Question
March 15, 2004
Patrick Sharpe, Esq.
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Section 202.2(c) [802.2(c)]Unproductive Real Property Exemption
Dear Mr. Sharpe:
The purpose of this letter is toconfirm our Monday, March 8, 004 telephone conversation regarding the applicability of theexemption under Section 202.2(c) [802.2(c)] of the Hart- Scott-RodinoAntitrust Improvements Act ("HSR Act") rules to conservation easements.
As I explained, our client is anon-profit corporation exempt from taxes under Section 501(c)(3) of theInternal Revenue Code, whose mission includes the preservation of wildernessproperty. Our client proposes to acquire certain conservation easements fromthe fee owner and options to acquire additional conservation easements. Theland subject to such conservation easements is currently used as timberland.The fee owner will continue to engage in forestry activities on the land, butsubject to what are termed "sustainable forestry limits." The feeowner will be permitted to sell a very limited number of parcels forresidential development. Otherwise, except for the limited forestry activities,no commercial activity and no development will be permitted on the easementproperty.
With respect to the options, youand I discussed the fact that a possible HSR Act notification and filing requirement does not come intoplay until our client exercises such options. Further, any acquisition pursuantto the options will be considered a separate transaction from the conservationeasements now being acquired if the transactions are separated by more than 18months.
We also discussed theapplicability of the Section 202.2 [802.2(c)] exemption toconservation easements. To be more specific, we dismissed [cannot dismiss]the inapplicability of the $5 million/36 month test in Section.
We also discussed theapplicability of the Section 202.2(c) [802.2(c)] exemption toconservation easements. To be more specific, we dismissed the inapplicabilityof the $5 million/36 month test in Section 202.2(c)(l) [802.2(c)]because the interest being acquired did not generate any revenue for theseller and will not generate any revenue for the acquiring person.
Section202.2(c)(1) [802.2(c)(1)] provides:
(1)Subject to the limitations of (c)(2) unproductive real property is any realproperty, including raw land, structure or other improvements (but excludingequipment), associated production and exploration assets incidental to theownership of the real property, that has not generated total revenues inexcess of $5 million during the thirty-six (36) months preceding theacquisition (emphasis ours).
16 C.F.R. 202.2(c)(1) [802.2(c)]
In this instance, the acquiringperson is not acquiring an ownership interest in the property. Instead, the feeowner will continue to receive the revenue generated by any forestryactivities. Thus, the $5 million/36 month test in Section 202.2(c)(1) [802.2(c)] does not apply to [the easement] tothe interest being acquired in this transaction
If you believe that this letterdoes not reflect the substance of our conversation accurately or yourconclusions, please give me a call.