the land to your district has clear and unrestricted title to it, without liens or other types of encumbrances on the property. Otherwise, you might accept a deed and later learn that the property has a $1 million mortgage or other lien on it.

As well as a title search, you want to obtain a title policy. Provided you comply with the title commitment, the title policy insures you will have good title to the property—that all liens, easements and interests are identified and taken care of, or insured against.

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SPECIAL FOCUS

PHOTO: The landmark Peterson Farm homestead, built in the mid-1800s, in the city of McHenry, Ill. © CorLands

A Life Estate at Peterson Farm Peterson Farm is a historic farm featuring a mid-1800s homestead in the city of McHenry. The landmark site is home to the only two wooden farm silos remaining in McHenry County. In the 1970s, the city began acquiring the property, which the family wants to preserve. The resulting Peterson Park consists of 127 acres of scenic farmland, wooded oak savanna and wetlands. Another 60 acres of the Peterson Farm remained to be acquired to complete the park site. A life estate has helped make it possible. The city asked CorLands to buy the 60 acres while it applied for a state grant. The owner wished to live out his life on the property, so CorLands bought the 60 acres on behalf of the city of McHenry, with five acres subject to a life estate. Now that the city has obtained the state grant, CorLands is transferring the property to it. But the life estate remains in effect. The owner can freely live out his life on his family farm, while the city gains a unique historic and recreational resource. • — Nancy Kaszak

Life Estates

Establishing a life estate on a piece of land is useful when an owner wishes to sell the property to a forest preserve district, for instance, but would like to continue to live on it. With a life estate, the seller has the right to live out his or her life on the property. Upon death, the full title transfers to the forest preserve district.

One instance in which you might want to consider a life estate is when you have acquired all but one or two parcels of land. The remaining targeted property is where an elderly person lives. She does not want to move, but she is interested in having the land used as a park in the future. If the parcel will complete the park but is not essential to its current development, your local government could buy the land from her subject to a life estate.

This worked in the case of Peterson Farm in the city of McHenry, Ill., described in the sidebar at left.

Option Agreements

Let's say you know of a landowner who is interested in selling but who is not ready to sell now. Your park district is interested in the land but is not ready to buy because it does not currently have the money. A purchase contract with an option agreement will enable the park district to pay for the right to buy the land at a later date at a specified price. An initial small payment may be necessary to assure adequate consideration for the option.

A variation of this is to prepare the purchase contract for a specified price with an option agreement that gives the park district the right of first refusal when the owner is ready to sell. The owner has the right to market the property. If he or she receives a legitimate offer that is higher than yours, you have the option to buy the property at that price or walk away from the deal.

There certainly are pros and cons to using the right of first refusal. One advantage is that it essentially holds the property while the local government can plan and assemble financing. An advantage for the landowner is that he or she has the option to market the property. If a higher offer comes in, it is up to the local government to choose whether or not to match it. Thus, the owner does not feel like he or she has been negotiated below market price.

On the down side, a landowner may not want to tie up his or her property. For the local government the extra time ultimately may mean a higher purchase price. So the extra time comes at a risk.

Intermediaries

Certain nonprofit organizations—such as CorLands (the Corporation for Openlands) and others in Illinois and nationwide—can eliminate many of the risks of land acquisition by essentially providing interim financing for local governments. They do this by buying the land now for sale and later selling it back to the district. These organizations are in a position to buy land on behalf of a village, park district, forest preserve district or other local government when a parcel becomes available. They then hold the land, leasing it to the local government while it

24 | Illinois Parks and Recreation

THE ART OF THE LAND DEAL

Fast Action Saves Sunny Hill Horse Farm The Streamwood Park District knew it did not have much time when Sunny Hill Horse Farm was up for sale. The 12-acre site, bordered by large new subdivisions on two sides, was in an area in dire need of a park. The park district had sought land in the area. for two years. "We wanted between 15 and 20 acres, but as prices escalated, we realized that we could probably only afford about 12 acres," says director of parks Rick Pyle. The problem was, the park district didn't have a million dollars for the purchase. Says Pyle: "I knew we needed a cash infusion and someone to hold title while we went through the state grant process. And that's when we approached CorLands." CorLands conducted negotiations and bought the horse farm for the park district last spring. It is leasing the land to the park district, which has recently been approved for a state grant to buy the land. Now the site's rolling terrain is destined to provide recreational opportunities for people of all ages with soccer and baseball fields, possible nature-oriented activities and more. • — Jeffrey Greenspan

assembles funds to buy the property, including preparing any grant applications such as an Open Space Land Acquisition Development (OSLAD) grant from the Illinois Department of Natural Resources. In addition to the purchase price, the local government pays interest, service fees for holding the land, title and closing costs, legal fees, and any other fees associated with purchase of the property to the nonprofit intermediary.

The benefit of this arrangement is that a cash-strapped local government can take advantage of market opportunities; it can act quickly when a desirable parcel becomes available, rather than be pre-empted by a cash-rich developer. This was the case with Streamwood Park District's purchase of Sunny Hill Horse Farm, described in the sidebar at right.

Conservation Easements

A conservation easement is a way for a landowner to permanently protect the environmental value of his or her land while continuing to own it. It is a legal agreement between a landowner and a government agency or nonprofit organization that permanently limits development of the land. Even if an owner sells the land or passes it to his or her heirs, the conservation easement remains effective.

Certain organizations are qualified to accept conservation easements and are referred to as "grantees." A nonprofit conservation organization like CorLands can be an easement grantee. So can various government agencies.

By donating conservation easements, landowners may qualify for a variety of tax incentives. Easements that meet certain Internal Revenue Service criteria are considered tax-deductible charitable gifts. Because they reduce the fair market value of the land by restricting development rights on it, easements may qualify owners to receive substantial property tax reductions. This may also reduce estate taxes when the property is transferred to heirs. Owners can even grant conservation easements in their wills, with the same results.

A district also may wish to buy an easement to preserve natural areas or open space. This may include acquiring development rights to a property to keep it open and operating as is.

Every conservation easement is custom-made, responding to the particular desires of the landowner and the conservation goals for the property. An easement may exempt certain structures to allow the owner to modify or expand them. There are also no size limits on easements, which can range from a narrow buffer of a few acres, to a large parcel encompassing several hundred acres.

All of the tools available for acquiring park land and other open space resources empower local governments to turn their land-acquisition plans into reality. But key to their success is consulting an attorney, whether in-house or as outside counsel, whose knowledge of the intricacies of land transactions will ensure the best interests of your local government are met. •

NANCY KASZAK
is executive director of CorLands (the Corporation for Openlands).

JEFFREY GREENSPAN
is general counsel and director of land acquisitions for CorLands (the Corporation for Opentands).

Corlands is a nonprofit organization dedicated to helping local governments save open space and recreational land for public enjoyment. For more information, call 312.427.4256, ext.238 or nkaszak@corlands.org.

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