Standard 9: Ensuring Sound Transactions
The land trust works diligently to see that every land and conservation agreement transaction is legally, ethically and technically sound.
Background
A land trust usually intends to protect the property it conserves in perpetuity. To help secure the perpetual conservation of land, its transactions must hold up over time and withstand challenges. Sound transactions rely on the land trust performing “due diligence” in its transaction steps. Land trust representatives need not be lawyers, but they must have good legal advice, and they should familiarize themselves with basic principles of real estate and tax law. The land trust should draw a landowner’s attention to issues that must be addressed as the transaction proceeds. However, a land trust should not represent itself as giving specific legal or financial advice; a landowner’s own advisors should do that. A land trust may have to call on other financial and technical experts in order to complete the transaction. Carefully documenting the steps a land trust takes in performing its due diligence can help secure the perpetual conservation of the property.
Relevant Law
- Property Law Act, RSBC 1996, c. 377, s. 35.
- Land Title Act, RSBC 1996, c. 250, s. 218-223.
- Canada Revenue Agency policy interpretation of Income Tax Act, SC 1985, c. I; see:
- Environmental Management Act, SBC 2003, c. 53, s. 40
- Contaminated Sites Regulation, BC Reg. 375/96, as am., s. 3.
- Land Title Act, RSBC 1996, c. 250, Parts 10 and 10.1
- Canada Revenue Agency policy interpretation of Income Tax Act, SC 1985, c. I;
see Income Tax Technical News No. 26 at:
- Taxation (Rural Area) Act, RSBC 1996, c. 447.
- School Act, RSBC 1996, c. 412.
- Police Act, RSBC 1996, c. 367.
- Property Transfer Tax Act, RSBC 1996, c. 378.
- Social Service Tax Act, RSBC 1996, c. 431.
PRACTICE
J. Purchasing Land
When the land trust buys land, conservation agreements or other real property, it obtains a qualified independent appraisal to justify the purchase price. However, the land trust may choose to obtain a short narrative from a qualified real estate professional in the limited circumstances when a property has a very low economic value or a full appraisal is not feasible before a public auction. In limited circumstances where acquiring above the appraised value is warranted, the land trust documents the justification for the purchase price and that there is no impermissible private benefit. If negotiating for a purchase below the appraised value, the land trust ensures that its communications with the landowner are honest, forthright and recorded.
Background
A land trust must be able to justify the price paid for land and conservation agreements for several reasons: to show fiscal responsibility; to avoid undue benefit; to substantiate prices paid in a changing market; to avoid inflating market value; to avoid losing money on resale; and to be prepared in the event of a expropriation action. The surest way to justify the acquisition price is to obtain a qualified independent appraisal from an appraiser certified by the Appraisal Institute of Canada. However, there are some limited circumstances when a short narrative from an appraiser or real estate professional is adequate: if the land trust is considering the purchase of land with low economic value (such as a wetland or other property with extremely limited development potential and as currently accepted by the Ecological Gifts Program); or if the land trust is under the time pressure of having to bid at a public auction. In the very rare case of considering whether to pay more than the appraised value, the land trust should have good legal advice and carefully weigh the public benefit, risk of undue benefit and risk to its credibility. If the land trust does decide to proceed, it should thoroughly document the property’s unique value, its worth to the land trust and the public interest the property serves. When negotiating split receipt transactions, a land trust should take care to be honest and forthright in its communications with the landowner.
Assessment Questions
BC Assessment Questions
- Does the land trust commission an appraisal for any properties that are purchased or donated?
- Does the land trust use an appraiser who is familiar with comparable sales in the appropriate geographic area?
- For Ecological Gifts, does the land trust use an appraiser who has received the appropriate training and certification in appraising Ecological Gifts?
- If the land trust is paying more than appraised value for a property, does it document its rationale for doing so and where necessary, receive appropriate legal advice?
- If the land trust pays significantly less than the appraised value for a property, does the land trust document its negotiation with the landowners in a fair and transparent manner and when appropriate, provide information about split-receipting to the landowner?
CLTA Assessment Questions
- Does the land trust always obtain a qualified independent appraisal when purchasing land or conservation agreements?
- If acquiring land or conservation agreements above the appraised value is warranted (in limited circumstances), does the land trust document that there is no impermissible undue benefit?
- When negotiating bargain sale transactions, is the land trust honest and forthright in its communications with the landowner?
