Judicial Update

Supreme Court of Virginia Applies Strict Interpretation to Conservation Easements in White Cloud

In a monumental ruling that is sure to send shock waves through the land conservation community, the Supreme Court of Virginia has concluded that ambiguous wording in conservation easements must be interpreted in favor of the free use of land and against limiting development on the easement property. The case in question is Wetlands America Trust, Inc. v. White Cloud Nine Ventures, L.P., 2016 Va. LEXIS 12, which you can read here. Let’s go through this important case step by step.

Background

Although disputes over the interpretation of a conservation easement can arise between the land trust holding the easement and the original donor of the easement, more commonly these disputes arise between the land trust and a later landowner. Such was the case here. In 2001, Caeli Farms, LLC conveyed a conservation easement on approximately 400 acres in Loudoun County to Wetlands America Trust, Inc. (WAT), a land trust affiliated with Ducks Unlimited. Seven years later, in 2008, Caeli Farms sold approximately half of the easement property to White Cloud Nine Ventures, L.P.  White Cloud began construction of a new building on the easement property to serve as a bakery, creamery, and winery. White Cloud intended to use this new building to process and sell the various agricultural products that were produced on the easement property and an adjoining farm. (This adjoining farm was owned and operated by a related company.)

After White Cloud had begun construction on this building, WAT determined that this new construction violated the terms of the conservation easement and sued White Cloud. In its lawsuit, WAT asked the court to rule that White Cloud’s new construction violated the terms of the easement. WAT further asked the court to order White Cloud to stop construction and to return the easement property back to its original condition—in other words, to tear down the building that had already begun to be constructed. This is a fairly standard way for a land trust to enforce a conservation easement.

However, the court did not agree with WAT that the easement had been violated. In a lengthy opinion released on June 19, 2014, the Circuit Court of Loudoun County ruled (for the most part) that White Cloud had not violated the terms of the conservation easement. The court primarily based its ruling on the idea that conservation easements should be interpreted like other restrictive covenants. A restrictive covenant is an agreement by a landowner to refrain from using his or her land in a certain way. Conservation easements are a specific type of restrictive covenant in which a landowner agrees to limit development on his or her land and to manage the land so as to minimize harmful effects on the environment. American courts have historically approached restrictive covenants with suspicion, enforcing them only when the restrictive covenants are clear, unambiguous, and consonant with public policy. The Circuit Court of Loudoun County took this same attitude with conservation easements and declined to give them any sort of special treatment.

WAT promptly appealed this ruling to the Supreme Court of Virginia. This case and the resulting appeal generated a huge amount of interest in the land conservation community. The case caught the attention of even the Attorney General of Virginia, who filed an amicus curiae brief with the Supreme Court to argue that conservation easements had already been given a favored status under Virginia law and therefore that the strict rules for interpreting restrictive covenants did not apply to conservation easements. Six land trusts also filed a joint amicus curiae brief of their own to make similar arguments.

The Supreme Court Speaks: Ambiguous Provisions in Conservation Easements Are Strictly Construed Against Restricting the Free Use of Land

Despite the Attorney General’s arguments, on Friday, February 12, 2016, the Supreme Court of Virginia issued a ruling in which it agreed with the circuit court that White Cloud had not violated the easement on its property. Like the circuit court, the Supreme Court based its opinion on the premise that conservation easements were to be interpreted in the same manner as any other restrictive covenant: Ambiguous provisions in conservation easements are to be strictly construed against the party seeking to enforce them. In other words, if a provision in a conservation easement plausibly has more than one meaning, courts are required to choose the meaning that gives the landowner the most freedom to use and develop the land.

In adopting its ruling, the Supreme Court explained that the Virginia Conservation Easement Act (VCEA) had not created some special status for conservation easements that would prevent them from being interpreted like any other restrictive covenant. The Supreme Court highlighted part of the VCEA, specifically Section 10.1-1014 of the Code of Virginia, which sets forth: “Except as otherwise provided in this chapter, a conservation easement may be created, conveyed, recorded, assigned, released, modified, terminated, or otherwise altered or affected in the same manner as other easements.” Because this italicized language (which is as italicized in the Court’s opinion) stated that conservation easements were to be treated like other easements unless the VCEA stated otherwise, and because the VCEA did not state otherwise, the Supreme Court determined that the General Assembly had not intended for the VCEA to change the law to create a special status for conservation easements. For that reason, the Supreme Court ruled that the traditional rules of interpretation for restrictive covenants (which are also called “negative easements”) continued to apply to conservation easements.

White Cloud Did Not Violate the Conservation Easement

Even though conservation easements are to be interpreted so as to maximize the landowner’s development rights, this does not mean that conservation easements are unenforceable. If a restriction in a conservation easement is clear and unambiguous, the landowner will still be required to abide by the restriction. Thus, after determining the appropriate rule for interpreting the conservation easement, the Supreme Court of Virginia continued by analyzing whether or not White Cloud had violated the conservation easement.

White Cloud’s New Building Qualified as a Permitted “Farm Building”

The Supreme Court first considered whether or not White Cloud’s proposed new building could properly be characterized as a “farm building” under the conservation easement. The easement did not define “farm building” other than to refer to “farm buildings” as forming part of the broader category of “agricultural buildings” (which were similarly not defined). After consulting both the dictionary and the Virginia Uniform Statewide Building Code, the Supreme Court determined that a “farm building” could include a building used for the full range of agricultural activities, from the initial production of agricultural products through the preparation and marketing of the agricultural products for sale. This included inviting the general public to visit the property to sample the products for sale. Because White Cloud’s new building was intended to be used for these activities, it qualified as a “farm building” and was therefore permitted under the terms of the conservation easement.

White Cloud’s New Building Was Not Built in an Improper Location

The Supreme Court next considered whether or not White Cloud’s building had been placed in an improper location. The terms of the easement specifically provided that no building was to be built in a “highly erodible area.” However, the easement did not specifically address whether this determination was to be made before or after the construction of a building. In other words, the easement did not specifically address whether or not a “highly erodible area” could be graded or otherwise altered to make it less erodible in the process of constructing a building there. The Supreme Court reasoned that, because the easement stated that the landowner had the right to grade land for the construction of permitted buildings, whether or not the building was placed in a “highly erodible area” was to be determined after the land had been graded and the building had been constructed. WAT had only provided evidence that the location of White Cloud’s building was a “highly erodible area” before the area was graded, not after, and White Cloud had provided opposing evidence that the building’s location was not a “highly erodible area” even before it was graded. Thus, the Supreme Court ruled that the location of White Cloud’s building was not prohibited by the easement.

White Cloud Was Allowed to Build a Parking Lot for Its New Building

A related issue was whether or not White Cloud had the right to grade the land to build a parking lot next to its new building. As stated previously, the easement allowed grading for the construction of permitted buildings, but it did not expressly state that grading was permitted for the construction of parking lots attached to those buildings. The Supreme Court quickly concluded that this easement language included parking lots, as it would be absurd for the easement to permit grading for a building open to the public if no one were allowed to park there.

White Cloud Was Not Required to Keep the Easement Property in the Exact Same Condition as When the Easement Was Granted

Finally, the Supreme Court addressed WAT’s contention that the easement language required that the easement property be maintained in the same condition as when the easement was granted in 2001. WAT focused on the following language in the easement (as quoted in the Supreme Court’s opinion):

It is the purpose of this Easement to assure that the Protected Property will be retained in perpetuity predominantly in its natural, scenic, and open condition, as evidenced by the [Baseline Document] Report [BDR], for conservation purposes as well as permitted agricultural pursuits, and to prevent any use of the Protected Property which will impair significantly or interfere with the conservation values of the Protected Property, its wildlife habitat, natural resources or associated ecosystem.

According to WAT, even if White Cloud’s building and parking lot were permitted under other language in the conservation easement, the building and parking lot were prohibited by the quoted language because the building and parking lot caused the property not to be “predominantly in its natural, scenic, and open condition, as evidenced by” the baseline documentation report (BDR). Under this argument, the BDR would be more than a snapshot of the easement property’s condition as of a certain date; the BDR would essentially be incorporated into the easement by reference, becoming part of the easement’s key terms and even overriding the easement’s other terms.

This was clearly a last-resort argument. Think about the full implications of what WAT was arguing: WAT was arguing that, even though the easement expressly permitted certain uses to be made of the property, these otherwise permitted uses were prohibited because the property was not actually used in those ways at the time that the easement was donated. Fortunately, the Supreme Court rejected this argument, pointing out that the stated purpose of the easement was “for conservation purposes as well as permitted agricultural pursuits.” Because the easement expressly permitted agricultural uses of the property that had not been in place at the time of the donation in 2001, the easement did not require that the condition of the property remain “frozen” in time if White Cloud engaged in permitted uses.

WAT made a few other arguments that were addressed by the Supreme Court of Virginia; however, the Court’s reasoning in rejecting these arguments focused primarily on evidentiary and pleading standards, and so I will not discuss them here.

The Impact of White Cloud on Conservation Easements in Virginia

It is hard to overstate the importance of White Cloud. This is one of those watershed cases that will reverberate in the land conservation community for years to come.

It is too early to tell what reaction might result from White Cloud. It is important to remember that, unlike in constitutional law, the General Assembly has the power to pass laws to supersede the Supreme Court’s ruling in White Cloud. Perhaps legislation might be introduced in the General Assembly to accord conservation easements that special status that WAT and the Attorney General argued for so strenuously; perhaps not.

If nothing else, White Cloud highlights the importance of drafting conservation easements carefully. The point that I have heard over and over again in discussions on White Cloud is that the main problem with the White Cloud easement was that it was poorly drafted. To a certain extent, drafting issues will always plague conservation easements. This is the problem of perpetuity: Conservation easements have to be drafted precisely enough to provide real protection for the easement’s conservation purposes while being drafted flexibly enough to account for the fact that we don’t know what might constitute a workable “farm building” in the year 2051, much less 2151 or 2251.

But, even more than that, I am told that the easement in White Cloud lacked the primary tool to fill the gaps in drafting for perpetuity: a clause stating that any ambiguous language in the easement should be interpreted to give maximum effect to the easement’s conservation purposes. Most new easements today contain such a clause. It is likely that the presence of such a clause in a conservation easement would override the rule announced in White Cloud. After all, as the Supreme Court noted, interpreting a conservation easement is a matter of contract interpretation. And parties can agree in a contract to almost anything that is not illegal or otherwise contrary to public policy, including how to interpret the contract. If that holds true, then White Cloud will have little practical effect on a great many conservation easements in Virginia. But an unknown number of older easements will still be affected by the Court’s ruling.

Going forward, then, the real question is whether or not a clause requiring ambiguous language in the easement to be interpreted to give maximum effect to the easement’s conservation purposes—instead of giving maximum effect to the free use of land—would be found by the Supreme Court to be against public policy. I suspect that it would not. I also suspect that we will find out the answer to that question in the coming years as more easement disputes arise.

And, when we do find out that answer, you can be sure to read about it here. Stay tuned.

Published by

Derrick P. Fellows

Derrick P. Fellows is an attorney with Hawthorne & Hawthorne, P.C. in Victoria, Virginia. Follow him on Twitter at @dpfellows.

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