A starter view
A simplified view of the system of space preservation is presented on the page How?, and it is worth reviewing that page before looking at details of institutional and process requirements on this page.
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Creation of space credits
Space credits are created by the permanent preservation of space through conservation easements. An easement may have many other restrictions than restrictions on loss of space, but protection of space is required for creation of space credits. The party that certifies the amount of space that will be protected by the easement must be accredited and the space determination must be done according to official standards. Overall measurement methods and standards are generic, but different areas will establish specific standards for the space-measurement foils that apply in those areas.
Ownership of space credits is determined by the agreement that creates a conservation easement. Space credits can be owned wholly or in part by any of the parties to the agreement, or they can be assigned under the agreement to another party.
A conservation easement on one property can add to the space that was protected on an adjoining property by its own, earlier conservation easement. Conversely, the earlier easement also increases the space protected by the second easement . For a glimpse of how this works, see the footnote.1 Each jurisdiction can determine a default as to how these interacting space credits are to be handled, and a jurisdiction may allow for the default to be overridden by agreement among all potentially interested parties. Major variations for the default are:
- All space credits are awarded to the space-credit beneficiary designated in the latest easement, even though some of the protected space is on other property.
- Space credits are awarded to the space-credit beneficiaries designated on all properties where protected space is increased by the latest easement, in the amount of protected space gained on each property.
Space credits are a benefit of establishment of a conservation easement, and regulations governing tax relief, or other conservation easement benefits, may restrict the quantity of space credits that may be generated by an easement.
Registration of space credits
Space credits and their ownership must be registered in a system similar to that used to track real estate ownership. Because space credits and conservation easements are tied to land and land titles, it makes eminent sense for the government agency that registers land parcels, sales, liens, and easements to also register space credits.
Sale of space credits
Space credits can be bought and sold privately, with the transactions recorded with the registration authority. Sales and purchases will often be made to or from a space mitigation bank.
Space mitigation bank
A space mitigation bank serves sellers and buyers of space credits by providing “instant gratification.” A new owner of space credits is not burdened with finding a buyer in order to convert credits into cash. Instead, the owner can make a registered sale of the credits to a space mitigation bank. When a developer needs to own credits in order to proceed with development, the developer purchases the needed credits from the bank and places them in escrow until the project, or a phase of the project, is completed.
Space credit prices will be established by either (or both) of two mechanisms:
- Multiple space mitigation banks competing in making offers to buy or sell space credits.
- Periodic purchases and sales through auctions, with prices established at one auction prevailing until the next auction.
Space mitigation banks will have defined domains. A single mitigation bank may operate within multiple domains, but the bank’s space credits will be tagged to each domain and credits created in one domain cannot be used by developers to offset space losses in another domain unless the governing entities have agreed to merging domains.
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An overview of the essential parts of a space preserving financial system
Mitigation banks help those who protect space and also those who cause space loss, by converting space transactions into financial transactions.
Earlier resource protection systems encountered startup difficulties that are now avoidable.
1 When the first property’s protected space is calculated, the calculation must consider that roads or other features in the space foil may be built in the future on the adjoining, unprotected property, as near as the property boundary. When the space protection easement is established on the second property, then the potential for adjoining construction is nullified, and protected space on the first property may increase. For further details, see Measuring Space (Technical).