This summary of the 13 eligibility questions for participation in Terrafirma should help you understand what you need to have in place to answer ”yes” to all. Land trusts must respond affirmatively to all 13 eligibility questions in order to participate in Terrafirma. You must have 100 percent fulfillment of the criteria to be eligible; close does not count as good enough. Accredited land trusts are automatically eligible, but land trusts do not have to be accredited to be eligible to participate. Eligibility is by self-attestation.
PLEASE NOTE IMPORTANT POINT: If review of a later claim reveals a substantial discrepancy in the eligibility answers that your land trust submitted that is material to the coverage (or to the adjudication of a claim), then Terrafirma has the discretion to deny coverage for that claim, rescind the policy, request corrective action, recalculate the premium or respond in another reasonable, appropriate and proportional way.
If you have any questions at all, please call or write to the staff for Alliance Risk Management Services LLC (ARMS) at email@example.com or call the conservation defense staff for ARMS:
Here are the 13 questions:
1. Legally organized and in good standing
A land trust must be incorporated or organized according to the requirements of its state law and maintain its legal status. It operates under organizational documents (such as bylaws or an operating agreement) based on its legal organizing documents, for example, without limitation, its corporate charter or articles of incorporation. The board periodically reviews the organizational documents. Legal organization is a prerequisite for obtaining federal (and sometimes state) tax-exempt status and, as dictated by state law, helps shield board members associated with the land trust from liability for land trust actions.
Once officially recognized as a tax-exempt entity, a land trust must continue to operate in accordance with state law and provide its state with regular (usually annual) confirmation of its existence and operation. This procedure is referred to as “maintaining good standing.” If a land trust is not in good standing, it may not be able to continue to conduct business in the state — such as completing conservation easements or other real estate transactions. A land trust that fails to comply with these requirements can face financial penalties and fines and even revocation of its tax-exempt status.
A land trust will need to file an annual report and pay any required fee to remain in good standing with the state. Each state determines the form and content of the required report, the timing of when filing is required and the amount of any associated filing fees. The same office that manages the initial legal organization process, typically the Office of the Secretary of State, manages the annual filing procedure. That office can provide information on the specific process a land trust must follow. For more information, see the Standards and Practices Curriculum course “Nonprofit Law and Recordkeeping for Land Trusts, Volume 1: Complying with Federal, State and Local Law.” This book is available as a free PDF (for Alliance members) or for purchase from the Alliance at [http://iweb.lta.org/Purchase/ProductDetail.aspx?Product_code=DL_CURR_NONP1]. The entire course is available for free to Alliance member land trusts on The Learning Center [http://learningcenter.lta.org/ltalrn/governance/nonprofit_law_vol_i].
2. Tax exempt
A land trust must have qualified for federal tax-exempt status and comply with requirements for retaining this status, including prohibitions on private inurement and political campaign activity, and limitations and reporting on lobbying and unrelated business income. If the land trust holds, or intends to hold, conservation easements, it also meets the Internal Revenue Code's (IRC) public support test for public charities. Where applicable, the land trust must also meet state tax-exemption requirements. Federal and most state governments provide an exemption from income tax for qualified nonprofit organizations and allow the deductibility of contributions to them. This subsidy of the nonprofit organization is offered in return for the organization’s operation in the public interest. The Internal Revenue Service (IRS) requires that tax-exempt organizations operating as public charities meet certain tests both at the time of application for tax-exempt status and on a continuing basis. These include avoiding private inurement and excess private benefit, a prohibition on political campaign activity, complying with limitations on lobbying, paying tax on unrelated business income and meeting the public support test. The IRS issues a “determination letter” to notify the land trust of its tax exemption. The land trust must maintain this status annually by filing a completed Form 990 (whichever version of that form applies to your land trust.) See http://www.landtrustalliance.org/policy/tax-matters/rules/tax-issues-for-land-trusts/?searchterm=None for detailed information on filing the 990. Be advised that the IRS is now revoking tax-exempt status if charities have not filed the Form 990.
3. Baselines complete
To be eligible for Terrafirma, each land trust must have a complete baseline documentation report for every conservation easement. A baseline allows you to monitor the conservation easement and complies with IRS requirements. At a minimum, your baselines must include:
Baseline documentation does not need to include a complete biological inventory unless the conservation easement protects specific biological resources. Baseline content should be limited to information that supports the conservation easement’s purposes, restrictions and reserved rights in order to prevent ambiguity. Baselines should be prepared by individuals with the level and type of qualifications necessary to collect and evaluate information documenting the conservation values that relate to the reasons the property is being conserved. What constitutes adequate qualifications may be easement-specific and may be challenged in certain circumstances, such as in court. If your land trust holds easements for which it has no baseline reports, or if existing reports are lacking important materials, adopt and implement a plan to create or supplement these materials for every easement. These materials should include the current date and signature of the current landowner, if possible, and the current preparer of the baseline or the supplement. Baseline supplements are in addition to an existing baseline and do not replace the original baseline.
Baselines are critical for conservation defense because if consistently and professionally prepared in the ordinary course of business, baseline documentation can help defend the easement by creating an exception to hearsay rules, allowing the baseline to be introduced as evidence in court even though the preparer(s) of the baseline is no longer available to testify to its accuracy. This is why complete (minimal) baselines are a Terrafirma eligibility requirement.
What constitutes complete can be difficult to determine and can vary between older easements and more recent ones. For purposes of Terrafirma, complete constitutes a minimally adequate baseline. Many land trusts have older conservation easements that do not measure up to baseline standards today but did when accepted. While complete signatures are ideal, some older baselines are not signed, and if after diligent attempts the land trust finds it impossible to obtain the landowner signature, then documentation of those efforts and conclusion is sufficient. A minimally adequate or complete baseline may be a compilation of supplements and the original baseline or a current conditions report that allows your land trust to adequately monitor the property. It does not have to be perfect – just adequate - although reaching for the ideal may be a good idea. See the collection on baseline documentation resources in the Conservation Defense Clearinghouse at http://tlc.lta.org/clearinghouse/collections/147.
4. Fee property plan
The written land management plan or a written internal working summary document for each property a land trust owns is similar to an easement baseline. There is no prescribed format or length for a land management plan or summary. Contents of management plans or summaries include the items below. Every fee-owned property without exception requires some written documentation that can vary in length and detail according to the property uses and values.
5. Annual easement monitoring
To be eligible for Terrafirma, each land trust insuring its conservation easement portfolio must monitor each easement annually. Conservation easement monitoring is defined as an annual documented visual inspection of the easement-protected property to ensure that the terms of the easement are being upheld, with on-the-ground physical inspections as the site warrants. Good intentions are a start, but to assert that your land trust meets this eligibility requirement, you must actually conduct the visual inspection annually and document the results of that inspection in writing. While not an eligibility requirement, we also strongly recommend that you have a solid landowner relationship program in place, including an annual meaningful conversation with the owner of the easement-protected property.
The land trust must maintain written, annual documentation of the condition of the property, even if the land trust drives or walks by, or otherwise inspects the property on a regular basis. At a minimum, a monitoring report should include these items:
Annual visits are challenging, so if you have an isolated and rare gap in monitoring an easement annually, or gaps due to deliberate variations for seasons, that is understandable, but the gaps must be isolated and rare in order for your land trust to answer affirmatively that it conducts annual monitoring. If a conservation easement is on land owned in fee by a public agency or another conservation organization, your land trust must still conduct and document annual monitoring. If your land trust shares its monitoring responsibilities with, or delegates them to, another entity (such as a public agency, a co-holder or other partner), you must conduct your own annual monitoring or have documentation of the annual monitoring conducted by the other entity. If you closed on an easement at the end of the year, annual monitoring should commence the following year.
6. Fee property regular inspections
To be eligible for the proposed insurance program, each land trust insuring its fee land portfolio must conduct regular documented visual inspections of its properties to ensure that the conservation values are protected, with on-the-ground physical inspections as the site warrants. Good intentions are a start, but to assert that your land trust meets this eligibility requirement, you must actually conduct an inspection regularly and document the results of that inspection in writing. What constitutes a regular inspection for a particular property should be detailed in the required property management plan. While not an eligibility requirement, we also strongly recommend that you have a solid neighbor and community relationship program in place, including meaningful conversations with neighboring property owners and community leaders about your landownership and management activities.
The land trust must maintain written documentation of the condition of the property, even if the land trust drives or walks by, or otherwise inspects the property on a regular basis. At a minimum, an inspection report should include these items:
7. Alliance member
It couldn’t be easier! Established 30 years ago, the Land Trust Alliance is the only national organization that was set up by and for land trusts and we continue to serve you today, for example, creating Terrafirma Risk Retention Group LLC to provide your land trust a safety net for conservation permanence. There are many other great benefits that make membership in the Alliance a smart business choice, saving you both time and money. No land trust works alone; we are all in this together. If you are already a member, thank you! If not, join the Land Trust Alliance today and become a part of the national community of land trusts, conservation professionals and board volunteers working together to conserve the places we all love. Your land trust must be an Alliance member prior to submitting an application to Terrafirma and must maintain its membership with the Alliance continually.
8. Final judgment
If the land trust has a final judgment against it for fraud, misrepresentation, criminal charges, bad faith, misleading business practices or any other similar charges, it is not eligible to participate. The criterion regarding the final judgment is limited to judgments by a court for which all appeals have been exhausted or waived. It does not apply if no such final judgment exists.
9. On-going governmental investigation or inquiry
This item addresses pending actions brought by a government entity. So if a landowner alleges a similar claim in an effort to avoid land trust enforcement of a conservation easement or to address trespass on fee-owned land, this criterion does not apply. Practice 1D of Land Trust Standards and Practices states: “The land trust upholds high standards of ethics in implementing its mission and in its governance and operations.”
A land trust’s ethical obligations extend from the land conservation community to donors and taxpayers, landowners, the land and the community at large. A land trust should embrace the fundamental values of honesty, integrity, fairness, respect, trust, responsibility, inclusiveness and accountability in all of its operations. A board may consider adopting an ethics statement. While Land Trust Standards and Practices is the ethical and technical code for the entire land trust community, developing a separate ethics and values statement can be an important process for a land trust. Every board should engage in a periodic discussion of its ethics and values. Other important stakeholders, such as major donors, volunteers and program beneficiaries, each of whom bring different and valuable perspectives, should also be invited to participate. For a thorough discussion of this topic, see “Avoiding Conflicts of Interest and Running an Ethical Land Trust.” Independent Sector, the nation’s umbrella organization for all nonprofit organizations, also publishes an important document, the Statement of Values and Code of Ethics for Nonprofit and Philanthropic Organizations.
10. Breakeven budget
The land trust board must review and approve an annual budget, based on programs planned for the year, where annual revenue is greater than or equal to expenses. Tapping into reserves on a planned basis counts as a breakeven budget.
Practice 6A of Land Trust Standards and Practices tracks the IRS guidelines in calling for an annual budget. In most land trusts, the budget is reviewed and approved by the full board. In certain limited circumstances, for some large organizations, the board sets budget policies, and the staff or a specific committee is able to create budgets that fall within these carefully circumscribed policies. Budgets should track the annual program plans for the organization. This approach allows an organization to use the budgeting process to clarify what it can and cannot accomplish in any given year. Annual budgets should also be in line with a multiyear framework budget or fundraising plan, if available.
Because land trusts must be sustainable for as long as the conservation easements and land they hold, organizations should place a priority on long-term financial stability and create reserves to sustain the organization in difficult fiscal years. Land trusts with reserves find them to be essential for sustaining their level of operations during periods of financial instability. The land trust should have a practice of regularly contributing to reserves, but can and should choose to use those reserves when needed. Operating at a deficit or tapping into the reserves should be a careful decision made by the board during the budgeting process.
11. General Liability Coverage
Unpredictable events involving each of the four fundamental values of a nonprofit — its people, its property, its income and, perhaps most importantly, its reputation — may bring near disaster or great good fortune to an organization, depending on whether the threats or the opportunities outweigh each other.
For a nonprofit organization to fulfill its public service mission, its board, employees and volunteers must manage these risks effectively by countering or withstanding the threats of loss and recognizing and capitalizing on the opportunities for gain that are inherent in a less than fully predictable and, therefore risky, world. A correctly tailored insurance portfolio is part of effective risk management.
Imagine finding a potentially significant violation on a conservation easement property. You follow your procedures and call the landowner to inquire about what they know. The next day, you receive a certified letter from their lawyer threatening a lawsuit against the land trust and its board members individually if the land trust takes any action that affects the pending sale of the property. Such events happen unexpectedly and all arise from risk — that is, from a measure of the possibility that the future may be surprisingly different from what we expect. These surprises may bring good or bad results, generating threats of losses or presenting opportunities for gains that should be weighed before deciding on next steps.
Liability awards are very high, and most experts recommend a bare minimum of at least one million dollars in general liability, although two million or more may be better for most groups, depending on your exposure. You might find a local insurance agent to advise you on what the prevailing conditions are in your region. Even in rural areas, you can be influenced by urban prices and you are not likely to experience savings in legal costs or lower claim or award rates, especially for negligence suits.
Approximately 500 Land Trust Alliance members have joined the Conserve-A-Nation® Insurance Program for a range of coverage, including a basic program that consists of general liability insurance, non-owned and hired auto liability and property coverage. Offered by Alliant Insurance Services, Inc., the Conserve-A-Nation® Program is ideally suited to land trusts and is available at competitive prices to Land Trust Alliance members. http://www.alliantinsurance.com/services/specialty/MoreIndustries/nonprofit/conserveanation/default.aspx
Other nonprofit insurers exist, too; a list of additional insurers is on the Alliance insurance webpage. If you cannot find a local insurance agent to advise you, then consider spending the time and money to get an insurance coverage evaluation from the Non-Profit Risk Management Center. http://www.nonprofitrisk.org/consulting/insurance-reviews.shtml.
A written records policy should address how organization and transaction records are created, collected, retained, stored and disposed. The records policy should define what the land trust considers to be the minimum irreplaceable documents essential to the defense of each transaction. The minimum irreplaceable and essential documents are generally considered to be:
Your records policy should identify the above documents for retention and secure storage. Past practices may have resulted in gaps in documents that now cannot be obtained. A land trust can still meet this eligibility requirement if it has a written records policy and a system that now supports the land trust in retaining these appropriate documents.
Land trust systems should ensure that the land trust keeps either paper original copies of legal agreements, deeds, conservation easements, amendments, baseline documentation reports and title insurance policies or electronic originals that it stores in keeping with the requirements of applicable federal and state law with respect to rules of evidence regarding electronic originals.
A land trust may elect to keep an electronic version rather than the paper original of the other required and desired original documents, if it has determined that the electronic version would be admissible in court in accordance with laws of the state(s) in which it operates. The standards for electronic storage are described below. If the land trust elects to keep two electronic versions of some documents, it would still need to meet the separate storage location requirements.
Separate Storage Location
A separate location generally means that records are stored in such a way that at least one set (whether paper or electronic or both) will survive a calamity, such as a fire or flood, that destroys records in the other location. Records kept in the same building do not meet the separate storage requirement. It is not necessary to store all duplicate records in the same location. For example, some records may be in a bank safe deposit box, while other records may be duplicated electronically. The registry of deeds may serve as a duplicate storage location for deeds and amendments, as well as baselines in states where baseline documentation reports are recorded.
A separate location might be a storage facility or office where paper copies of documents are kept. Records might be in a bank safe deposit box, at the office of the land trust's attorney, at the local historical society, in an archival storage facility, town clerk’s office or in a myriad of other locations that are not physically in the same building as the duplicate set of records.
If you choose electronic document duplication and storage, you should conduct a thorough inventory of all historical transaction data and converted all irreplaceable documents to electronic files; have systems in place to ensure that all new documents are appropriately converted to an electronic format; have systems in place to update the data to current technology so that the documents can be accessed in perpetuity; and test the backup system effectively.
Take steps to ensure that original documents are protected from daily use and are reasonably secure from fire, floods or other foreseeable hazards. For example, original documents may be in a fireproof safe that is protected from daily use, in an archive facility or bank that has reasonable protections against damage from fire and/or floods, the registry of deeds, an office protected with sprinklers that is not at risk of flooding or in other reasonably secure locations. Acceptable document protection will depend on the location, type of document stored and potential risks to the document. Copies of documents may be accessible for daily use or to be taken into the field.
For more resources and assistance, go to:
13. Contributing to defense reserves
The land trust need only put some amount in the bank annually for defense. Unlike accreditation, Terrafirma does not ask about or require a specific reserve funding level. The only criterion is that your land trust annually set aside funds dedicated exclusively to fund conservation defense.
Practice 11A of Land Trust Standards and Practices emphasizes the need to review immediate and long-term costs of easement holding and to secure reserves to carry out the land trust’s obligations. A land trust should perform a calculation for every transaction to determine the funding needed for stewardship and enforcement. Practice 12A emphasizes the need to review immediate and long-term costs of holding land and to secure operating and/or dedicated funds to carry out the land trust’s responsibilities. A land trust should determine the amount of funds it will need to properly care for its land over time.
The land trust should then secure these funds or ensure that it has a steady source of operating income to cover these costs. If a land trust does not have adequate funds for annual stewardship costs and any defense or enforcement action, it should have a fundraising strategy and a board policy committing the funds for this purpose and be able to demonstrate tangible progress toward meeting the goals of the strategy.
Last revised November 9, 2013