Colorado s Legal Framework for Three Agricultural Tools:

Transcription

1 Colorado s Legal Framework for Three Agricultural Tools: Affirmative Language in CEs, for land and water Ground Leases Option to purchase at Agricultural Value or Preemptive Purchase Rights

2 Agricultural Conservation Opportunities Affirmative Requirement for active farming (measured by farm income) in CE Farmer residency required Option to purchase at agricultural value (OPAV) or preemptive right to purchase ensure future sale to another farmer at affordable price Defines permitted and required farming and stewardship practices, while allowing for changing circumstances Option for ground lease on buildings to farmer landowner

3 Affirmative Language in CEs

4 MALT s Mandatory Agricultural Use Provision 1. Requires productive commercial agricultural use. Bill Barboni, Barboni Ranch, Hicks Valley 2. Calls for an Agricultural Management Plan (AMP) written by landowner and approved by MALT at close of escrow to define what productive commercial agriculture is for each property. AMP also contains provisions to protect soil and water quality and to control invasive plant species. 3. Either landowner or tenant (of ground lease) can carry out the plan.

5 MALT s Mandatory Agricultural Use Provision cont. 4. MALT monitors and enforces the MAU provision based on the AMP. Peter Martinelli, Paradise Valley Ranch, Bolinas 5. Plan must be updated every 10 years, with change of ownership, and at the request of the landowner (MALT approves update). 6. If landowner is not willing to conduct the ag use or find a tenant, MALT has the right to find a tenant to carry out the ag use defined in the plan.

6 Affirmative Farming Requirements SSCFLT Agricultural Ground Leases Requirements Conservation plan and/or Organic Systems Plan Income requirement (Livelihood from farming) i.e. $100,000 gross sales annually Annual revenue report to Land Trust Restrictions Land used only for agricultural purposes Grass/hay production requirements: <50% of farmable acres Ornamentals requirement: <25% of farmable acres Production requirement: sold outside a 300 mile radius <50% of annual gross sales 6 I RALLY 2015

7 MALT: Amending Older MALT Easements to Include Mandatory Agricultural Use In 2014, MALT launched a voluntary retroactive MAU program to amend existing agricultural conservation easements to include a Mandatory Agricultural Use provision. Ensures that protected farms and ranches remain in productive agricultural use. MALT pays landowners to voluntarily amend their easements to include MAU provision (currently set at $255/acre). Peter Martinelli, Paradise Valley Ranch, Bolinas Loren Poncia, Stemple Creek Ranch, Tomales

8 Colorado s Legal Framework for Affirmative Language in CE: CRS et seq. allows requirements to farm and requirements to restrict or include water rights Query as to amending existing easements to add affirmative language (CRS silent as to amendment of perpetual CEs so allowed federal laws apply)

9 CRS Allows Affirmative Ag and Water Language: Conservation easement in gross. "Conservation easement in gross", for the purposes of this article, means a right in the owner of the easement to prohibit or require a limitation upon or an obligation to perform acts on or with respect to a land or water area, airspace above the land or water, or water rights beneficially used upon that land or water area, owned by the grantor appropriate to the retaining or maintaining of such land, water, airspace, or water rights, including improvements, predominantly in a natural, scenic, or open condition, or for wildlife habitat, or for agricultural, horticultural, wetlands, recreational, forest, or other use or condition consistent with the protection of open land, environmental quality or life- sustaining ecological diversity, or appropriate to the conservation and preservation of buildings, sites, or structures having historical, architectural, or cultural interest or value.

10 CRS Allows Affirmative Ag and Water Language cont (5) If a water right is represented by shares in a mutual ditch or reservoir company, a conservation easement in gross that encumbers the water right may be created or revoked only after sixty days' notice and in accordance with the applicable requirements of the mutual ditch or reservoir company, including, but not limited to, its articles of incorporation and bylaws as amended from time to time Residual estate. All interests not transferred and conveyed by the instrument creating the easement shall remain in the grantor of the easement, including the right to engage in all uses of the lands or water or water rights affected by the easement that are not inconsistent with the easement or prohibited by the easement or by law.

11 eg: MALT Affirmative Ag CE language 1. Agricultural Use. Beyond the uses specifically permitted and prohibited, Owner and Holder agree that Owner, directly or through an operator or operators responsible to Owner, shall be, and continue to be, actively engaged in Productive Agricultural Uses of the Property. Agricultural Uses are defined in Exhibit B, Section 2 (Agriculture). Productive Agricultural Uses are defined as a level of commercial Agricultural Uses appropriate to the agricultural capacity of the Property for the production, processing, and sale of commercial animal products and/or agricultural crops.

12 eg: Peconic LT Affirmative Ag CE Clause 1.Abandonment of Agricultural Uses Grantor and Grantee intend that the Property shall be actively used for Commercial Agricultural Activities in perpetuity; however, Grantor and Grantee recognize that unforeseen events may necessitate that the Property be taken out of such use temporarily or that Grantor may, for whatever reason, wish to cease conducting Commercial Agricultural Activities on the Property.

13 Ground Leases

14 Ground Leases: How they work Fee simple acquisition of farmland by Land Trust Land Trust partners with local farmer Farmer purchases buildings on the land, but not the land under the buildings Farmer leases land under the buildings, and the farm acreage, from the land trust, through an agricultural ground lease (typically 99 years)

15 Ground Leasing: Why it works The CFLT model is used for two primary reasons: To maintain the affordability of the farmland for farmers To enable the land trust to require active farming on the land Why it works: Farmer builds equity by owning buildings Farmer has long-term security and an affordable lease Land Trust can require active farming and sustainable practices

16 16 Ground lease model enables land trust to Share costs and responsibilities: Sale of the buildings to the farmer recuperates portion of investment. Farmer ownership of buildings incentivizes maintenance, relieves land trust of this responsibility. Lease can include requirement for repair reserve fund and other terms to promote on- going stewardship. Steward land and buildings effectively: Create a strong legal position to enforce the lease requirements and restrictions. Benefit from the ground lease s greater flexibility over time.

17 Ground Leases: Benefits for farmers Affordable access to quality land near viable markets Affordable on- site housing Ability to invest in infrastructure, build equity, and recoup investment Secure land tenure supports farmer s ability to invest in soil, build business

18 Colorado Legal Framework for Ground Leases: There are no statutory restrictions on the term of a lease in Colorado There are no statutory provisions requiring a landlord to allow a tenant to renew its lease There are no state law restrictions on rent. No laws permitting tenants to terminate a lease prior to its stated expiration date apply to commercial leases in Colorado

19 Colorado Legal Framework for Ground Lease cont. There is no Colorado law that limits restrictions on assignment or subleasing There are no legal restrictions on pledging a leasehold interest as security for a financing

20 There are no statutory restrictions on the term of a lease in Colorado, but as a general practice landlords and tenants in Colorado do not enterinto leases for a term longer than 99 years, including renewals. In at least one case, the Colorado Court of Appeals has avoided giving effect to lease language that appeared to grant the tenant an indefinite renewal right. See Carder, Inc. v. Cash, 97 P.3d 174, (Colo. App. 2003), cert. denied (Colo. 2004) (holding that a lease providing an option to renew for successive periods of 5 years each could be renewed for only one period).

21 There are no statutory provisions requiring a landlord to allow a tenant to renew its lease. However, there is precedent that if the tenant holds over, the landlord continues to collect rent, and the lease is silent as to the consequences of holdover, the lease may be deemed to have renewed for a period equal to or less than the original lease term depending on the duration of the original term and the apparent intent of the landlord and tenant. The best practice is to clearly specify the consequences of holdover in the lease document and to adhere to those provisions to avoid waiving them.

22 No laws permitting tenants to terminate a lease prior to its stated expiration date apply to commercial leases in Colorado, but Colorado common law does include a concept of constructive eviction, which is a circumstance in which a landlord either does something or fails to do something that s/he has a legal duty to provide (e.g. the landlord refuses to provide heat or water to the apartment), rendering the property uninhabitable.

23 There is no Colorado law that limits restrictions on assignment or subleasing. However, in the absence of such a restriction in the lease, the tenant can generally assign the lease or sublet the premises. A tenant that is a debtor in a proceeding under the U.S. Bankruptcy Code may have the right to assign its lease without the landlord s consent pursuant to 11 U.S.C. section 365 if the conditions to such an assignment are satisfied, regardless of whether the lease contains restrictions on assignment or subletting.

24 There are no legal restrictions on pledging a leasehold interest as security for a financing but it is typical for Colorado leases to prohibit such a pledge or at least require the landlord s prior consent.

25 Offers for Purchase at Agricultural Value (OPAV) or Preemptive Rights to Purchase

26 OPAV GOAL: Keep conserved farmland in ownership of farmers Make reasonable efforts to assure that conserved farmland is accessible and affordable to future generations of farmers. Option is deterrent to non- farm buyers OPAV on sales to non- farmers based on: > business plan > experience > price

27 How does the Option work? 1. Option not triggered by a sale to a family member or farmer. 2. If buyer is a non- farmer, Purchase and Sale Agreement and Buyer s farm business plan submitted to easement holders. 3. Holders have 30 days to decide to waive or give Notice of Intent to Exercise Option.

28 Role of OPAV in ground lease Land trust holds option to purchase at agricultural value on the buildings Exercising the option Ø Triggers Ø Land trust can assign to farmer, or buy and re- sell As in easement, OPAV can exempt certain sales, such as: Ø Sale to family member Ø Sale to Qualified Farmer

29 State- specific legal guidance needed OPAV in state- wide programs MA & VT Ø Right of first refusal or option? Has been used in a limited way in a few other states In NY, several land trusts using pre- emptive purchase right Considerations State conservation law ü Affirmative language? ü Savings clause? Rules against perpetuities and remote vesting ü Time limits on options or RoFR?

30 Colorado s Legal Framework for Offers for Purchase at Agricultural Value (OPAV) or Preemptive Right to Purchase

31 OPAV s and Colorado Law: Legal Considerations Restraints on Alienation Rule Against Perpetuities (RAP Trap) Other Options to Options?

32 Restraints on Alienation is a clause used in the conveyance of real property that seeks to prohibit the recipient from selling or otherwise transferring his interest in the property

33 OPAV as an Option Option The clearest and strongest right that can be granted to give a party flexibility in the future; the option grantee ( grantee ) is given the right, but not the obligation, to lease, buy or otherwise control a specified asset in the future. To be enforceable, the option should set forth exactly what asset is subject to the option, the price and terms on which the optionee can exercise the option, the date or dates on or between which the option is exercisable, and the corresponding dates for closing or delivery of the optioned asset.

34 Rule Against Perpetuities: forbids instruments (contracts, wills, and so forth) from tying up property forever, or beyond the lives of people living at the time the instrument was written. The common rule is often stated as follows: Any interest must vest, if at all, not later than 21 years after a life in being at the creation of the interest. Colorado has its own statute: CRS (2)

35 Colorado s RAP Trap Colorado s Statutory Rule Against Perpetuities Act was adopted by the legislature in 1991, and is modeled on the USRAP (2), C.R.S. (2013); The Act expressly supersedes and abolishes the common law rule and establishes a new statutory rule for nonvested interests created after May 31, 1991; Like the USRAP, excludes nonvested property interests and powers of appointment arising out of nondonative transfers (1)(a),C.R.S. (2013). That is, the Act effectively exempts arms- length commercial transactions from the common law rule s vesting requirements; The statutory rule does not apply, for example, to options or preemptive rights in the nature of a right of first refusal EXCEPT to the extent they are created in the context of a GIFT or other donative transfer.

36 Colorado Supreme Court Interprets its Statutory RAP in context of an Option: Colorado Supreme Court, in Atl. Richfield Co. v. Whiting Oil & Gas Corp., 320 P.3d 1179 (Colo. 2014) held that a fully revocable option within a commercial agreement did not violate the common law rule against perpetuities, either in its traditional form or as it existed in Colorado case law prior to the adoption of the Rule Against Perpetuities Act. Because the option was REVOCABLE Because the option was NON- DONATIVE

37 Other Options to Options? Right of First Refusal An alternative to an option. Unlike an option, a right of first refusal does not entitle the holder of the right to force the other party to sell or lease the asset. Instead, if and when the other party decides to sell or lease the asset to any third party, the holder of the right of first refusal can require the asset to be sold or leased to him or her for the same price and terms that the owner is willing to accept from the third party.

38 Right of First Negotiation In order to avoid the chilling effect of a right of first refusal, the parties may instead use a right of first negotiation. This provision provides that the owner must notify the holder of such a right that the owner intends to sell or lease his or her property. The parties then have a specified period of time in which to negotiate, on an exclusive basis, a mutually acceptable deal.

39 Right of First Offer In some transactions, particularly involving the sale of real estate, the parties will provide for a right of first offer ( RFO ) in favor of the buyer. The holder of a RFO has the first right to make an offer for the purchase of the property before the owner can sell the property to a third party.

40 Colorado s laws: Legislative fixes? Exclude ground leases from RAP statute Exclude OPAV (agricultural) from RAP statute