For the first time this spring boards of selectmen and town and city councils throughout New Hampshire received applications under the new discretionary preservation easement process for historic agricultural structures, RSA Chapter 79-D. NHMA’s Legal Services and Government Affairs attorneys received numerous questions about these new discretionary easements and how the value of properties subject to the easement should be assessed for property tax purposes. Here are some of the questions posed by municipal officials and answers that may make next year’s application process easier.
Q. What is a discretionary preservation easement?
A. It is an agreement between the property owner and the municipality that requires the property owner to maintain an historic agricultural structure (most commonly a barn) “in keeping with its historic integrity and character during the term of the easement.” See RSA 79-D:4, I. The property owner must grant the easement to the municipality for a term of 10 years or more. See RSA 79-D:2, I. If the property owner fails to maintain the structure according to the terms of the easement or demolishes or removes it, the easement shall be terminated and the owner shall be assessed a penalty as provided for in RSA 79-D:8 – 20 percent of full assessed value during the first half of the easement period and 15 percent of full assessed value during second half of the easement period. In return for investing in the maintenance of the building, the property owner receives a reduction in property taxes as a result of a reduction in the assessed value of the structure. The purpose of a discretionary preservation easement is, among other things, “to prevent the loss of historic agricultural structures due to property taxation at values incompatible with their preservation.” See RSA 79-D:1.
Q. What is the procedure for applying for a discretionary preservation easement?
A. The Department of Revenue Administration has published Form PA-36-A, the Discretionary Preservation Easement Application, which is used by the property owner and the municipality in the application and decision-making process. The property owner submits the application to the governing body on or before April 15 of the tax year. The application must include a map showing the location of the agricultural structure that would be subject to the preservation easement, as well as a description of how the property meets the public benefit test outlined in RSA 79-D:3. The governing body must hold a public hearing on the application, determine if the building meets the public benefit criteria and, if so, weigh the public benefit to be obtained against the tax revenue to be lost if the easement is granted. The governing body then must make a final decision on whether or not to grant a discretionary easement. All this must be done within 60 days of receiving the application. If the governing body approves the application request, the municipality then negotiates the terms of the easement with the property owner. The Town of Lyme has produced a Checklist for Processing Discretionary Preservation Easements for Historic Agricultural Structures and has made it available to other municipalities.
Q. How is the value of the preservation easement determined?
A. RSA 79-D:7 requires the assessment of the agricultural building to fall within a range of between 25 percent and 75 percent of full market value. It also requires the method of assessing the value to be included as a term of the easement agreement between the municipality and the applicant. The assessed value cannot be an arbitrary choice made by the governing body, but one that is based on some recognized method of assessment. The municipality’s assessors should be able to provide some expertise in assessing the value of proposed easements. However, the statute clearly retains to the governing body the discretion as to where within the 25 to 75 percent range to place the value. It seems logical that the more public benefit criteria the application meets, the more incentive the municipality should grant to the property owner to preserve the building by way of a larger property tax break. But the bottom line is that the governing body can determine whether the public benefit outweighs the property taxes lost as it decides to grant or deny the application. Once the property owner grants the easement to the municipality, the municipality cannot increase the assessed value of the building because the property owner repairs or maintains the structure. See RSA 79-D:7, II.
Q. If the governing body grants the application, the property owner benefits in the form of a property tax reduction. Is there any benefit to the municipality in granting a preservation easement for historic agricultural buildings?
A. In RSA 79-D:1, the state legislature declared it to be in the public interest to encourage the preservation of historic agricultural buildings in order to “maintain … the historic rural character of the state’s landscape, sustain … agricultural traditions, and provid[e] an attractive scenic environment for work and recreation of the state’s citizens and visitors.” Structures that “provide a demonstrated public benefit” are eligible for consideration for preservation easement. The decision to approve an easement application should be based on the governing body’s determination that this “public benefit” outweighs the tax revenue lost by granting the easement. See RSA 79-D:3, I. While the preservation easement application process may result in some cost to the town for legal representation and public hearing notification, the acceptance of the easement should result in some public benefit as described in the statute, or should not be granted.
Q. How can the governing body judge whether or not an historic agricultural building meets the statute’s public benefit test?
A. RSA 79-D:3, II defines “public benefit” as structures that provide scenic enjoyment from a public way or from public waters; are historically important on the local, state or national level, either independently or within an historic district; or whose features contribute to the historic or cultural integrity of property listed, or eligible for listing, on the National Register of Historic Places, the state register or within the municipal historic district. The guidelines for determining public benefit, established by the New Hampshire Historic Agricultural Structures Advisory Committee, may be helpful. This is the link to the guidelines on the Web site of the Division of Historic Resources: http://www.state.nh.us/nhdhr/barneligibility.html.
Q. Is the discretionary preservation easement an unfunded mandate in violation of Part I, Article 28-a of the New Hampshire Constitution?
A. No. The New Hampshire Supreme Court has issued several decisions regarding unfunded mandates, including Opinion of the Justices (Materials in Solid Waste Stream), 135 N.H. 543 (1992) in which the Court said: “Invoking the constitutional prohibition requires both a mandate of responsibility to the political subdivision and a requirement of additional local political subdivision expenditures by virtue of the mandate.”
Administration of the preservation easement program does result in some additional municipal cost. However, as RSA 79-D:5 makes clear, the governing body’s decision to grant or deny a preservation easement is discretionary. Therefore, it is not a mandated program under Article 28-a because the governing body may choose whether or not to grant the easement. RSA 79-D:5 says the governing body “may take steps to acquire a discretionary preservation easement” if it finds that the proposed preservation meets the purposes of RSA Chapter 79-D. This is permissive language. The program would be a mandate if the statute used the word “shall” instead of “may.”
Further, the statute prevents the Board of Tax and Land Appeals or the superior court from overturning the governing body’s denial of a preservation easement request because that denial is deemed discretionary. The only basis on which the BTLA or the superior court can set aside a governing body’s denial is if it is based on bad faith, discrimination, or criteria other than those listed in RSA 79-D:3. These criteria relate to the public benefit demonstrated by the historic agricultural structure.
Q. Can municipalities pass legal and other costs associated with discretionary preservation easements on to the applicant?
A. RSA 79-D:6 expressly allows municipalities to pass along to the applicant the costs of recording the preservation easement at the Registry of Deeds. However, there are no provisions in the law for passing the municipality’s legal or advertising costs on to the applicant. Therefore, if the governing body were to deny the application based on the fact that an applicant either could not or would not pay the municipality’s legal or other expenses, the denial could be set aside upon appeal to the BTLA or superior court.
Q. What other terms must be included in the easement agreement?
A. The easement must be for a period of at least 10 years and, in addition to including the method of assessment, the terms of the agreement must include terms of expiration and terms of renewal of the agreement. See RSA 79-D:8, II and RSA 79-D:8, III. The New Hampshire Preservation Alliance has a discretionary preservation easement document available for use as a model, but municipalities should consult with their regular attorney when negotiating and agreeing to terms of a discretionary easement.
Q. Can a property owner be released from the terms of the easement agreement before its expiration?
A. The governing body may grant an application for release from the terms of the easement if the property owner demonstrates that the agreement creates “an extreme personal hardship.” As provided in RSA 79-D:8, I, the property owner must pay a penalty equal to 20 percent of the full assessed value of the property if the release is granted during the first half of the easement period and a penalty equal to 15 percent of the full assessed value of the property if the release is granted during the second half of the easement period. Form PA-37-A, provided by DRA, is the Discretionary Preservation Easement Release, which must be used by the property owner when applying for a release of the easement.
