Friday, February 21, 2014

How to Create a Preservation Restriction: A Primer


Historic Boston manages several Preservation Easements on properties around the city, and we have found that there is a great deal of confusion concerning what an easement is and how it is created and maintained. Brian Pfeiffer, of Preservation Advisory Services, consultant to HBI on easement management, has kindly agreed to break down the process for us. This is Mr. Pfeiffer's second post on easements that he has done for the HBI blog. His first one, covered what exactly an easement is. This post will discuss how you create one yourself.  

HBI holds Preservation Easements on the Hurd House in
Charlestown, which was a property that HBI stabilized
and did exterior restoration work on in the 1980's
Most non-lawyers grow fretful and glaze over when talk turns toward legal agreements seasoned liberally with words such as “whereas”, “heretofore” and other arcane language.  This fear is unwarranted.  The goal of a legal document is to express as clearly as possible the intentions of the parties signing it.  Various statutes and legal precedents will require provisions to assure the validity of the agreement, but at its core, a Preservation Restriction is merely a contract between two parties who share the goal of preserving an historic building and its setting for the benefit of the public and future generations.  Any property owner - an individual, corporation, charity or other entity - can donate a Preservation Restriction, but the recipient must be either a 501(c)(3) corporation that has historic preservation as part of its recognized charitable mission, or a governmental agency that has historic preservation as one of its responsibilities.

Creating a Preservation Restriction requires the donor and recipient to negotiate a mutually acceptable scope of protected features and set of rules by which each party will participate in a building’s future preservation.  Our legal system with its heavy emphasis on potential adversarial situations often moves too quickly to the contemplation of enforcement clauses even before the parties have fully identified their shared goals.  Since the two parties will be binding themselves and their successors as partners in the preservation of a property, I offer the following check list as a Primer for reaching this goal.


1.      Define your goals:  It’s always a good idea to know what you want to accomplish before charging off on a mission.  It’s also important to retain an open mind, as your goals may change as you gather information.  A simple check list can provide useful information to those whose advice you seek.  Among the factors to consider are:

  1. Why do you want to give a Preservation Restriction?  Do you want to protect a building you have carefully preserved or that may have been in your family for a long period?  Are you working on a community development project in which historic preservation plays an important role?  
  2. Is the charitable tax deduction that may arise from the donation an important financial consideration?
  3. Is there a specific threat from which you want to protect the property?  For example, is your building small in an area where it would be more profitable to demolish and re-develop the property?
  4. From your perspective, what architectural elements are essential to protecting the character of the building?  While artistically unique finishes are important to protect, be open to the idea that some of the more ordinary spaces from the past may have historic value since they are among the first to disappear to changing living standards and technology.  For example, intact storefronts from the early nineteenth century, unaltered pantries from the eighteenth century and old theater interiors are architecturally rarer than elaborately decorated parlors.
In 1983 HBI first acquired a Preservation Restriction Agreement on the
Spooner-Lambert House in Roxbury. In 1992 HBI purchased the building,
and in 2000, we rehabilitated the building into four condos
2.      Select your non-profit partner:  Even within the world of historic preservations, non-profit organizations have a range of missions and expertise.  Try to find one that has actual experience with buildings like yours or that is focused on your community.  Look carefully at the organization’s mission statement, as well as its capacity to monitor and enforce Preservation Restrictions.  Does it already hold any restrictions?  Does it have staff expertise or access to expertise to monitor and enforce restrictions?  Does it have an endowment to support the monitoring and enforcement of its preservation restrictions?

3.      Develop a scope:  After selecting a potential non-profit partner, invite that organization to develop a proposal for the terms under which it would accept a preservation restriction on your property.  Remember, your potential partner may see different things to protect than those contained on your list.  Be prepared to listen, re-evaluate and negotiate until both parties achieve a mutually agreeable list of features to be protected.  This task is best done directly between the parties to achieve a working understanding in layman’s English.  Be aware that any responsible organization that intends to enforce the restriction must have the means to do it.  Most organizations will require a donation to an endowment specifically reserved for its Preservation Restrictions.  The amount of endowment needed for your property should be clearly stated together with the rules by which it will be used.

4.      Lawyer up:  Once the basic elements have been agreed - the scope of the restriction and endowment - it is time for both parties to seek legal assistance in converting the layman’s understanding into a more precisely written legal document that can be recorded with the property’s deed.  Generally, the recipient organization will have a legal format that it prefers and which it will use to generate a draft agreement.  This phase is perhaps the most difficult part of the process due in part to our legal tradition in which the legal advisor for each side seeks to represent his or her client’s interest in the strongest possible manner.  Several common pitfalls await:

  1. Preservation Restrictions necessarily limit the future development value of a property; attorneys have a duty to protect their clients from unknowingly giving up rights they may want in the future.  As a client, you will need to be clear with your attorney regarding the extent to which you intend to reduce the development potential of your property.  Property value that may be lost as a result of a Preservation Restriction can be claimed as a charitable deduction against income, but it must be carefully documented through an appraisal that cites specific comparable properties - it cannot be a guess or fixed percentage of overall property value.
  2. In addition to describing protected features, Preservation Restrictions contain numerous other clauses that are required by statute or by common practice.  The wording of many of these clauses is largely standard, although it may seem confusing to a donor.  Each clause has its own logic and reason for being.  For example, Preservation Restriction Agreements customarily require the property owner to maintain replacement insurance on the protected portions of the property and to provide annual proof of insurance from a company of solid financial standing.  Such a provision is necessary to assure that the building can be repaired in case of partial damage.  In extreme cases, it helps to eliminate any incentive toward arson as a way of clearing a site of an unwanted building.  If you find these clauses puzzling or cumbersome, insist on explanations that allow you to understand the full scope of the agreement.
Historic Boston holds preservation easements on the
Cushing-Endicott House in the Back Bay. This famous Back Bay
residence was recently rehabilitated into condos.
5.      Close the deal:   Once the wording of the Preservation Restriction Agreement has been accepted by both parties, several steps remain to complete the agreement:

  1. One party to the agreement (usually the recipient) will prepare documentation of the property’s current appearance and condition.  This documentation should include current photographs of all protected features, architectural drawings (if available) marking protected areas and any other information that provides an unambiguous record of the property’s condition.
  2. If there are existing mortgages or easements over the property, they will need to be subordinated, that is to say the holder of those rights must agree to allow the Preservation Agreement to have first priority on the property title.  If these prior rights are not subordinated, foreclosure on an existing mortgage could void the Preservation Restriction.
  3. In Massachusetts, both the Massachusetts Historical Commission and the local governing body (Board of Selectmen or City Council) must review and approve the agreement.  Once these approvals have been obtained, the agreement and its supporting documentation are recorded at the local registry of deeds and the agreement becomes binding.
Just as good fences make good neighbors, good legal agreements make good partners by defining each participant’s role and mutual responsibilities, thereby allow the participants to proceed in partnership with their shared goal of preserving a place of value for the public benefit.  

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