1. Paddle Trails: Legal Issues Theodore A. Feitshans N.C. Cooperative Extension North Carolina State University Department of Agricultural & Resource Economics (919) 515-5195 ted_feitshans@ncsu.edu

2. Section I: Access Navigable waters Navigable waters –Historical use –No restriction on access No permission to cross private lands No permission to cross private lands Non-navigable waters Non-navigable waters –Property of the adjoining landowner –Adjoining landowners own to middle of main channel Spoil islands Spoil islands

3. Section I: Access Means of access Means of access –Fee simple –Lease –Conservation easement –License (written or oral)

4. Summary of leasing issues Identify key parties and components Identify key parties and components Length of Lease Length of Lease Use of the property Use of the property Insurance coverage/liability and risk of loss Insurance coverage/liability and risk of loss Responsibilities Responsibilities Improvements to the property Improvements to the property Payments, taxes and charges Payments, taxes and charges Disposition of the property at the end of the lease Disposition of the property at the end of the lease

5. What is rented Land suitable for padle trails? Land suitable for padle trails? Other land---pasture / crop land? Other land---pasture / crop land? Conservation rights? Conservation rights? Access to buildings? Access to buildings? Storage rights? On land? in buildings? Equipment? Storage rights? On land? in buildings? Equipment? Hunting/fishing/recreational rights Hunting/fishing/recreational rights

6. Lease terms to consider Attorney fees clause Attorney fees clause Environmental liability clause Environmental liability clause –Indemnification Prohibited uses Prohibited uses

7. Leasing land for paddle trails All is negotiable. Avoid forming an employment relationship –When and how should be avoided to extent possible. Avoid forming a partnership. Avoid forming a partnership. -Share agreements, family relationship, and excessive management might be viewed as a partnership. Written lease, proper filed and carefully drafted by competent counsel Written lease, proper filed and carefully drafted by competent counsel

8. Legal issues N.C. Statute of frauds – all leases not capable of completion within 3 years of making are void if not in righting N.C. Statute of frauds – all leases not capable of completion within 3 years of making are void if not in righting Recorded with the Office(s) of the Register of Deeds for the county(ies) where the property is located Recorded with the Office(s) of the Register of Deeds for the county(ies) where the property is located Oral leases are not suitable for paddle trails due to the duration needed Oral leases are not suitable for paddle trails due to the duration needed

9. Legal Issues Year to year (or longer) oral and written leases are automatically renewed unless notice given 1 month before end of lease. Year to year (or longer) oral and written leases are automatically renewed unless notice given 1 month before end of lease. –Renewal may be prohibited or modified by lease terms.

10. Due Diligence - Landowners You are a creditor of the tenant You are a creditor of the tenant Credit check Credit check Criminal background check Criminal background check If tenant is a corporation/LLC/partnership obtain agreement to check owners/spouses If tenant is a corporation/LLC/partnership obtain agreement to check owners/spouses –Owners/spouses should cosign lease

11. Due Diligence - operators Check title/lien records Check title/lien records Check for hazardous waste Check for hazardous waste Check zoning/land use ordinances Check zoning/land use ordinances Are there other users of the property? Are there other users of the property? –Has landowner imposed a duty on them to protect the paddle trail operation?

12. Landowner security issues UCC-1 – initial filing of financing statement - filed in the Office of the Register of Deeds in the county where the property is located (renew every 5 years) UCC-1 – initial filing of financing statement - filed in the Office of the Register of Deeds in the county where the property is located (renew every 5 years) Lease filed in the Office of the Register of Deeds in the county where the property is located Lease filed in the Office of the Register of Deeds in the county where the property is located Other UCC liens (e.g., agricultural) filed with the Office of the Secretary of State Other UCC liens (e.g., agricultural) filed with the Office of the Secretary of State Lease should require grower cooperation in perfecting liens Lease should require grower cooperation in perfecting liens Escrow for restoration of property Escrow for restoration of property

13. Security issues UCC-1 – initial filing of financing statement - filed in the Office of the Register of Deeds in the county where the property is located (renew every 5 years) UCC-1 – initial filing of financing statement - filed in the Office of the Register of Deeds in the county where the property is located (renew every 5 years) Lease filed in the Office of the Register of Deeds in the county where the property is located Lease filed in the Office of the Register of Deeds in the county where the property is located Improvements to property Improvements to property –Right to remove or be compensated – need to address in lease

14. Legal Issues If life estate is involved, signature of remaindermen on lease highly desirable. If life estate is involved, signature of remaindermen on lease highly desirable. Restrictions on life tenant’s use of the property: Restrictions on life tenant’s use of the property: –Waste.

15. Additional lease terms Time is of the essence Time is of the essence Choice of law/forum (generally, but not always, where the real property is located) Choice of law/forum (generally, but not always, where the real property is located) Landowner’s right-of-entry to inspect Landowner’s right-of-entry to inspect “as is” “as is” Alternative dispute resolution clause Alternative dispute resolution clause –Mediation/arbitration Force majeure clause Force majeure clause

16. How are Payments made? When are payments to be made? Annual, semi annual? When are payments to be made? Annual, semi annual? Late payment fees? Late payment fees?

17. Legal Issue Avoid bankruptcy Avoid bankruptcy –Do financial due diligence---credit check –Engage lawyer who understands bankruptcy to draft lease –Whether real or personal property involved likely to determine whether included in bankruptcy estate –Landlord should reserve right to tend manage paddle trail operation or find a substitute manager if tenant files for bankruptcy. –Anti-assignment clause and anti-sublet clauses

18. Government Program Payments Who receives the benefits of governments programs should be negotiated. Who receives the benefits of governments programs should be negotiated. EQUIP $$$ and tax implication EQUIP $$$ and tax implication Right to government payments for disasters, conservation and program deficiencies should be negotiated. Right to government payments for disasters, conservation and program deficiencies should be negotiated.

19. Hunting Rights Hunting rights Hunting rights –Who has rights? Landlord, Tenant –When do they have rights? (dates) –In short….spell out all issues that you care about. – –If these rights are not included it should be explained as “no hunting rights are included.” – –Right of operator to control pests

20. Heirs and successors The terms of the lease are generally binding on the heirs, executors, administrators, and successors of the landlord and the tenant. However, in the event of the death of the tenant, the successors may want to reserve the right to give written notice to terminate the lease at the end of the current year. Divorce, foreclosure, sale, gifts Assignment or sublet of lease

21. Uses of Property Good Management practices Good Management practices Maintenance of ditches, culverts, water and roads on property. Maintenance of ditches, culverts, water and roads on property. Establish hazardous substance protocol. Establish hazardous substance protocol. Allow customarily used chemicals only? Allow customarily used chemicals only? Controlled substance use Controlled substance use Non-monetary grounds for eviction Non-monetary grounds for eviction

22. Insurance coverage/liability and risk of loss Is the landowner or operator responsible for damages or injury to others occurring on the property? Is the landowner or operator responsible for damages or injury to others occurring on the property? Is the landowner or operator responsible for damages to or arising from storage of equipment or chemicals on the property? Is the landowner or operator responsible for damages to or arising from storage of equipment or chemicals on the property?

23. Insurance coverage/liability and risk of loss Will the operator hold the landowner harmless from liability for injuries and damages? Will the operator hold the landowner harmless from liability for injuries and damages? Will the landowner hold the operator harmless from liability for injuries and damages? Will the landowner hold the operator harmless from liability for injuries and damages? Will either party pay the costs of the other for defending a lawsuit? Will either party pay the costs of the other for defending a lawsuit? Which party assumes responsibility for procuring liability insurance? Hazard insurance? Which party assumes responsibility for procuring liability insurance? Hazard insurance?

24. Insurance coverage/liability and risk of loss How much insurance coverage is required? How much insurance coverage is required? Who will be responsibility for the cost of the insurance policies? Who will be responsibility for the cost of the insurance policies? Are both the operator and landowner be named as the insured? Are both the operator and landowner be named as the insured? Duty of the operator provide the landowner a current certificate of insurance. Duty of the operator provide the landowner a current certificate of insurance. In N.C. the tenant bears the entire risk of loss unless the lease states otherwise In N.C. the tenant bears the entire risk of loss unless the lease states otherwise

25. Responsibilities Who is responsible for control of weeds, non-native invasive species and pests? Who is responsible for control of noxious weeds, non-native invasive species and pests? What is the appropriate method of control of weeds and pest? Who determines? What is the appropriate method of control of weeds and pest? Who determines? --- ---Lease may describe the weed control program. (spraying, clipping, bush hogging) Who is responsible for preparation and implementation of an erosion and sediment control plan, if applicable? Who is responsible for preparation and implementation of an erosion and sediment control plan, if applicable?

26. Responsibilities Who is responsible for preparation of a nutrient management plan, if applicable? Who is responsible for preparation of a nutrient management plan, if applicable? Who is responsible for maintenance of the property (for example, repairs)? Who is responsible for maintenance of the property (for example, repairs)?

27. Responsibilities Who is responsible for maintaining fences? Who is responsible for maintaining fences? Who is responsible for liming and fertilization? Who is responsible for liming and fertilization? What standards are to be maintained and who enforces standards? What standards are to be maintained and who enforces standards?

28. Payments, taxes and charges Who is responsible for paying the real property taxes? Who is responsible for paying the real property taxes? Are rental payments to be made to coincide with real estate taxes due? Are rental payments to be made to coincide with real estate taxes due? Who assumes responsible to ensure the property qualifies for use value assessment for local real property taxes? Who assumes responsible to ensure the property qualifies for use value assessment for local real property taxes? –Does landowner risk loss of use value?

29. Disposition of the property at the end of the lease Will the tenant be paid for remaining lime or other soil enriching measures that survive the end of the lease term? If so, how will the reimbursement be calculated? Will the tenant be paid for remaining lime or other soil enriching measures that survive the end of the lease term? If so, how will the reimbursement be calculated?

30. Finding an attorney Knowledge of paddle trails Knowledge of paddle trails Knowledge of long term leasing…not a house lease. Knowledge of long term leasing…not a house lease. Written retainer agreement. Written retainer agreement. Availability by phone. Availability by phone. Compatibility. Compatibility. Price structure for services. Price structure for services.

31. Leasing: conclusions Get it in writing Get it in writing Consult with a qualified attorney Consult with a qualified attorney Do due diligence including a credit check Do due diligence including a credit check File UCC appropriately File UCC appropriately File the lease File the lease Ask a lot of questions of attorney Ask a lot of questions of attorney Make sure this is what you want to do. Does it meet your financial and personal goals and interest. Make sure this is what you want to do. Does it meet your financial and personal goals and interest.

32. What is a conservation easement? Purpose Purpose Interest in real property Interest in real property –Duration Term Term Perpetual Perpetual –Restrictions Negative Negative Affirmative Affirmative –Who may hold Government Government Land trust established under IRC §501(c)(3) Land trust established under IRC §501(c)(3)

33. Law specific to conservation easements Conservation and Historic Preservation Agreements Act Conservation and Historic Preservation Agreements Act –Avoids common law restrictions –Avoids Real Property Marketable Title Act –Complies with requirements of federal tax law

34. Formation: Landowner disclosure obligations Known title defects Known title defects Existing security interests Existing security interests Marital status Marital status CERCLA hazardous waste CERCLA hazardous waste Underground storage tanks Underground storage tanks Neighboring land uses - present/planned Neighboring land uses - present/planned Baseline study Baseline study

35. Formation: Conservation agency obligations Title search/records review Title search/records review CERCLA CERCLA –Due care (due diligence) Indicia of ownership Indicia of ownership PESA (?) PESA (?) Full discussion of plans/objectives/goals Full discussion of plans/objectives/goals Discussion of plans for transferring rights Discussion of plans for transferring rights Baseline study Baseline study

36. Preparation and recording of documents Deeds Deeds Agreements Agreements Supplemental documents Supplemental documents Who pays? Who pays?

37. Conservation easements created under other law –1996 FAIR Act/2002 Farm Bill –Migratory Bird Hunting Stamp Act –Section 404 of the Clean Water Act - mitigation agreements –Different/no tax benefits

38. Scope of the easement Physical Physical –Boundaries Restrictions Restrictions –Negative –Affirmative Access by conservation agency Access by conservation agency Maintenance by landowner and/or agency Maintenance by landowner and/or agency

39. Scope of the easement (continued) Activities outside the easement boundary Activities outside the easement boundary Changed circumstances Changed circumstances –Neighboring property –Agricultural/Forestry technology –Loss of protected feature

40. Conservation easements: Tax Issues Property tax Property tax Federal income tax Federal income tax N.C. income tax N.C. income tax Federal estate tax Federal estate tax

41. Property Tax Reduces FMV Reduces FMV N.C. law requires that county tax authorities to consider easement N.C. law requires that county tax authorities to consider easement

42. Federal Income Tax Charitable deduction Charitable deduction –FMV before easement less FMV after easement May spread over 5 years May spread over 5 years –avoid limitation on charitable deduction

43. N.C. Income Tax Charitable deduction Charitable deduction –Unaffected by use of conservation tax credit Conservation tax credit Conservation tax credit

44. N.C. Conservation Tax Credit Qualifying use Qualifying use –Beach access –Access to public waters –Access to public trails –Fish & wildlife conservation –Other land conservation purposes 25% of FMV 25% of FMV –$250,000/$500,000 annual limit

45. N.C. Conservation Tax Credit (continued) Qualified recipient Qualified recipient Fee or conservation easement Fee or conservation easement No reversion No reversion Certificate from DENR Certificate from DENR Five year carry-forward Five year carry-forward

46. Federal Estate Tax Charitable deduction (testamentary gifts) Charitable deduction (testamentary gifts) 40% reduction in FMV of property subject to conservation easement 40% reduction in FMV of property subject to conservation easement –Subject to exclusion limitation 2000 - $300,000 2000 - $300,000 2001 - $400,000 2001 - $400,000 2002 - $500,000 2002 - $500,000

47. Example without Conservation Easement (for a death in the year 2000) 100 acres @ $180,000/acre = $18,000,000 100 acres @ $180,000/acre = $18,000,000 $1,290,800 tax on first $3,000,000 $1,290,800 tax on first $3,000,000 $8,250,000 tax @ 55% on remainder $8,250,000 tax @ 55% on remainder $9,540,800 - 345,800 (unified credit - $1,000,000) = $9,195,000 tax due $9,540,800 - 345,800 (unified credit - $1,000,000) = $9,195,000 tax due

48. Example with Conservation Easement (for a death in the year 2000) $100,000 value with conservation easement $100,000 value with conservation easement $17,900,000 charitable deduction $17,900,000 charitable deduction Reduce value of property in estate by 40% Reduce value of property in estate by 40% Value of land in estate = $60,000 Value of land in estate = $60,000 $940,000 of unified credit remains to apply to other property $940,000 of unified credit remains to apply to other property

49. Compliance & transfers of rights Who pays for enforcement? Who pays for enforcement? –Attorney fees –Monitoring

50. Compliance & transfers of rights (continued) Actions of third parties Actions of third parties –Trespassers –Tenants –Legal actions Eminent domain Eminent domain Non-governmental Non-governmental –Cartway proceeding

51. Compliance & transfers of rights (continued) Subsequent easement holders Subsequent easement holders Subsequent landowners Subsequent landowners

52. Compliance & transfers of rights (continued) Disclosure/education of purchasers Disclosure/education of purchasers Conservation agency cooperation in sales/financing Conservation agency cooperation in sales/financing

53. Maintenance of farming and forestry Adequate income opportunities Adequate income opportunities Continuation of normal farming and forestry practices Continuation of normal farming and forestry practices Flexibility for changes in practices Flexibility for changes in practices Changes in laws Changes in laws

54. Dispute resolution mechanisms Arbitration Arbitration Mediation Mediation

55. Additional Resources Land Preservation Notebook Land Preservation Notebook –http://www.cals.ncsu.edu/wq/lpn http://www.cals.ncsu.edu/wq/lpn –N.C. land trust listed UNC School of Government UNC School of Government –Institute of Government http://www.iog.unc.edu http://www.iog.unc.edu American Farmland Trust American Farmland Trust –http://www.farmland.org/ http://www.farmland.org/ –Cost of services studies

56. Liability Definition of a tort Definition of a tort –A civil wrong –A wrong for which the courts provide redress in a civil action

57. Liability Intentional torts Intentional torts –Intent –Punitive damages available Unrelated to actual damages Unrelated to actual damages –Actual damages need not exist Also available for quasi-intentional torts Also available for quasi-intentional torts –Gross negligence/reckless disregard

58. Liability Strict liability Strict liability –Liability without fault Liability based on negligence Liability based on negligence –Elements Existence of a duty Existence of a duty Breach of the duty Breach of the duty Proximate (legal) causation Proximate (legal) causation Actual damages Actual damages

59. Liability Defenses to negligence Defenses to negligence –Contributory negligence Last clear chance Last clear chance –Assumption of the risk –Statutory modification Trails & horses Trails & horses –Liability waivers – minors –Disclaimers Indemnification Indemnification Sovereign immunity Sovereign immunity

60. Liability altering statutes § 139-46. Recreational and related aspects of watershed improvement programs – nature trails included § 139-46. Recreational and related aspects of watershed improvement programs – nature trails included § 139-41.3. Liability of owners of land associated with watershed improvement projects § 139-41.3. Liability of owners of land associated with watershed improvement projects –Duty owed to trespasser –Landowner not compensated § 113A-95. Trail use liability § 113A-95. Trail use liability –Duty owed to trespasser –Landowner not compensated –Untested as to paddle trails Agritourism Agritourism –§ § 99E-30, 99E-31, 99E-32

61. Modification of duty owed Advertising Advertising Signage Signage

62. Liability Duty Owed to Entrants onto Land Duty Owed to Entrants onto Land –Trespasser –Licensee –Invitee

63. Liability Duty to Trespasser Duty to Trespasser –Slight - may not maliciously injure –Reasonable force to eject; never deadly force –Excused by necessity –Special rule for children

64. Liability Duty to Licensee Duty to Licensee –Warn of dangerous conditions, animals, and hunters (if entrant is another hunter) –NC - same duty as for invitee Nelson v. Freeland Nelson v. Freeland

65. Liability Duty to Invitee Duty to Invitee –Make premises safe –Warn of conditions that cannot be made safe