Transactional Due Diligence
Introduction
Assuring the existence of an adequate water supply is a critical
aspect of due diligence for a land acquisition or commercial
transaction. Unlike general property and commercial law, which is
governed by legal principles that are largely uniform (or at least
recognizable) from jurisdiction to jurisdiction, legal concepts
governing ownership of water and water rights vary greatly from
state to state. An analysis of water rights issues usually
requires specialized legal knowledge and often, scientific
expertise. The typical due diligence team of transactional
lawyers will usually lack the expertise to conduct water rights
due diligence, and as a result, this aspect of the transaction may
be ignored, left to the last minute, or “farmed out” to local
counsel who may be isolated from other aspects of the transaction.
In fact, the importance of water coupled with the complexity and
obscurity of water law mandates that water rights due diligence
should be given primary and immediate consideration and that the
water rights due diligence effort be closely integrated with other
transactional due diligence. The water rights due diligence team
should be identified early in the transaction, and allocation of
responsibilities among the team members should be specified,
preferably in writing, at the outset of the effort.
Because of the variability in water law from state to state, no
single checklist can adequately describe the tasks comprising
appropriate due diligence. Due diligence checklists
tailored to specific states (Arizona, California, Colorado,
Oregon, Nevada, and New Mexico) are included at the end of this
paper.
The sections of this paper are bookmarked as follows:
I. State Water Right Basics
A.
Arizona
Arizona, like most other Western states, follows the prior
appropriation system for surface water,[1] and it has since the enactment of Arizona’s first territorial
water code in 1864. In those days, a water user acquired a
right to use water by putting water to beneficial use. Now a
permit is required. Groundwater, however, is not generally
subject to a prior appropriation system, and follows the
“reasonable use” doctrine where it is not regulated under the
Groundwater Management Act in specific areas of the state.
Water rights are administered by the Arizona Department of Water
Resources (DWR).
The distinction between surface water and groundwater was
judicially defined in the 1932 case Maricopa County Water
Conservation Dist. No. 1 v. Southwest Cotton Co., 39 Ariz. 65, 4
P.2d 369, modified and reh’g denied, 39 Ariz. 367, 7 P.2d 254
(1932). The Southwest Cotton court defined appropriable
water to include the “underflow, subflow or undercurrent ... of
a surface stream.” The “subflow” was defined as
“those waters which slowly find their way through the sand and
gravel constituting the bed of the stream, or the lands under or
immediately adjacent to the stream, and are themselves a part of
the surface stream.” 39 Ariz. at 96.
Groundwater not “immediately adjacent” to a stream is not
appropriable, and it is referred to as “percolating
groundwater.” Although later courts have acknowledged that
this division of water underground is a legal fiction that does
not make sense hydrologically, they have refused to change the
distinction. In an opinion issued last September, the
Arizona Supreme Court attempted to further refine the definition
of subflow in the Gila River System to a particular hydrologic
unit in the system, the saturated flood plain Holocene alluvium.
In re the General Adjudication of All Rights to Use Water in the
Gila River System and Source, ___ Ariz. ___, 9 P.3d 1069 (2000)
(Gila River IV).[2]
To further complicate groundwater matters, the Arizona Supreme
Court issued an opinion in 1999 that federal reserved water
rights, notably for Indian reservations, transcend and trump state
water law. In re the General Adjudication of All
Rights to Use Water in the Gila River System and Source, 195 Ariz.
411, 989 P.2d 739 (1999), cert. denied, 120 S.Ct. 2705 (2000)
(Gila River III). The high court ruled: (1) federal
reserved water rights extend to groundwater that is not subject to
prior appropriation under Arizona law to the extent that
groundwater is necessary to accomplish the purpose of a federal
reservation, and (2) federal reserved right holders are entitled
to greater protection from groundwater pumping than are water
users who hold only state law rights. This means the holder
of a federal reserved right to either appropriable surface water
or nonappropriable percolating groundwater may be able to enjoin
pumping of percolating groundwater that interferes with the use of
the federal right, even though a state law user of either
appropriable surface water or nonappropriable percolating
groundwater would have no similar right to enjoin an interfering
use of percolating groundwater.
A statutory system to regulate surface water was adopted in 1919,
after which water users had to apply for permits to appropriate
surface water. Most surface water was appropriated early on,
and some judicial decrees were issued, but they did not explicitly
quantify the reserved rights held for Indian reservations.
Two large general stream adjudications (on the Gila and Little
Colorado rivers) are now under way to sort out the relative
rights of most of the water users in Arizona. Technically,
people can still apply for surface water rights, but very little
is available.
New groundwater developments are possible in the Active Management
Areas (AMAs), as detailed below. Outside of AMAs, reasonable
use is still the standard, except that some people believe Gila IV
expanded the definition of “subflow” to the point where no
percolating groundwater is left.
If water rights are not put to beneficial use for five years, they
may be forfeited.[3]
As in other Western states, rights may be abandoned if the user
fails to use the water and intends to abandon the associated water
right. Gila Water Co. v. Green, 29 Ariz. 304, 241 Pac. 307
(1925). Changes in the point of diversion, place and purpose
of use require application to the DWR and are subject to
public notice and protest, as outlined below.
B. California
California’s system of water law combines the principles of
prior appropriation[4] and riparian rights[5] into a hybrid and often confusing system referred to as the
“California System.”[6]
Under this system, junior appropriators must give way to senior
appropriators when insufficient water exists to satisfy all users.[7]
And use of the appropriative right is limited to the declared
“place of use.”[8]
Separately, holders of riparian rights are to exercise their
rights in a correlative manner, with some sort of pro-rata cutback
when sufficient water is not available to satisfy all water users.[9]
When there are both riparian and appropriative rights on a water
course and there is insufficient water to satisfy all users,
riparian rights are subordinate to all appropriative rights
created before the federal patent for the particular tract at
issue, and are superior to all appropriate rights created
subsequent to the point in time at which that patent was issued.[10]
Much as in most other western states, the right to water is
usufructory, meaning that the party legally entitled to the water
does not own the water in question but is instead entitled to its
use.[11]
In any case, all users of water in the state must put a reasonable
quantity of water to beneficial use through reasonable diversion
methods pursuant to a 1928 amendment to the California
Constitution.[12]
A failure to achieve a beneficial purpose and reasonable use could
result in the loss of one’s water right in California.[13]
Prior to 1914, the Civil Code provided for a method of
appropriation which varied little from the mostly judicially
created elements of appropriation, where the diversion and use of
the water with notice was adequate to establish the right.[14]
The current water code however, dating back to its 1914
predecessor, provides an orderly method for appropriation in
California.[15]
It provides that “[a]ll water flowing in any natural channel”
is a public water of the state and subject to appropriation in
accord with the water code.[16]
Under this new system, the State Water Resources Control Board (SWRCB),
the successor to the State Water Rights Board, administers water
rights in California.[17]
Pursuant to statutory and regulatory provisions, any person may
file an application to apply for any unappropriated water from the
SWRCB, seeking to obtain a permit, except where the diversion will
be pursuant to a riparian right.[18]
The SWRCB must conduct a hearing prior to approving the
application if, upon notice, an interested party files a grievance
regarding the application and that grievance is not subsequently
resolved.[19]
If the application is approved, a permit is given to the
applicant.[20]
Once the right is “proved up” by demonstration of putting the
water to use for an adequate period of time, the SWRCB will issue
a license.[21]
Water rights acquired under the Civil Code prior to 1914 and
non-statutory appropriations from that same period were “grandfathered”
in under provisions of the current law.[22]
The SWRCB does not have jurisdiction over these rights.
Hence, it is possible for one to have a superior water right in
California even though that person, or her predecessor, did not
comply with the current mandates of the water code as to
acquisition of that right, because that individual did comply with
the law on appropriation as it stood prior to 1914. These
appropriative rights are called pre-1914 rights.[23]
Just as with California’s surface water system, California’s
groundwater system is also bifurcated.[24] Subterranean streams
flowing through known and definite channels are treated the same
as surface waters in California.[25]
Furthermore, percolating groundwater that is tributary to and
feeds the surface flow of a stream is regarded as part of the
stream.[26]
These types of groundwater are subject to the jurisdiction of the
SWRCB if one wishes to appropriate them, except as to riparian
lands which do not acquire their right through the SWRCB.[27]
In contrast, percolating groundwater that does not flow through a
defined subsurface channel is treated under a different system.[28]
Landowners overlying the percolating groundwater who wish to use
the water on their overlying parcel are treated roughly the same
in California as are riparian landowners.[29] Hence, correlative
rights exist between two or more overlying owners, meaning that in
a shortage all landowners must cut back on their use
correlatively, and no overlying landowner may divert water to
non-overlying lands injuring another overlying owner.[30] The rights of the
overlying owners are mutual and reciprocal.[31]
Parties who pump percolating groundwater to parcels that do not
overly the groundwater basin are considered to be appropriators,
and they may appropriate groundwater only to the extent that the
groundwater they appropriate is surplus to the needs of those with
overlying rights.[32]
But because the SWRCB does not have jurisdiction over these
percolating groundwaters, no permit is required to become an
appropriator of these waters. Interestingly, municipal
entities (except to the extent they are serving water to land they
own) are considered appropriators.[33]
California does recognize prescriptive rights in groundwater.
These rights may come into existence after a groundwater basin has
been in overdraft for five years.[34]
At that time, appropriators may seek judicial remedy to declare
their rights to be prescriptive.[35] Such prescriptive
rights are of a higher priority than overlying rights.[36]
C.
Colorado
In Colorado water rights are acquired by diversion of water and
its application to a beneficial use.[37]
Surface rights require no permit or administrative approval.
In times of shortage (which is almost always) water rights are
allowed to divert in order of their priority.[38]
The priority of a water right is dependent on its priority date,
which is generally the date on which the water right was decreed.[39]
With respect to water rights decreed in the same proceeding (or
after 1969, in the same calendar year) relative priority is
determined by the decreed date of appropriation (the date on which
the appropriator had both an intent to appropriate and have taken
the “first step” towards such appropriation).[40]
Groundwater rights in Colorado are generally governed by these
same rules. All groundwater that is hydrologically
connected to a stream system is administered as part of the
surface priority system.[41]
Non-tributary groundwater (groundwater, the withdrawal of which,
will not, within 100 years, deplete the flow of a natural stream)
is not subject to appropriation or the priority system.[42]
Such nontributary water is allocated based on the amount of water
underlying the surface of the landowner’s property, with the
rate of withdrawal limited to 1% of such amount per year.[43]
Much of eastern Colorado is located with designated groundwater
districts, in which groundwater rights are administered in
priority against each other, but not against rights lying outside
of such districts.[44]
D.
Nevada
Nevada is a pure appropriation doctrine state. Both surface
and groundwater are held by the state in trust for the public.[45]
Under Nevada law, a water user may acquire a right to use water,
but never absolute ownership of the water itself. One
obtains a water right by putting water to beneficial use.[46]
The principle of first-in-time, first-in-right, governs relative
priority among users of the same water source. Water rights
are administered by the State Engineer, Division of Water
Resources, Nevada Department of Conservation and Natural
Resources.
A statutory permit system governing water rights
acquisition, administered by the State Engineer, was first adopted
in Nevada in 1913 for surface water.[47] Essentially the same
system was adopted for groundwater in 1939.[48]
Prior to the enactment of the statutory systems, water users
gained water rights simply through the physical acts of
appropriating water and putting it to beneficial use. These
pre-statutory vested rights were unaffected by the implementation
of the permit system.[49] Relative priorities among
pre-statutory appropriations are generally governed by
adjudications among users of the same source, leading to judicial
decrees.[50]
Not surprisingly, given the scarcity of surface water in the
state, most surface water in Nevada was first appropriated prior
to the implementation of the statutory system; most surface water
rights are thus governed by one of Nevada’s hundred or so
different decrees.
Under present law, the first step in acquiring a water right in
Nevada is to apply to the State Engineer for a permit to
appropriate water.[51]
Applications to appropriate water are subject to public notice and
may be protested by any “interested” person.[52]
In reviewing an application, the State Engineer considers whether
unappropriated water is available from the source in question,
whether the proposed appropriation will impair existing rights,
and whether the appropriation is in the public interest.[53]
If the application is approved, the State Engineer will issue a
permit to appropriate, with time periods set for completing
diversion works (by statute, no more than five years) and for
proving beneficial use (by statute, generally no more than ten
years).[54]
Extensions of time, of one year’s duration, for completing works
or proving beneficial use can be obtained so long as the applicant
is proceeding in good faith and with reasonable diligence.[55]
Multiple extensions of time are fairly common.
If the applicant fails to proceed to prove up the right with
reasonable diligence, the application may be canceled by the State
Engineer[56].
Once beneficial use is demonstrated to the satisfaction of the
State Engineer, the applicant receives a “certificate”
establishing the water right to the extent of the proven
beneficial use.[57]
The “certificated” right is then vested. Loss of
the water right is then governed by the forfeiture and abandonment
provisions discussed in Section IV.
Changes in the point of diversion, manner and place of use require
application to the State Engineer and may be subject to public
notice and protest. This requirement applies to “decreed”
rights as well as “permitted” rights.[58]
E.
New Mexico
New Mexico follows the prior appropriation doctrine for both
surface water and groundwater. N.M. Const., Art. XVI, Sec. 2.
A water user obtains the right to use the water, but never
acquires the water itself, which is owned by the state.[59]
The State Engineer conjunctively manages the resource to ensure
that the rights of river users are not impaired by groundwater
pumping. The New Mexico Supreme Court in City of Albuquerque
v. Reynolds, 71 N.M. 428, 379 P.2d 73, 80-81 (1962), recognized
the State Engineer’s authority to place conditions on permits
for groundwater pumping that would protect the river affected by
the pumping. Today, since surface water is considered
overappropriated, protection of the rivers becomes important and
drives many of the water transactions. Surface rights,
typically from farms, must be acquired to support proposed new
permits for wells and groundwater pumping.
Although New Mexico follows the first-in-time, first-in-right
policy, priority calls still are relatively rare. The State
Engineer’s office, which administers water rights, recognizes
water rights perfected prior to 1907, when the Territory of New
Mexico adopted its first Water Code affecting surface rights.
NMSA § 72-9-1. Before that time, water rights were acquired
through beneficial use. Afterward, a permit was required to
begin putting surface water to beneficial use. By contrast,
portions of the Water Code regulating groundwater were not adopted
until 1931, and the State Engineer does not take jurisdiction over
groundwater until he “declares” an underground basin. State ex
rel. Reynolds v. Mendenhall, 68 N.M. 467, 362 P.2d 998 (1961).
Some underground basins were declared in the 1930s, and declared
basins covered most areas of the state by the 1980s.
Under current New Mexico law, permits for either a surface or
underground right require applications for a permit. NMSA
1978 § 72-5-1 and 72-12-3, respectively. The applications
must be published in a local newspaper for three weeks, and anyone
who thinks the appropriation would impair his water right may
protest. In addition to impairment and whether
unappropriated water is available, the State Engineer also
considers whether the application will be contrary to conservation
of water within the state, and will impair the public welfare of
the state. These criteria also generally apply to
applications to transfer or change the point of diversion, purpose
or place of use, as discussed below. The impairment criteria
are evaluated on a case-by-case basis by the State Engineer,[60] and the other two criteria (conservation and public welfare) have
not been defined in regulations or case law.
If the application to appropriate water (now almost always
groundwater) is approved, the applicant must meet conditions that
typically include a time limit to construct the well and put the
water to beneficial use. Extensions of time for a maximum of
three years[61] are common, but recently the State Engineer has indicated less
willingness to approve the extensions automatically, especially if
the permit holder has asked for multiple extensions.
On rare occasions, the State Engineer will cancel a permit if the
water user fails to put the water to beneficial use. After
the water has been put to beneficial use, the permit holder can
apply for a license certifying beneficial use,[62] but these also are relatively rare. Water rights can be
forfeited or abandoned through non-use, as discussed below.
F.
Oregon[63]
Prior to the enactment of Oregon’s (surface) water code in 1909,
the state recognized both riparian and appropriative rights.
Riparian rights can now be claimed only to the extent that
riparian owners were using water beneficially before (or
immediately after) passage of the 1909 Water Code.[64] This hybrid system is
known as the “Oregon doctrine.”
There are three fundamental principles in Oregon water law:
beneficial use, priority, and appurtenances. Beneficial use
“is the basis, measure, and the limit of all rights to the use
of water in this state.” [65]
That is, a right to divert and use water is valid only to the
extent that the water is applied to a beneficial use for a
specified purpose. A wide variety of uses are considered
beneficial.[66]
However, uses may be limited if the proposed source has been
withdrawn from further appropriation or has been classified by the
OWRD for more limited uses or quantities of use.[67] Basin plans
may further limit or prioritize uses.[68]
Oregon law has no explicit “use preference” except that in
times of shortage, domestic purposes have first preference all
other uses and agricultural purposes have preference over
manufacturing.[69]
Priority in Oregon is “first in time, first in right.”
The person who holds the right with the earliest priority date
receives all the available water, up to the total amount of his
right. (The priority date is generally the time the water
was first put to beneficial use, or the date of the permit
application for that use.) Whatever available water is still
left in the stream goes to satisfy the next oldest, or senior,
right, and so on down the line until either all the water rights
of use are satisfied in order of priority, or all the available
water is used.
The third basic principle of Oregon water law is that the water
attaches to the land after it is perfected and the development
completed on that land. Thus, a water right certificate is
said to be appurtenant to a particular piece of property.[70]
Statutes require disclosure of the existence of water right
certificates, or transfer approval orders by anyone selling land
that includes any surface water irrigation rights, as well as
notification to the OWRD.[71]
Since the water right is appurtenant to the land, the seller must
specifically reserve the water rights if the seller intends to
keep them.[72]
Appurtenance also requires that water cannot be taken and applied
to other land without application for a transfer.
According to statute, “all water within the state from all
sources of water supply belongs to the public.” ORS 537.110.
As outlined above, Oregon recognizes the prior appropriation
doctrine and applies its unique form of the doctrine to precode
claims in adjudications, and as statutorily enacted, to post code
claims.
Water
rights of use acquired before the permit system was in place, are
‘vested rights’ and are confirmed though the adjudication
process. Claims for pre-1909 surface rights were required to
be registered with the state by December 31, 1992. Claims
not registered were forfeited. Claims for groundwater put to
beneficial use prior to August 2, 1955 (the date of enactment of
groundwater codes) are recognized if they were registered within
three years after the adoption of the code.[73]
Oregon statutes provide the mechanism for sorting out pre-Code
rights.[74]
The OWRD is in process of conducting adjudications of streams to
issue final decrees that will confirm the existence of pre-1909
rights their priority in relation to other rights.[75]
Until the adjudication process is completed, OWRD can process
requests to change place of use, type of use or diversion of
registered pre-1909 water rights who have unadjudicated claims
without affecting basin adjudications already underway.[76]
With certain exceptions[77],
all rights to use surface water since 1909 are acquired through
the state’s permit system. Groundwater rights of use are
similarly acquired through a permit system in place since 1955,
also with certain exceptions.[78] The groundwater system is integrated with the surface water
system where a hydrologic connection exists;[79] however there must be
substantial evidence of a direct and measurable hydrologic
connection between surface and groundwater to support conjunctive
management.[80]
Although most exempt uses carry a valid right of use equivalent to
certificated water rights, proof of a priority date and continuous
beneficial use may be difficult without the documentation provided
by a paper right.[81]
Water rights in Oregon are treated as perpetual so long as they
are exercised continuously.[82]
Valid, perfected water rights are recognized by a water right certificate
issued by the OWRD. Certificates are issued pursuant to
adjudications or after final proof survey confirming to the OWRD
the application of the permitted waters to beneficial use.
OWRD administers water law under policy direction from the Water
Resources Commission. Water law is codified in chapters 536
- 543 of the Oregon Revised Statutes cover both groundwater and
surface waters. Oregon requires permits for all water
appropriations.
Oregon’s water law has seen significant changes in
interpretation effecting water rights over the past fifteen years
as the competition for the resource increased.
II: Identifying the Water Rights
The first step is obviously to identify what water rights are to
be conveyed as part of the transaction. This may sometimes
not be a straight forward task. Often the parties may not have
been very clear in their contract, simply using general phrases
such as “any and all water rights” or “all
appurtenances” or even being silent on the issue.
The due diligence lawyer will need to determine what the intent of
the parties was with respect to what, if any, water rights are to
be conveyed.
Oftentimes, the parties themselves will not know precisely what
water rights are associated with the property, at least to the
level required to prepare an adequate conveyancing description.
Even if the parties purport to know what water rights are
associated with the property, the due diligence investigations
should confirm these beliefs. The means of determining what
water rights are, in fact, appurtenant to the property varies from
state to state.
A. Arizona
In Arizona, most surface water rights are evidenced with a
certificate, permit or statement of claim. All of these
records can be found at the DWR. Groundwater rights within
the state’s AMAs are evidenced by certificates or permits.
All wells in the state are or should be registered with the DWR.
The main DWR office is in Phoenix, and each AMA also has an
office. The files in the Phoenix office are supposed to be
complete, but sometimes records can only be found at the AMA
office. The DWR website[83] is a good starting point for searching for information on water
rights in Arizona. Some of the forms are on the site, as
well as an online bookstore catalog, descriptions of the AMAs, and
the Active Management Plans. Another useful resource are the
maps the DWR produces on CD. Separate CDs (approximately $20
each) are produced for surface and groundwater rights in the
state. After entering a legal description using
section, township and range, the CD produces a map with file
numbers for all the ground or surface water rights around the land
described.
In Arizona, it is important to confirm that the water right can be
used for the intended purpose. Groundwater rights are
heavily regulated (as detailed below), and some rights can be used
only for particular purposes. For example, irrigation
grandfathered groundwater rights can be conveyed only with that
land,[84] but they may be
extinguished, in some cases, to be used toward proving an assured
water supply.[85]
B. California
Appropriative, riparian, and groundwater rights each emerge from
unique geographical and physical characteristics, and as such,
each holds a unique status in the law. Identifying these
rights requires a basic legal understanding of how the rights are
created by law, along with the appropriate investigation for each
type of water right. In addition to these real
property-based rights to water, there are also contract-based
rights to water, such as the water delivered by the federal
Central Valley Project or the California State Water Project.
Identifying these contract-based rights can be done through a
review of the seller’s files.
Appropriative
Rights
As discussed above, an appropriative right is a real property
right that allows one to take surface water, or water in
subterranean streams flowing through known and definite channels
and put it to a beneficial use. This right is not contingent
upon ownership of the land through which the water flows, or even
necessarily to which the water will be applied. The first
place to start in identifying an appropriative right is the SWRCB.
There, one can begin by looking at the SWRCB filings under the
name of the seller, subsidiaries of the seller, part owners,
predecessors in interest, etc for applications, permits, or
licenses which have been filed or granted to appropriate water.
One should also look at the SWRCB maps to determine if there are
any recorded water diversions, for applications, permits, or
licenses, associated with or near the property. If relevant
applications, permits, or licenses are located, one can look at
the applications, permits, or licenses themselves to find if the
place of use identified corresponds with the location of the
property.[86] If the water right
has matured into a license, proof of the license can also be found
in the records of the county in which the diversion occurs.[87]
In the context of a real estate transaction, an appropriative
right might accompany the parcel being purchased, or it may be
held by a mutual water company, irrigation district, or other type
of district, that serves the parcel in question. Therefore,
the next step in searching for an appropriative right is to find
out if there is a mutual water company, irrigation district, or
other special district which serves water to the area. The
amount of water available and the purposes for which the water may
be used will be determined by the water service provider based on
legal and physical restrictions of that service provider.
Because water rights established prior to 1914 are not governed by
the SWRCB, the SWRCB may not have anything in its files to signal
the existence of a pre-1914 right. One may, however,
sometimes find recordings of these rights at the county
recorder’s office or in other historical references. Prior
to the permitting system administered by the SWRCB, an
appropriator would provide notice of the proposed diversion by
posting or publishing actual notices or by filing for the right in
the county recorder’s office. The existence of a permit,
license, application, or pre-1914 right, however, does not end the
inquiry as to the existence of a legally valid water right.
As explained above, all water rights in California must be put to
reasonable and beneficial use, and if not, can be forfeited under
law. See section IV, infra. Additionally, the courts
may have adjudicated the water right as well.
Riparian
Rights
As discussed above, a riparian right gives the owner of land
contiguous to a natural watercourse a right to beneficially put
the water to use on the riparian land. The first step in
discovering the existence of a riparian right is to physically
investigate the property for signs of a natural water source
running through or adjacent to the property.[88]
The riparian water source may be ephemeral in nature, so it is
important to look not only for water, but other indications of the
temporary existence of water such as a gully or dry streambed.
Even if a riparian water source is present, the riparian rights to
that property may have been severed from the property. If
the property was subdivided at some point in time, the riparian
right attaches only to the smallest parcel still contiguous to the
water source.[89]
Changes in the riparian right are almost never reflected in the
deed.
Additionally, one should check filings with the SWRCB because the
SWRCB accepts riparian right filings which are often made so as to
be able to prove up a riparian right later in time. If a riparian
right is found, it is not necessary to do the same follow-up
investigation as required of appropriative rights because a
riparian right is not based upon use, and hence it is not lost by
disuse. However, the best way to know if a riparian right
still exists is to obtain a title opinion from a competent water
counsel.
Groundwater
Rights
Also as discussed above, a property owner whose land overlies a
groundwater basin has a right to withdraw water from the basin,
correlative with other property owners whose property also
overlies the basin. A groundwater right may cause special
concern because not only is it unnecessary to file notice with the
SWRCB, the availability of water for extraction is not readily
apparent if there are no physical signs of groundwater, such as
wells or springs. Currently, the Department of Water
Resources is preparing a map of California’s groundwater basins.
When completed, a person may be able to start their research with
that database, checking the location of their property against the
map. However, such a map will likely not be detailed enough
to determine the actual presence of groundwater.
Until such time as detailed maps exist, if it is suspected that
the property overlies a groundwater basin, one should hire a
hydrologist to test for groundwater. Additionally,
investigation into whether a water master has been appointed by
the court may reveal the existence of an underlying groundwater
basin. If it is determined that the property does in fact
overlie a groundwater basin, one must do further research to
determine if the basin has ever been adjudicated. The
Department of Water Resources keeps tabs on such adjudicated
basins. The presence of such an adjudicated basin can be
good if you find the property holds an adjudicated right.
Absent such a right, however, the acquisition of a new right may
be challenging, if not impossible. Additionally, a call to a
local water district to find out the status of the basin may
uncover whether or not there has been an adjudication of rights to
the basin.
Additional
Investigative Tools
One cannot underestimate the value of a visual inspection of the
property. The existence of pipelines, ditches, or wells or
the presence of a surface stream on the property can alert one to
the existence of a water right which should be investigated.
Additionally, using a historical research firm to investigate the
history of the property or prior owners of the property may help
discover whether water rights are associated with the property,
and if so, their status. This research covers newspapers,
construction documents, and other sources which are always left
out of the standard title search. Finally, water right
engineers are another source for the investigation of water
rights. Hiring the right expert can be very important in
identifying the water right.
C.
Colorado
In Colorado, the State Engineer maintains a computer listing of
all decreed water rights in the state known as the Water Rights
Report and commonly referred to as the “tabulation.”[90] The tabulation comes
in three versions -- one sorted alphabetically by the name of the
decreed structure, one sorted by order of priority within a stream
system, and one sorted by the section, township and range of the
decreed structure’s point of diversion. A review of USGS
maps of the area often reveal the presence of reservoirs or
ditches. Conversations with the manager of the property and
local water officials normally will reveal additional useful
information. Finally, the field investigations undertaken as
part of other due diligence investigations discussed below will
help identify the ponds or ditches, irrigated fields, wells, or
other evidence of the existence of water rights.
Once the rights are identified, copies of the relevant decrees,
well permits and other evidence of the water rights involved
should be obtained and reviewed. Most of these documents can
be found at the State Engineer’s Record Section in Denver.
Unfortunately, most of these documents are not yet available on
line. However, the State Engineer maintains an extensive web
site that includes stream flow records, rules and regulations,
policies, diversion records and other material helpful in due
diligence investigations. The web site is located at
www.water.state.co.us.
D.
Nevada
In addition to determining what the parties’ intend with respect
to water rights appurtenant to the property in question, the due
diligence team will need to ascertain whether additional or
different water rights are needed to serve the property and
project in question.
In Nevada, water may be available from a local water purveyor or
governmental authority. However, even within the service
territory of an existing water purveyor, a developer may be
required to obtain water rights and dedicate these to the purveyor
or local government in order to obtain water service.
In Washoe County, for example, satisfaction of these requirements
is a condition for obtaining a building permit or subdivision
approval for new developments. The requirements for
obtaining service commitments varies widely throughout the state.
The water rights to be dedicated need not be appurtenant to the
property in question, but restrictions as to the appropriate type
of water right will apply. Usually it is necessary to obtain
and dedicate a larger volume of water than will actually be needed
to serve the property, as a hedge against drought conditions.
The water purveyor or governmental entity will undertake a due
diligence review before accepting the right.
A water right is not required for a domestic well that draws no
more than 1,800 gallons per day.[91]
Such a well may not be constructed within the service territory of
a water purveyor, and, in the event a service territory expands to
encompass property served by domestic wells, there are statutory
provisions encouraging, and in some cases requiring, the
abandonment of such wells.[92]
E.
New Mexico
In New Mexico, some water rights have been adjudicated, and a new
automated system for identifying water rights is called
“W.A.T.E.R.S.”[93] However, not all rights are even permitted. Surface water
rights developed before 1907 do not need a permit, nor do
groundwater rights developed before the State Engineer declared
and took jurisdiction over the particular groundwater basin where
the wells are located. Most prudent water rights owners,
however, have filed “declarations” of their surface or
groundwater rights with the State Engineer’s office, which is
the first stop for learning about the water rights. The
files in the main State Engineer office in Santa Fe are supposed
to be duplicates of files in the district offices around the
state,[94] but that is not always the case. Sometimes a check in both
the Santa Fe and District office is warranted. Under New
Mexico law, the declaration is prima facie proof of the validity
of the water right,[95] but the State Engineer
often challenges a declaration based on many of the same sources
outlined in the due diligence checklist. The due diligence,
therefore, should only begin with the permit or declaration, not
end there.
f. Oregon
Most water use in Oregon is documented by a decree tabulation,
statement of claim, permit, or certificate kept with the OWRD.
Unfortunately, the large remainder are not documented and fall
generally into the following categories: (1) Exempt uses; (2)
Federal reserved rights; (3) Wild and Scenic River flows; and (4)
Reservations for future appropriation which are not recorded.
If the transaction considered might fall within state exemptions,
the investigator must also consider whether the local land use
planning agency (usually county or city) has its own limiting
restrictions.
To begin the identification process of documented water uses, the
investigator should start with the OWRD’s website[96] by entering the appropriate section, township, and range data.
The website should produce a “plat card” for the appropriate
section with identifying numbers entered by quarter/quarter
sections. Since OWRD indexes its files by the application number,
research from the plat card may include determining the permit and
certificate numbers both of which will be different than the
application number. The website may also include a copy of
the pertinent right. However, associated file documents are
not included on the website at this time requiring the
investigator to travel to the state files in Salem or to the
regional watermaster’s office.
While the state and regional files are intended to be exact
duplicates, this is rarely the case. A wise investigator
should start by retrieving a complete copy of the pertinent State
file(s). Obtaining copies of these files, usually requires
the legal practitioner to earlier submit a Public Records Request.
It is advised to ask for all related files as OWRD often maintains
several files for the same water use. The regional files may
also yield additional information. Important documents to
retrieve from the file include copies of easements and contracts.
Because ownership of the paper right is determined by its property
appurtenancy, the name on the paper right[97] will not likely be the name of the appurtenant land owner but will
name the initial applicant for the resulting water use.
Therefore, the investigator may need to review the county records
to first determine land ownership. This step is often a good
idea to make determinations of existing easements. Often, a
title company may be used for this purpose.
G. Conclusion
Once the water rights to be conveyed have been identified, a
second question should be raised. Are the water rights
adequate for the purchaser’s intended purposes? The
amount, reliability, transferability and other attributes will be
determined as part of the ongoing due diligence investigations
described below. However, the due diligence lawyer needs to
understand what the client’s intended use of the property is, so
that a determination can be made whether the water rights will be
adequate to meet the client’s needs. If the existing water
use is to be continued, this is normally fairly easy to determine.
However, if the client desires to make a new use of the water --
e.g. converting farmland into a residential development -- the due
diligence lawyer will need to help the client determine exactly
how much water the new land uses will require. For instance
what are the average and peaking water demands of a residential
development, what water dedication requirements will local service
providers or authorities require, what amount will industrial uses
require?
If the buyer is a conservation entity such as a land trust, the
due diligence lawyer will also need to evaluate whether the water
rights are adequate to protect the conservation values sought to
be protected. For example, if a conservation value is a
wetland or irrigated meadow for waterfowl habitat, are the water
rights in place that are required to maintain such values?
This may require additional scientific due diligence regarding the
amount and timing of water required for these specific land uses.
III.
Water Right Ownership and Title Examination
A.
Arizona
In Arizona, there are several different types of surface and
groundwater rights, with several different types of proof of the
rights. In general, except for decreed rights, the DWR has
ownership and assignment records. However, for surface
rights in particular, due diligence should include a title search
of the land associated with the water right. Title to
groundwater rights can be held separately from the land, and title
can be searched through DWR records only.
Arizona state law provides for four types of surface water rights.[98] All types of
surface water rights should be conveyed by deed, not a bill of
sale.[99]
Notice of the conveyance should be filed with DWR using the
DWR’s forms, except for decreed rights.[100] The first type
of a surface water right is one acquired before June 12, 1919,
which is evidenced with a statement of claim filed with DWR.[101]
The second type of surface right is one acquired after June 12,
1919, pursuant to an application and permit to appropriate water.
DWR issues a Certificate of Water Right as evidence of these
rights.[102]
The third type of surface water right is a stockpond right.
DWR evidences these rights with a Registration of Stockpond filed
with DWR and, on rare occasions, with a Certificate of Stockpond
Right.[103]
The fourth type of surface water right is a decreed right.
These rights have been adjudicated and confirmed by a court.[104] No readily accessible repository exists for these rights, although
DWR often has information regarding decreed rights.
Groundwater in Arizona is heavily regulated, even though the state
generally follows the “reasonable use” doctrine[105] instead of the prior appropriation doctrine for groundwater.
The Arizona statutes designate AMAs in areas where groundwater
aquifers are at risk of being rapidly depleted and provide
stringent regulations in those areas.[106] The AMAs include the Phoenix AMA, the Pinal AMA, the Tucson AMA,
the Prescott AMA, and the Santa Cruz AMA.[107]
Elsewhere in the state, areas have been designated as irrigation
non-expansion areas.[108] In these areas, groundwater use is not as heavily regulated as in
the AMAs, but new irrigated acreage cannot be developed.[109]
Within the AMAs, all the types of water rights should be conveyed
by deed,[110] and the Notice of Conveyance must be filed with the DWR.[111] The first type of
groundwater right is an irrigation grandfathered groundwater
right, which allows the right holder to withdraw and use
groundwater for irrigation purposes on a specific piece of
property.[112] The DWR issues a
certificate of irrigation grandfathered groundwater right as
evidence of the right. Irrigation rights are appurtenant to
the land that was historically irrigated and can be conveyed only
with that land.[113] In some circumstances, irrigation rights can be retired and
converted into Type I non-irrigation rights (discussed below) or
can be extinguished to obtain credits that can be used in proving
an assured water supply.[114]
Type I non-irrigation grandfathered groundwater rights originate
from retired irrigation acreage. [115] The DWR issues a certificate of Type 1 non-irrigation
grandfathered groundwater right for a specific amount of water.
The right is appurtenant to the historically irrigated acres, but
it can only be used for non-irrigation purposes.[116] In limited circumstances, the water withdrawn pursuant to a Type 1
right may be used on land other than the appurtenant acreage.[117]
Type 1 rights sometimes can be extinguished to obtain credits that
can be used for proving an assured water supply.[118]
The use of Type 2 non-irrigation grandfathered groundwater rights
is less restricted than other groundwater rights in an AMA.
The DWR issues a certificate of Type 2 non-irrigation
grandfathered groundwater right for a specific amount of water for
non-irrigation purposes. Type 2 rights are freely
transferable within the AMA subject only to well spacing
requirements. The right can be leased in whole or in part.[119] In some circumstances, Type 2 rights may be extinguished to obtain
credits that can be used to prove an assured water supply.[120]
Within an AMA, it also may be possible to obtain permits to
withdraw and use groundwater for the following purposes:[121] general industrial use, dewatering, mining, poor quality
groundwater use, temporary electrical generation or dewatering,
drainage, and hydrologic testing. These permits generally
are of a short (less than 50 years) duration and are, in most
cases, transferable.
The final type of groundwater right in an AMA is a withdrawal from
an exempt well. An exempt well is a well with a maximum pump
capacity of 35 gallons per minute.[122] Exempt wells drilled (or in progress) before April 28, 1983, can
be used to divert up to 56 acre feet per year for non-irrigation
purposes.[123] Exempt wells drilled
after April 28, 1983, can be used to withdraw up to 10 acre feet
per year for domestic and stock watering purposes.[124]
B. California
Issues associated with water right ownership and title examination
go hand-in-hand with those discussed in identifying the water
rights (see section III, supra). The very act of identifying
a right may address all or most questions of title examination and
ownership, such as when a title opinion is performed to determine
the existence of a riparian right. This work is
painstakingly detailed and full of traps for the untrained and
should only be attempted by a competent water counsel with the
help of an experienced title investigator.
Where water has been appropriated for use upon certain land which
cannot be used advantageously without it, the water right is an
adjunct to the land and passes in a conveyance of the land as
appurtenant thereto, unless otherwise provided.[125]
Of course, the appropriative right may be sold as real property,
separate from the underlying land, subject to the statute of
frauds.[126]
But even after such a sale, the normal restrictions on change of
place of use and purpose of use would still apply. (See
section VII, infra).
In terms of title insurance, while California title insurers will
insure easements relating to the conveyance of water across
property (for example, providing insurance that the dominant
tenement does hold the right to convey water through a pipe or
ditch across the property of the subservient tenement), title
insurance for the underlying water right itself is rare if not
non-existent.
C.
Colorado
In Colorado most water rights are evidenced by judicial decrees of
the Water Courts (one of seven district courts throughout the
state whose primary docket is water related matters), rather than
by administrative permits.[127]
The State Engineer maintains a tabulation of such water in a
computerized data base.[128]
Groundwater rights both within and outside of designated
groundwater districts are normally evidenced by well permits issue
by the State Engineer, copies of which are available from his
office and searchable in a computerized data base.[129]
Title insurance cannot be obtained in Colorado on water
rights. Water rights are normally transferred by deeds
recorded in the local real property records.[130]
Water rights represented by stock in mutual ditch and reservoir
companies are normally evidenced by share certificates issued by
such ditch companies, in which case the company’s stock transfer
records must be examined and any bylaw restrictions observed.
Some water rights are evidenced by allocation contracts with water
conservancy districts, which may or may not be recorded, which
case the district’s records must be examined.
For valuable water rights, it is common to conduct a stand-up
title examination in the real property records of the county in
which the water right was historically used. This consists
of a manual search of the grantor/grantee records to develop a
chain of title from the person to whom the water right was
initially decreed, to the present owner. For water rights
decreed in the 1800's -- which in Colorado is the norm for water
rights of any decent seniority -- it is common for the title
search to be limited to 20 or 30 years back from the current
apparent owner to avoid the considerable cost of developing a
complete chain of title.
Unfortunately, such title searches are often not conclusive
because Colorado courts have held that water rights can be
conveyed under such vague terms as “all water rights appurtenant
to the property” or even a general appurtenance clause.
Whether specific water rights are conveyed by such general
language is dependent on the intent of the parties based on all
the facts and circumstances surrounding the transaction.[131] Thus, where one
or more instruments in the apparent chain of title do not
specifically describe the water rights in question, but do contain
such appurtenance language, the title examiner must make
assumptions regarding the intent of the parties.
Partly because of these uncertainties, due diligence
investigations also usually involve discussions with the local
water commissioner (the state official in charge of
administration of water rights on the local level) regarding the
historic use of the water rights. A water rights engineer
is often also hired to perform field verification of the place
and extent of use -- e.g. has the water right been used solely
on the property of the owner claiming title. Such field
investigations sometimes reveal claims of ownership not
reflected in the record title.
D.
Nevada
Although Nevada has made considerable progress in simplifying and
clarifying management of title records for water rights in the
last five years, the task of verifying legal title to a water
right can be a daunting one. Title insurance for water rights is
not available in Nevada and there is no easy substitute for
physical inspection of the appropriate public records.
Fortunately, there are specialists in the state willing to take on
this task and who can often accomplish title research
cost-effectively. The Division of Water Resources is making
good progress in compiling a current title data base, which is
available on-line at the Division’s website. http://ndwr.state.nv.us
While this is at least a good starting place to review current
record title, official records are now maintained at the county
recorder’s offices.
Water rights in Nevada, whether decreed, permitted, or
certificated, are treated as real property[132] and conveyed by deed.[133]
A deed for real property is presumed to transfer any appurtenant
water rights, unless the water rights are specifically exempted
from the conveyance.[134]
Until 1995, official records of conveyances of water rights were
maintained by the State Engineer’s office.[135]
At the same time, official records of transfers of other real
property were (and are) maintained by the appropriate county
recorders.[136]
This dual records system led to considerable disarray in property
records, particularly since water rights were commonly transferred
with real property in a single instrument, and the requirement for
recordation with the State Engineer was often neglected. In 1995
the law was changed to make the county recorder the appropriate
place for recordation of water rights conveyances.[137]
If the county where the water is diverted is different from the
county where the water is used, recording in both counties is
required.[138]
A deed which is not recorded in compliance with NRS 533.382 is
void as against a bona fide subsequent purchaser who first records
in compliance with that statute.[139]
Title records are still maintained by the State Engineer, however,
and the transferee of a water right is required to file a record
of conveyance with the State Engineer together with an abstract of
title.[140]
This requirement must be met to enable the State Engineer to
provide appropriate notice of pending expiration of time for
completion of works or proof of beneficial use or other necessary
notices.
The implications of the prior dual records system for title
research are self evident. Depending on the date of the
conveyance, it may be necessary to check records both at the State
Engineer’s office and county recorder’s offices back to the
original decree or application to verify a chain of title.
In addition, in most cases, the conveyancing documents should be
examined directly to identify reservations or inconsistencies in
the place of use. County recorders in Nevada maintain both grantee
and grantor indices, and both should be checked. It is
not uncommon to find incomplete transfer histories and confusing
deeds. For example, “appurtenant” agricultural water
rights may have been transferred with a subdivided agricultural
parcel without specification of how such rights should be
subdivided. Clarification of the extent of the water right
conveyed may require a historic review to determine what portion
of the subdivided parcel was actually irrigated.
It should be noted that several of the most significant decrees in
Nevada are federal decrees administered by the federal court
system through a water master. Records of conveyances of
decreed rights under the federal decrees are also maintained by
the appropriate water master and these records should be reviewed
in addition to county and state records. It should also be noted
that certain water rights in Nevada are maintained by “ditch
companies,” private companies that still manage the distribution
of water along a ditch system, and evidence the right to receive
water through shares of stock in the company. These “ditch
rights” are not the equivalent of water rights.
As
real property, water rights in Nevada may be encumbered - a
security interest in water rights is usually evidenced by a deed
of trust recorded with the county recorder. A notice of
pledge should also be filed with the State Engineer. Complete
title research for adequate due diligence must therefore include a
search for such encumbrances.
E.
New Mexico
In New Mexico, both surface and groundwater rights are property
rights, and they may be conveyed by deed separately, or as part of
a conveyance of property. However, there is no general
requirement that water rights be declared or permitted, and many
irrigation rights have not been documented in the State
Engineer’s office or in county property records. Thus,
title to most water rights must be traced through the title to the
appurtenant land. Water rights are appurtenant to irrigated
land, but they are not appurtenant to land if they are used for
other purposes.[141]
For these non-irrigation rights, which are the exception in New
Mexico, the title should be traced through a deed referencing the
permit, if possible.
State Engineer records seldom have a complete record of ownership
of water rights, because sellers and buyers were not required to
file change of ownership forms with the State Engineer until 1991.[142]
Title insurance is not available for water rights in New Mexico,
so the due diligence inquiry usually requires obtaining a search
and report from a title company. Title companies generally
will search the grantor-grantee index for deeds for the underlying
property, and the lawyer can review the deeds to ensure that the
water rights were not conveyed away to a third party or reserved
to the grantor. Many deeds include the phrase “and all
appurtenant water rights,” which generally is sufficient to
convey irrigation water rights, but it may lead to ambiguity if
the water rights have been split up over time.
In the case of surface rights, it is best to trace the land title
back to 1907, when New Mexico adopted its surface water code and
new surface rights had to be obtained by permit. If that is
impractical, generally looking 30-40 years back will provide
enough of a record to examine whether water rights were encumbered
by a mortgage or stripped off the land and separately deeded to
another party. For groundwater rights, the best review would
examine the chain of title from the time the well was first
drilled. If it is a very old well, and began production
before its particular groundwater basin was declared, examination
of the title from the time of the basin declaration probably will
be adequate to confirm that the seller has good title. The
State Engineer declared the various underground basins at
different times, so the “start date” for title examination in
these cases will also vary.
f. Oregon
Once the
water rights are determined and the initial pertinent materials
collected, the investigator can identify water rights of use by
type. Oregon types include those recognized by source: (1)
surface, (2) groundwater, (3) storage, and (4) instream.
Some lands may include water uses from several sources and are
supplementary to the primary source that is likely to be the
surface source though not always.
Surface Use
Surface
water uses are limited in Oregon by basin rules and by the
available supply as determined by the OWRD. If water is not
available for the new use at least 80% of the time, the use will
not be permitted.
Since
the adoption of the respective Water Codes, Oregon has a three
step process to obtain water rights, starting with a permit
application submitted to the OWRD.[143] The permit
allows the recipient to develop the water use under specified
conditions and limitations. The permit holder must
then proceed with due diligence to perfect the right within the
time limit set by the permit, constructing the system and putting
the water to beneficial use. The time period for completing
construction is five years and may be extended for good cause.[144] In completing a
thorough investigation of unperfected rights, it is necessary to
ascertain whether the permittee timely completed all necessary
steps otherwise the permitted use may be at risk for later
limitation or cancellation. Oregon’s former policy for
granting liberal extensions is currently under question, and new
rules are being adopted to make extensions more difficult to
obtain.
After the completion of construction and the user has applied the
water to intended beneficial use, the water use must be
“surveyed” by Certified Water Rights Examiner.[145]
This survey must show the point of diversion, the amount of water
being used, and a description and map of the land to which it is
being applied.[146]
If the OWRD finds the survey of water use in compliance with the
terms of the permit, OWRD will issue a water rights certificate[147] which represents a perfected water right with a priority date of
the time the original permit application was filed.”[148]
Groundwater Use
In
1955 the state enacted the groundwater code that governs all use
of groundwater.[149] In order to
obtain a groundwater use, the applicant must follow the same steps
outlined above for a surface water right of use. Oregon has
limited groundwater permitting and withdrawals in certain areas of
the state where hydrological information proved aquifer decline.
These areas are defined by rulemaking so that identification of
groundwater uses will include reviewing administrative rules
(including basin and groundwater area rules) to determine if the
groundwater use will fall within the boundaries of a limited or
critical area where allocations are limited. OWRD personnel
are also good sources in making these identifications.
Storage Use
As
to storage, a permit or exemption is required in order to build,
maintain, or use any pond or reservoir, and there are additional
regulations for these uses.[150] Oregon also permits aquifer storage and recovery.[151]
As a policy matter, Oregon favors water storage.
To qualify for an exemption, smaller reservoirs must have been
built before 1995 and a notice of exemption filed before January
31, 1997. A water use for a pond or reservoir may have
advantages over an exemption, however, such as a set priority date
and amount of storage allowed. Stored water permits allow
storage of streamflow that is surplus to the needs of existing
rights. This is considered a primary storage permit.
In addition, in order to use water from a pond or reservoir a
secondary permit may be required. A stored water right
usually does not have to release stored water to satisfy the unmet
demand of a senior natural flow right. However, there must
be a means to allow the passage of the natural flow of the stream
through or around the reservoir.
Some
water storage requires the applicant to provide a contract for use
from the storage as part of the application and continued use of
water. This requirement is most likely applied to United
States Bureau of Reclamation facilities.
Instream Use
Oregon
water law provides some special water rights. By statute,
water can be held for instream use, defined as “a water right
held in trust by the Water Resources Department for the benefit of
the people of the State of Oregon to maintain water in-stream for
public use.”[152] Obviously, this
use is not within the definition of “prior appropriation.”
Except
for instream uses, in Oregon ownership of a water right attaches
to the appurtenant land where the water is used.
Consequently, the water right is “owned” by the appurtenant
landowner which may not be the same as the name which appears on
the permit or certificate. The OWRD in Salem maintains
records of all legally established water rights (incomplete rights
under permits, undetermined claims through ground water
registration or vested right statements, or completed rights).
The regional watermaster also has this information. A due
diligence lawyer should be aware that there is no requirement in
Oregon to record water rights in the county deed records.
IV.
Validity: Nonuse, Abandonment and Forfeiture
A.
Arizona
As outlined above, there are many types of surface and groundwater
rights in Arizona. Care should be taken that the water rights have
been properly certificated or permitted, and that the appropriate
claims have been filed in the general adjudications currently
pending that cover most of the State.[1] All of these claims should be assigned to the purchaser, and
notice of the conveyance should be filed with the DWR.
Adjudication records should also be reviewed to determine if the
DWR has investigated and reported on the claim, and whether any
objections have been filed with respect to the claim.[2]
A historical review can reveal whether periods of non-use may
subject the surface water right to claims that the right has been
forfeited or abandoned. Forfeiture is a statutory mechanism
that may result in loss of certain surface water rights and can be
triggered by failing to use water for five years.[3] Abandonment requires the intent to abandon the water right, which
can be evidenced by a party’s declaration or inferred from his
acts. Gould v. Maricopa Canal Co., 8 Ariz. 429, 76 P. 589
(1904); San Carlos Apache Tribe v. Superior Court, 193 Ariz. 195,
972 P.2d 179 (1999) (discussing abandonment and forfeiture).
The due diligence for groundwater rights in Arizona in similar to
that for surface water rights. One consideration is whether
the right is properly permitted or certificated, which can be
determined by reviewing DWR records. Another factor is
whether something has occurred to put the water right holder in
violation (such as water use in excess of the permitted amount) or
otherwise impair the right (such as extinguishment). DWR
records also can reveal these problems, as can the annual
withdrawal and use reports that are required to be filed with DWR.
If the groundwater right is in an AMA, the buyer should determine
what, if any, conservation requirements apply to the right or the
proposed use. Conservation requirements are set forth in the
management plans for each AMA and are available from DWR,
including from its website.
Whether the groundwater right is inside or outside of an AMA,
other considerations also are important. The buyer should
determine if the well is properly registered with DWR.[4] The physical availability of
groundwater should be evaluated. If groundwater will be
withdrawn from an existing well, the well and the aquifer should
be evaluated to ensure they are physically capable of delivering
the quantity and quality of water supply expected.
B. California
California water rights may be lost in one of four ways: statutory
forfeiture, abandonment, prescription, and estoppel. Not all
California water rights are subject to loss under all of these
theories. One cannot, for example, forfeit or abandon
riparian or overlying rights because the rights are part and
parcel of the land. These rights are not acquired by use and
therefore cannot be lost by non-use.[5]
The doctrines of estoppel and prescription are quite complex and,
for the most part, beyond the scope of this article.
Consequently, the following discussion is limited to an
examination of the principles of forfeiture and abandonment
applicable to appropriative water rights.
Abandonment
One abandons an appropriative right by failing to use water or by
yielding possessing of the water without any present intent to
revive the right to use the water.[6]
The non-use and intent to abandon must be concurrent; mere
non-use is, at best, rebuttable evidence of an intent to abandon.[7]
The period of non-use is not significant because abandonment
occurs immediately at the concurrence of the requisite act (or
failure to act) and intent.[8]
Despite this temporal certainty, however, abandonment claims tend
to be rare because the proponent of abandonment carries the burden
of affirmatively proving intent. The burden of proof should
counsel a proponent of abandonment to be cautious about relying on
the rebuttable inference of non-use and intent.[9]
In all cases, abandonment is a question of fact to be determined
by the conduct of the parties.[10]
Forfeiture
The California Water Code currently provides that water held under
a license or permit reverts to the public if the appropriator
fails to apply the water to beneficial use for a period of five
years.[11]
Although the Code provides that a right ceases upon failure to
apply water to a useful or beneficial purpose, it appears that the
right is not officially forfeited, and the water considered
available for appropriation, until the SWRCB issues a formal
finding after notice to the permittee and, if the permittee
requests, a hearing.[12]
An appropriative right may be forfeited in whole or in part.[13]
The party alleging forfeiture has the burden of proving non-use
for the statutory period.[14]
The principles applicable to appropriative rights held under
permit or license apply with equal force to an appropriative right
acquired prior to 1914.[15]
However, it is not entirely clear whether the courts have
exclusive jurisdiction to declare forfeiture of a pre-1914 right,
or whether this jurisdiction might be shared with the SWRCB.[16]
Consistent with the general legal principle disfavoring
forfeiture, both the courts and the SWRCB decline to find
forfeiture where non-use is attributable to some event beyond the
appropriator’s control.[17]
Such events may include the diversion of water by another in
circumstances not rising to prescription, lack of water due to
drought, and destruction of diversion works by floods or other
natural catastrophes.[18]
The general rule is that non-use of water may be excused if water
is not available under priority of right, or if a prudent person
“following the dictates of good husbandry, either could not or
should not reasonably be expected to use the water.”[19]
Some issues remain with respect to the outer limits of control and
prudence in this context. For example, it is not entirely
clear whether a water right is forfeited if non-use is due to
government restrictions or voluntary agreements. In this
regard, the Water Code expressly provides that water is not
forfeited if conservation efforts result in a reduction in use.[20]
The authorities do no clarify whether any five-year period of
non-use will trigger forfeiture, or whether those five years must
immediately precede the institution of an enforcement action.
Past decisions of the California Supreme Court contain language
implying that the five year period must immediately precede the
forfeiture action.[21]
However, these cases contain no pointed discussion of this issue,
and it is difficult to ascertain whether the statements are merely
dicta. It seems most likely, however, that California water
policy requires a rule that water is forfeited for non-use during
any five-year period. An alternative rule would allow water
users to cure forfeiture simply by reinstating use, even after a
substantial period of non-use. Such an outcome would
contradict California’s emphasis on beneficial use and would be
in derogation of other users’ reliance on the unused water.
Although both the SWRCB and the courts allow that a water right
may be forfeited in part, they do not clarify how to calculate the
forfeited amount if the period of non-use lasts beyond a single,
discrete five-year period. This issue may depend in part on
the antecedent issue of the timing of the forfeiture period.
C.
Colorado
In Colorado, water rights can be lost by abandonment.
Abandonment is defined as the “termination of a water right in
whole or in part as a result of the intent of the owner thereof to
discontinue permanently the use of all or part of the water
available thereunder.”[22]
Although the statutory definition requires an intent to abandon,
case law provides that non-use of a water right for an
unreasonable period can give rise to a rebuttal presumption of an
intent to abandon, which presumption cannot be overcome simply by
self-serving denials.[23]
There is no fixed time that constitutes a “unreasonable”
period of non-use. Case law suggests that it may range
from ten to twenty years. Circumstances that may overcome
the presumption of an intent to abandon include circumstances
beyond the water users control such as economic misfortunes, lack
of water, and illness.[24]
Every ten years the Colorado State Engineer must prepare an
abandonment list, in which are listed the water rights that the
State Engineer believes have been abandoned. These lists are
normally prepared by the local water commissioners and include
water rights that have not shown any significant diversions for
more than 10 years.[25]
This list is published and notice sent to the last known owner of
the water right. A proceeding is commenced in the local
Water Court to decree the rights formally abandoned. Owners
of the listed rights have an opportunity to intervene in such
judicial proceedings to assert the non-abandonment of their water
rights.[26]
The Court normally adopts the abandonment list for uncontested
rights, and holds individual hearings on contested rights.
Once the abandonment decree is formally entered and any appeals
resolved, the listed rights are formally abandoned.[27]
Colorado also recognizes “conditional” water rights.[28]
If a water right claimant has taken the “first step” towards
making a valid appropriation of water, the claimant can come into
Water Court and obtain a conditional water right that fixes the
priority date and amount of the water right.[29]
This allows a claimant to have the security of a fixed priority
before spending the time and money required to construct all the
necessary facilities. Once the project is completed and the
water actually put to beneficial use, the claimant must come back
to the Water Court to make the conditional water right absolute.[30]
Colorado statutes require owners of conditional water rights to
come back to Water Court every six years to obtain a judicial
finding that they have been “reasonably diligent” in moving
their project to completion and putting the water to beneficial
use. If an application for finding of reasonable diligence
is not filed every six years, the conditional water right is
deemed abandoned.[31]
Accordingly, due diligence in Colorado includes reviewing the
abandonment lists with respect to absolute water rights and
determining whether diligence findings have been timely made with
respect to any conditional water rights. Moreover, as
discussed more fully below, non-use of a portion of a water right
to result in partial abandonment of the right, which is often
revealed when the water right is sought to be judicially changed
to a new use.
If the water right is represented by a well permit, it is also
necessary to confirm that the well was completed and a statement
of beneficial use filed prior to the expiration of the well
permit. This will require a review of the State Engineer’s
well permit records.[32]
If the water right involves a reservoir, the due diligence lawyer
should review the State Engineer’s dam safety records to insure
that there are no storage restrictions placed on the reservoir or
remedial work required.[33]
D.
Nevada
The 1999 legislature considerably simplified Nevada’s law of
forfeiture and abandonment of water rights. Nonetheless,
complexities and inconsistencies still exist and different laws
apply depending on whether surface or groundwater is the source of
the right. The loss of a water right through abandonment
requires an intention to relinquish the right. Abandonment
requires a “union of act and intent.”[34]
Forfeiture, by contrast, does not require intent, but works a loss
of a water right by operation of law.
Surface Water:
Prior to the changes enacted by the 1999 legislature, NRS
533.060(2) provided that upon failure to use water for the
beneficial purposes for which the right exists for any five
consecutive years, “the right to so use shall be deemed as
having been abandoned,” and the owner or owners would
“thereupon forfeit all water rights, easements, and privileges
appurtenant thereto theretofore acquired.... and any qualified
person may appropriate such water for beneficial use.”
While the statute stated that the forfeiture section applied to
all rights, including “vested rights,” it did not apply to
water rights acquired before March 22, 1913, which are not
regulated by the provisions of Chapter 533. The statute was
not retroactive, and thus could not apply to work a forfeiture for
non-use prior to the date of enactment.[35]
The 1999 legislature modified 533.060 by deleting subsection (2)
which contained the forfeiture provision. A new subsection
(2) was added, which provides that rights to surface water
“shall not be deemed to be lost or otherwise forfeited for the
failure to use the water therefrom for a beneficial purpose.”
As a result of this provision, a surface water right cannot be
lost be forfeiture. It is unclear at this point whether the
law applies retroactively.[36]
Case law has generally held that the loss of a water right is
governed by the law in effect at the time the right was acquired.[37]
Prior to 1999, the law pertaining to abandonment of surface water
developed primarily through case law. The amendment to
section 533.060 enacted by the 1999 legislature clarified and
restricted the conditions under which a surface water right could
be abandoned, and set guidelines relating to a presumption of
non-abandonment. Under the new law, agricultural water
rights appurtenant to land converted to urban use, which
have been dedicated to or acquired by a water purveyor, public
utility or public body for municipal use are not subject to
abandonment.[38]
Groundwater:
The statutory provisions relating to the forfeiture of groundwater
were not altered by the 1999 legislature and remain in effect.
Failure for five successive years after April 15, 1967, to use
beneficially all or any part of the underground water for the
purpose for which the right is acquired or claimed, works a
forfeiture of both undetermined rights and determined rights to
the use of that water to the extent of the nonuse. By its
terms, the law applies to all groundwater rights, including any
that existed at the time of its enactment.[39]
Abandonment of groundwater rights is governed in part by NRS
534.090(4) which provides that the State Engineer may declare a
water right abandoned.
E.
New Mexico
The main concern in New Mexico is whether the water right has been
used consistently since it was permitted or first used and vested.
If they have not been used, they could be subject to forfeiture or
abandonment. Before 1965, water rights could be forfeited
for a period of nonuse of only 4 years.[40]
In 1965, the statutes were changed to require that the State
Engineer send out a notice of forfeiture and give the water rights
owner a year to cure the non-use. Very few, if any, notices
have even been sent out, so most inquiries for non-use for
forfeiture focus on the pre-1965 period. A very long period
of non-use, however, could result in a determination of
abandonment, but abandonment is not defined in the statutes or
even in New Mexico state law. Generally, a period of 18 or
more years of non-use is considered to be enough to imply an
intent to abandon, but no New Mexico case directly addresses this
issue.
As the checklist demonstrates, there are many sources of
information for checking the historic use of water rights.
Not all sources will be available for every water right, and the
local State Engineer’s office can be very helpful in guiding you
to the sources available in that area. Generally, however,
the current owner should be able to provide information
documenting the use of the water rights, or direct the lawyer to
other sources of information. Some contracts for sale
provide such a requirement, including an obligation for the seller
to produce information or create appropriate affidavits that
document the use of the water rights.
To document the use of irrigation rights, for example, the
Albuquerque office of the State Engineer will be looking at a
minimum for the following items: the land was listed as irrigated
on the 1917-18 map, was assessed as “cultivated” on the 1926
conservancy district map and reports, and can be seen as irrigated
in aerial photos for every decade from the 1930s or 1940s forward.
Affidavits also can be helpful, but only if they are specific in
their descriptions of the land, the water use and the reason why
the affiant has knowledge about the water use. Water rights
that currently are in use should be inspected on the ground.
Depending on the size of the deal, it may be prudent to retain a
hydrologist or similar expert to assess the water features and
suitability of the water rights for the stated purpose or, if
transfer of the water rights is the goal, the suitability of the
water rights for transfer.
F.
Oregon
Forfeiture
With
certain exceptions[41],
water that is not used for five or more consecutive years is
presumed forfeited by statute.[42]
Upon forfeiture the water right ceases to exist and becomes
“waters to be appropriated.” ORS 540.610(2)(a)-(h) lists
the circumstances a user must show in order to defeat the
presumption and retain the water right. Water rights are not
subject to forfeiture if the owners use less water to accomplish
the beneficial use, as long as they had a facility capable of
using the full amount and were ready, willing, and able to do so.
When a water user uses water from the designated source and for
the designated purpose but from an unauthorized point of diversion
for the statutory forfeiture period, the water right will not be
forfeited.[43]
Forfeiture does not occur automatically; OWRD must follow specific
procedures including initiation of a legal proceeding.[44]
There is also a statute of limitations on forfeiture: If the
period of non-use ended more than fifteen years ago, the water
right of use may not be subject to cancellation by law.[45]
Unlike other states, Oregon applies statutory forfeiture to
pre-code rights.[46]
Abandonment
Abandonment
is a common law concept that requires a water user with the intent
to abandon the right to relinquish or cease use. The filing
of a voluntary cancellation affidavit by the owner of the
appurtenant land without a physical act of abandonment is
considered by OWRD to be sufficient intent to cancel the water
right.
Application
The due diligence attorney may be required to interview neighbors,
review aerial photographs, and review local watermaster files to
make a determination that forfeiture and abandonment are not
implicated in a particular transaction.
V. Security of Priority
Many
issues outside the four corners of the paper water right are
likely to affect the ability of a client in the transaction
to actually use the water. Thus, the due diligence attorney
must consider analysis of these additional issues that may affect
priority of water rights including on-going adjudications, federal
reserved rights, tribal claims, instream flow issues, endangered
species listings and habitat concerns, existing or negotiations
for water right compacts, wetland areas, and wild and scenic
river requirements.
A.
Arizona
In Arizona, evaluating the potential impact of pending
adjudications on groundwater rights may require a crystal ball.
The Arizona Supreme Court has recently issued an opinion that may
significantly expand the definition of groundwater that is
appropriated along with surface water, called subflow. Gila
IV, supra. A prospective groundwater user should evaluate
the likelihood that water being withdrawn from a well may be
considered surface water or subflow or may be interfering with a
water right claimed under federal law. Gila III, supra.
Such withdrawals may be subject to challenge from surface water
and federal right holders.
B. California
Because of California’s massive size, and the diverse
environments found within the boundaries of the State ranging from
wet forests to deserts to green valleys to snowy mountains, it is
impractical in this paper to address specific current
controversies which may place limitations on the priority system,
such as water quality issues, reserved Federal or Indian rights,
or Endangered Species issues. However, there is a line of
cases that deserves mention, that go to the very underpinnings of
California’s priority system. Prior to the 1970's,
California, like other western states, adhered to a fairly
well-defined set of priority rules that, recognizing
California’s dual system of water rights, integrated the claims
of riparians and appropriators. Beginning in the late
1970's, though, a series of cases suggested that California water
law was departing from adherence to the priority system.
In In re Waters of Long Valley Creek System,[47] the California Supreme Court held that the California SWRCB could
curtail unexercised riparian rights, regardless of priority.
Four years later, in National Audubon Society v. Superior Court,[48] the California Supreme
Court addressed the dispute over the City of Los Angeles’
diversion from Mono Lake by determining that California law
recognized both the public trust doctrine and the priority system
and that courts needed to balance the demands of these two
allocation systems. Shortly thereafter, in United States v.
State Water Resources Control Board,[49] a California appellate
court suggested that the SWRCB use a “global perspective” in
developing a water quality control plan for the San Francisco
Bay/Sacramento-San Joaquin River Delta Estuary. Perhaps the
climax of this line of cases came in 1990, when a different
California appellate court stated, in a postscript to its opinion,
that water law in California “is in flux and that its evolution
has passed beyond traditional concepts of vested and immutable
rights.”[50] Based on this line
of cases, many proclaimed the end of the priority system in
California.
However — to paraphrase Mark Twain — the reports of the
death of the priority system in California were greatly
exaggerated. Last year, in City of Barstow v. Mojave Water
Agency,[51] the California Supreme Court considered whether a trial court
could adopt a physical solution[52] that ignored vested rights to groundwater. The case squarely
presented the question of whether the trial court was correct in
using an “equitable apportionment to allocate water in an
overdraft[ed] basin without regard to the owners’ water
priorities.”[53]
The Supreme Court unanimously rejected the idea that it could
allocate water according to ill-defined notions of equity,
stating: “the case [relied on by the trial court] is not
precedent for wholly disregarding the priorities of existing water
rights in favor of equitable apportionment in this state, where
water allocation has been based on an initial consideration of
owners’ legal water rights.”[54]
City of Barstow should not be read as limiting water allocation in
California solely to the allocations resulting from the
application of the priority system. As discussed above,
under article X, section 2 of the California Constitution, for
instance, courts still have the authority to invalidate
appropriations of water on the ground that the water is not being
placed to reasonable and beneficial use. Similarly, under
National Audubon Society, supra, courts must still weigh claims
under the public trust doctrine and balance those claims against
the claims of consumptive users of water. However, City of
Barstow demonstrated that the basic framework for the allocation
of water in California is still the water rights priority system,
not a form of equitable allocation.
C.
Colorado
A
number of non-traditional water right matters may impact the
reliability of water right priorities in Colorado. The
federal government has federal reserved rights associated with the
many national forests and wilderness areas located in Colorado,
with priorities that relate back to the establishment of such
reserved areas. Since these areas are normally located at the
headwaters of streams and above existing appropriators, they often
present no conflict with existing water users. However,
where existing diversions are located within such areas, or where
federal properties lie downstream areas, such reserved rights can
give rise to new senior priorities that adversely impact existing
water users. In addition, the Colorado Water Conservation
Board has adjudicated minimum stream flows for most Colorado
streams in the last 20 years. Since these instream flow
rights are junior to all water rights previously adjudicated, they
generally do no impact continued use of established water rights.
However, the presence of such instream flow rights can complicate
or even prevent the change of such senior rights to new points of
diversion or uses that would adversely impact the instream flow
rights. Finally, NEPA and the ESA can present formidable
obstacles to the construction of new water projects, or the
re-permitting of existing projects located on federal lands.
D.
Nevada
The security of existing water rights in a number of different
basins and watersheds in Nevada may be significantly impacted by
certain pending lawsuits and protest proceedings. Water
users on the Walker River are involved in contentious and complex
litigation in which, among other matters, the Walker River Paiute
Tribe is seeking to reopen a 1936 decree[55] to expand its water rights under the Winters Doctrine for
reservation lands “added” or “restored” in 1936 (the
choice of verb is legally significant), including groundwater
rights. In addition, Mineral County, Nevada, is seeking to
intervene asserting the Public Trust Doctrine (not yet recognized
in Nevada) to protect water levels in Walker Lake., the terminus
of the river. The issues raised are similar to those
recently adjudicated in Arizona in the Gila River cases.
E.
New Mexico
In New Mexico, the lack of security of a water right was
dramatically illustrated in the summer of 2000 along the Middle
Rio Grande when it appeared the endangered silvery minnow was
running out of water. A lawsuit brought by environmental
groups[56] forced the Bureau of Reclamation, the City of Albuquerque and the
Middle Rio Grande Conservancy District to release 170,000 acre
feet of water into the river to protect the minnow. Upstream
reservoirs were used to provide the water, and few irrigators were
directly affected. But the future protection of the minnow
may require that more water will be left in the river, and thus
unavailable for diversion, and that will have a direct impact on
all the users of the Middle Rio Grande.
F.
Oregon
Water users in Oregon are affected by competing
interests for the water available including “new” water
requirements for: (1) land use changes like wetlands
protection through wetland inventory requirements and wetland
mitigation banking programs. ORS 196.600 to .692; (2) federal
reserved rights including Indian treaty claims including those
ongoing Klamath adjudication; (3) habitat needs of listed species
including salmon and steelhead in the Columbia River and its
tributaries; and (4) maintenance of water quality including Clean
Water TMDL requirements in the Tualatin and Willamette Rivers.
VI. Water Quality Impact on Water Availability
While a complete discussion of regulation of water quality is
beyond the scope of this paper, water quality issues cannot be
ignored in a due diligence review. Two key questions need to be
asked: first, will water quality issues impact the ability to make
use of the water, either because of physical limitations or
because of legal constraints; and second, will water quality
management programs constrain the use of water.
The pragmatic question whether the quality of the available water
is suitable for the intended use should be easily answered.
It is important to ask the question, and to be sure that the
client or appropriate consultant assumes responsibility for a
timely evaluation of this issue.
In this context, the due diligence attorney needs to be alert to
water quality compliance issues that may not be evident to the
client. As an example, the intended use may fall within the
regulation of the federal Safe Drinking Water Act (“SDWA”).[57] The SDWA provides special protection for drinking water quality in
the form of “National Primary Drinking Water Standards.”
These standards apply to all “public water systems” in the
United States. These regulations set limits on the
concentrations of certain contaminants at the point of consumption
and specify treatment techniques for such contaminants.
Whether a facility must comply with these regulations depends on
whether it is a “public water system.” Under the SDWA, a
public water system is defined as any system which supplies piped
water to the public for human consumption with either a minimum of
fifteen service connections or serving at least twenty-five
individuals regularly.[58]
Businesses or facilities that have a water system independent of a
municipal or private water purveyor, may fall within the
definition of a public water system. Mobile home parks,
campgrounds, restaurants, hunting clubs, ranches and farms, are
among the types of private businesses that are often “public
water systems.” Such “public water systems” are
subject to strict water quality monitoring requirements to ensure
that water at the point of consumption does not exceed “maximum
contaminant levels” for designated contaminants.
Note that state statutes implementing the federal law may have
more stringent requirements than the SDWA.
It is important to recognize that if poor water quality prevents
the intended use of the water, then the water rights may be in
jeopardy. In a state like Nevada, for example, that requires
proof of beneficial use to be made within a limited time frame,
then non-use may subject the water right to cancellation or
forfeiture.
Statutes such as the Clean Water Act,[59] intended to prevent the degradation of water quality, may also
affect water rights in obvious and less obvious ways. While
a discussion of these state and federal statutes is beyond the
scope of this paper, we caution that the transactional due
diligence review should also include an analysis of wastewater
discharge and pretreatment issues. In addition, if
water is intended to be stored in the subsurface, or “wheeled”
through surface waters, or diverted from streams where certain
volumes of instream flows are required to maintain water quality
standards, then it is important to analyze the constraints that
may imposed on such activities by these statutes.
VII.
Change of Use and Transfer Issues
A.
Arizona
In Arizona, irrigation surface water rights are considered to be
appurtenant to the irrigated land. It is not clear under
Arizona law whether other types of surface water rights are
appurtenant to the land on which the beneficial use occurs.
In any event, if the buyer wishes to move the use of the surface
water rights to another location, he will likely be required to
apply to the DWR for permission to sever the rights from the
original location and transfer it to a new location.[60] Additionally, any irrigation district downstream of the water
right must approve of the transfer before it can be filed with the
DWR. The DWR will not approve a severance and transfer if it
will adversely affect other vested water rights. The DWR
will give public notice of the hearing on the application to
transfer the water right, and any person may come to the hearing
and show why the transfer should not be granted. If the
location of the water use will not change, but the type of use
will change, the buyer should evaluate whether it is necessary or
desirable to file an application with DWR for a change of use.[61]
If groundwater is to be withdrawn from one place in Arizona and
used in another, groundwater transportation limitations must be
considered.[62] Generally, Arizona law
prohibits transfer of water across sub-basin boundaries, unless
the transferor pays damages.[63]
In some circumstances, it cannot be moved at all across sub-basin
boundaries, and transfer between basins is restricted except in a
few specified instances.[64]
B. California
In California, the holder of an appropriative water right
established after December 19, 1914,[65] may change the point of diversion, place of use, or purpose of use
from that specified in the water right, but only upon permission
of the SWRCB. Before permission to make such a change will
be granted, the petitioner must establish that the change “will
not operate to the injury of any legal user of the water
involved.”[66] The holder of an
appropriative right established prior to December 19, 1914,
(so-called “pre-1914" appropriative rights) may make the
same changes without obtaining the permission of the SWRCB so long
as others are not injured by such change.[67]
In the latter instance, jurisdiction over enforcement of the “no
injury” rule is in the courts rather than the SWRCB.
While the “no injury” rule is a central element[68] of California water law, the appellate decisions have created two
major exceptions to the general rule. First, when the water
is imported water (water foreign to the watershed) and is
recaptured by the upstream user within his land or irrigation
works, the upstream user may transfer the water even to the
detriment of downstream users who rely on return flow therefrom.[69]
Second, when the upstream diverter releases return flow with the
prior intention of subsequently recapturing the water, the courts
have allowed the upstream user to transfer the water without
considering the impact on downstream users.[70]
Transfers involving percolating groundwater, not subject to the
jurisdiction of the SWRCB, raise additional issues.
Typically, such transfers involve the substitution of groundwater
for surface water and the transfer of the surface water made
available by the substitution. In that case, the change in
use of surface water would be subject to approval by the SWRCB or,
in the case of pre-1914 appropriative rights, the courts, under
the “no injury” standards discussed above. In the case
of a direct transfer of percolating groundwater, there is no SWRCB
regulatory oversight. Depending on the nature of the
transfer, environmental review under the California Environmental
Quality Act (CEQA)[71] may be required. In addition, there may be county permitting
requirements associated with a proposal to export groundwater from
one county to another.[72]
The California Water Code contains detailed procedures for
processing water transfer petitions involving surface water.[73]
Most transfers for a duration of less than one year would be
processed as a “temporary transfer.”[74] Temporary transfers
are exempt from CEQA compliance. Most transfers of more than
one year duration would be processed as a “long-term
transfer.” Long-term transfers are subject to compliance with
CEQA.
C. Colorado
In Colorado, water rights are freely transferable in the private
market place without need for any administrative or Water Court
approvals. Water rights can be separated from the land on
which they have been historically used.[75]
Water rights can be changed to new points of diversion, places of
use and types of use provided such change does not result in
material injury to any owner or user of a vested water right or a
decreed conditional water right. Any such changes must be
judicially approval by the Water Court.[76]
In order to prevent injury to other water users, a water right is
normally limited in a change proceeding to the extent of its
historic consumptive use, both in time and amount.[77]
Terms and conditions on any change will be imposed by the Water
Court to prevent any such injury. Such terms and conditions
normally include volumetric and seasonal limitations to replicate
the amount and timing of the historic use, a relinquish of the
portion of the right not historically used, and a mechanism to
maintain historic return flows.[78]
Even junior water rights are entitled to a maintenance of the
stream conditions in existence when their appropriations were
made.[79]
As a result, any change of water rights must basically insure that
the stream regimen is not changed as a result of the change.
Assume, for example, that a buyer wishes to change to municipal
use a water right decreed for 10 cfs for irrigation purposes.
If the water right has historically only be diverted for 20 days
in July at a rate of 2 cfs, this will be the limit of future
diversions for municipal notwithstanding its greater decreed
entitlement. Moreover, if the 2 cfs has only been used to
irrigate 40 acres of alfalfa that resulted in the consumption by
evapotranspiration of 60 acre feet of water, with the remainder
returning to the stream as surface or groundwater returns, the
judicial change of the water right will normal limit its future
use to 60 acre feet during these same 20 days, with an obligation
to maintain the amount and timing of historic return flows, even
if they occur after the irrigation season.
If a change in a water right is contemplated, it is advisable to
obtain an affidavit of historic use as well as a recordable dry up
covenant. Such a dry up covenant provides that the land
historically irrigated by the right will be taken out of
irrigation. It is increasingly common for the Water Court to
require such proof of the cessation of the historic use before
allowing the water right to be changed to a new use or point of
diversion.
Change proceedings in Colorado can become very complex, can take
several years to complete, and can involve weeks or even months of
trial. They often become a “battle of the experts” with
water engineers debating the amount and timing of historic use,
the amount and timing of historic return flows and the terms and
conditions required to prevent injury to other water users.
D.
Nevada
Many conveyances of water rights are made with the expectation
that the water right can be transferred to a different place of
use, diverted from a different source, or used for a different
purpose than the original right. This may or may not be the
case. In addition to the contingency that the State Engineer
may not approve such a transfer, some judicial decrees limit
transfer of the water right to the established consumptive use.
While water rights as a general rule are freely alienable, a
transfer of water rights that entails a change in the point of
diversion, or place or manner of use is subject to a statutory
review and other potential restrictions to protect the public
interest. Where the proposed change conflicts with existing
rights or may be detrimental to the public interest, the
application must be denied:
NRS 533.370 (3) provides in pertinent part:
Except as otherwise provide in subsection
5 [environmental permits], where there is not unappropriated water
in the proposed source of supply, or where its proposed use or
change conflicts with existing rights, or threatens to prove
detrimental to the public interest, the state engineer shall
reject the application, and refuse to issue the requested permit.
For example, this
statute would preclude a transfer of point of diversion from one
groundwater basin to another that is fully appropriated.
The transfer of water from one county to another is not
prohibited, but may be taxed by the county of origin, and the
applicant may be required to implement a plan of mitigation,
including the payment of compensation for the foreseeable effects
of the transfer.[80]
Proposed changes in the manner of place of use or point of
diversion are often subject to protest pursuant to the provisions
of NRS 533.365, and may be particularly contentious where waters
are to be converted from agricultural use to municipal and
industrial use, thus raising issues of diminished return flows to
downstream appropriators.
If a change in the point of diversion is contemplated, it will be
critical to assess whether a new diversion point is technically
and legally feasible. Even if the State Engineer’s
office is disposed to grant a change in the point of diversion, a
new point of diversion may require construction of diversion works
that will entail a host of new permitting requirements (NPDES
permits, 404 permits and the like), easements across property of
others and similar legal impediments. In addition, the cost
of construction of such new diversion works, power requirements
for pumping, power costs, and so on must be carefully assessed.
If an existing ditch will be utilized to convey the water to the
place of use, it will be important to ascertain whether ditch
rights (e.g. stock in the ditch company) are available. If the
place of use is near or at the end of a ditch, reliable delivery
of water may be difficult to guarantee, regardless of the priority
of the right.
E.
New Mexico
Aside from traditional conveyances of ranches and farms, most
water rights are acquired in New Mexico in order to change the
diversion point and the purpose and place of use from agricultural
to municipal and industrial. Thus, issues concerning the
ability to change the purpose and place of use are significant in
determining whether the water rights should be acquired. As
an example, along the Middle Rio Grande, the analysis must include
consideration of who could or might protest an application to
change the place or purpose of use. Under New Mexico
statutes,[81] a transfer from surface to ground use from one point to another
must meet the criteria similar to the criteria for a new
appropriation: No impairment of existing water rights, and the
transfer must not be contrary to the conservation of water within
the state and not detrimental to the public welfare of the state.
Note that the impairment analysis must consider all existing water
rights, not just senior water rights. Neither “public welfare”
nor “conservation” has been defined in regulation or case law.[82]
The application must be advertised like a new appropriation, and
if anyone protests, it is subject to a hearing.[83]
Many times, existing water rights users or Indian tribes or
Pueblos will protest to protect their own water rights, and to
find out what the proposed transfer is intended to do.
Applications that are protested and have been assigned a hearing
officer can be tracked to some extent on the State Engineer’s
web page for water information,[84] under
Hearing Schedule for Protested Applications. Recently issued
notices of publication for water rights applications also can be
accessed from the water information web page.
Applications to transfer the place and purpose of use of water
rights can take a minimum of several months, and they may
take years if the application is protested. Protests often
can be resolved through negotiation with the protestants, but that
also can take time and money, both to fund the eventual settlement
and to pay for the negotiations. Some protestants want to
stop the change of water rights from farming to municipal and
industrial use for social or environmental reasons.
Frequently, however, the biggest issue in transfer applications is
whether the water rights are valid at all. A thorough due
diligence search can provide evidence needed to prove the validity
of the water rights or alert the buyer to potential problems with
this proof.
F.
Oregon
A water right is appurtenant to the land described on the permit
or certificate so that unless the seller specifically reserves the
water right, the water right automatically transfers to the new
landowner upon sale of the land.[85]
The permit itself, however, does not automatically transfer, but
requires that an assignment be filed with OWRD.[86]
A
valid water right permit or certificate establishes the parameters
of the allowed use that cannot be changed by the water right
holder without completing the proper transfer procedures.
Changes are allowed in the amount or type of use, point of
diversion or return flow, or place of use.[87]
Transfers may also occur between surface and groundwater sources
to allow substitution of groundwater rights for surface rights.[88]
The water must continue to be used in accordance with the current
water right until the transfer is approved; however, once the
transfer application is filed with the OWRD, the forfeiture clock
is stayed for the time period involved in OWRD processing.
To apply for a permanent transfer, the applicant must submit a
completed application to the Department along with a map prepared
by a Certified Water Rights Examiner. The application must
provide evidence of water use, land ownership, and compliance with
local land use plans. In order to approve a transfer application,
the Department must determine that the proposed change will not
injure other water rights of use.[89]
Injury includes a determination of whether a portion of the water
use subject to transfer has been forfeited or abandoned so that
the transfer will not render an enlargement of the water use.
OWRD will give public notice of any requested changes.[90]
Within 30 days of the last date of the required published
newspaper notice, the public has an opportunity to comment on the
proposed transfer and to file a protest alleging potential injury
to an existing water right of use.[91] The Department is required to hold a contested case hearing near
where the rights are located if a protest is filed.[92]
If the transfer application is approved, the applicant must make
the change or risk losing that portion of the water right of use
involved in the transfer. Once the change is completed and the
water use perfected pursuant to the transfer order, a Certified
Water Rights Examiner must prepare a final proof map and report to
be submitted with the applicant’s claim of beneficial use.
A new water right certificate will then be issued confirming the
modified water right of use and retaining the original priority
date. The old right is thus terminated and the new right is
substituted.[93]
If the new use is for less water, the right to the “surplus”
water is lost.[94]
A temporary transfer may be obtained to change the place of use
from one parcel to another only, and is not to exceed five years.[95] This is typically
used for crop rotations that do not require a permanent transfer.
The application is the same as for a permanent transfer, but the
map does not have to be prepared by a Certified Water Rights
Examiner.[96]
There is a process available to change the point of diversion if
surface water levels are affected by government action. There is
also an abbreviated process to change a point of diversion from
that listed on the certificate to a point that has actually been
in use for over 10 years, if there is no injury caused thereby and
there have been no complaints as to the actual diversion.[97]
In response to development limitations and as an incentive to
protect needed habitat, a recent amendment to the water laws
allows a change of use to a non-contiguous parcel of land if that
change is specifically for the benefit of sensitive, threatened,
or endangered species listed under state or federal law.[98]
Transfers of water rights to instream use may be accomplished by
the same procedures for permanent transfers. Existing water
rights may be purchased, leased, or given for transfer to instream
use and retain their original priority date.[99]
Rights transferred to instream use may continued to be held in the
name of the original right.
Special provisions apply to water used for irrigation. While
statutes require the sellers of land disclose appurtenant water
rights, they do not require disclosure of the existence of water
rights, certificates, permits or transfer approval orders by
anyone selling land that includes any surface water irrigation
rights.[100]
Oregon law also provides special procedures for irrigation
districts to change the boundaries of the land to which their
water rights attach[101]
Irrigation districts can use water beyond originally permitted
lands as long as total acreage and amount of water are the same[102]
Certain other users may use water on land that is not appurtenant
to their water rights. In some instances such use is limited
to land contiguous to the land to which the water right is
appurtenant but some users may use water on non-contiguous land.[103]
VIII. Is the Water Wet?
An important aspect of a water right due diligence investigation
is determining whether the water is “wet”. That is, even
if the water right exists on paper, is there adequate water
available in priority to satisfy the paper entitlement. Many
water rights exist that have little or no value because of their
legal and physical limitations.
There are two principal factors that can make a water right just a
“paper” right. First, does the water right have a
sufficient priority to allow it to divert water that may be
physically available. Second, is water physically available when
the water right is in priority. If the answer to either
question is “no”, then the water right may exist on paper, but
have no real value or use.
Water Engineer Investigations
A water engineer is often a key player in these investigations.
First, a water engineer will help determine whether the water
right has a sufficiently senior priority to legally be entitled to
divert water even if it is physically available, or whether it
will be “called out” by more senior water users during times
of shortage. This is normally done by discussions with the
local water officials, review of official call records, and
analysis of the relative priority of the water rights on the
affected stream system.
Second, a water engineer will help determine whether water is
physically available to be diverted, even if the water right is in
priority. Often, small streams run full during the spring
snow melt, but dry up later in the summer. Even if a water
right is legally entitled to divert in priority, this does no good
if there is no water physically available. These investigations
will include a review of the diversion records and analysis of
stream flow records, as well as interviews with the water
commissioner and water users.
Computer Models
Used to Predict Groundwater and Surface Water Flows
More and more frequently, buyers attempt to answer the question of
whether the water will be “wet” in the future with
three-dimensional computer models. Models can predict the
approximate amount of groundwater and surface water that will be
available in a hydrologic system. Modeling is an art,
however, not a science, and the reliability of the result depends
in great part on the skill of the modelers and the accuracy of the
input data. Hydrologists and engineers typically construct
the models using standard computer programs, but a few develop
their own models. One of the most popular computer programs
is MODFLOW, originally developed by the United States
Geologic Survey, and most recently updated in 2000.[104]
MODFLOW has been used in federal district court in adjudications
to determine Indian water rights claims,[105] as well as in declared basins in New Mexico to administer the
water rights in the basins.
MODFLOW works with input that describes in numeric values the
geologic conditions of the area, such as the permeability of the
soil, its storage capacity and the transmisivity, or how fast
water moves through the system, as well as the amount of water in
storage and how much is added to the system each year through
rainfall and snow. Very simplistically, the area is divided
into three-dimensional model “cells” by imposing a grid on the
area and slicing the grids into layers. Each model cell – a
representation of a block of the earth’s crust – is assigned
hydrologic properties, which are varied depending on the
characteristics of the underlying geology. An amount of
water is assigned to the model cells, and then water is taken out,
to simulate pumping, or added, to simulate recharge. Then
MODFLOW program can track how much water is in the cells, and
determine how water levels change over time under different
stresses.
MODFLOW can be used to create two types of models, a
“superposition” model or an “elevation” model. A
superposition model, which is much easier and quicker to
construct, determines the amount of change induced from pumping
groundwater from a new well. The results in this type of
model are drawdowns. The predicted new water level is
calculated by subtracting the drawdown from the existing or
estimated water level. For example, if wells in a particular
area are expected to have a water level of 50 feet below the
surface in 40 years, a superposition model could be used to
predict how much more drawdown will be induced from adding a new
well. If the model shows an additional 5 feet of drawdown in
40 years, you would expect that an existing well would have a
water level of 55 feet below the surface in 40 years.
Depending on the legal standards of the area, this may or may not
be an acceptable increase in the drawdown.
An elevation model, on the other hand, “builds” the entire
hydrologic system from the bedrock up. It starts with
estimates of the pre-development water levels, then adds all the
pumping from development that has occurred since then, plus all
the recharge from precipitation and streams. Once the
current status of the system is modeled, what-if scenarios can be
run to determine what will happen to water levels if wells are
added to the existing wells. The result of this type of
model, which is much more complex and expensive, is the elevation
of the water table. The predicted water level elevations of
the area with and without new wells can be compared to see what
incremental impact the new wells would have. An elevation
model is considered calibrated when it can “run” the history
of the basin, showing how water levels have changed from the days
when no water was pumped to the current observed water levels in
wells. In other words, a model is considered a good tool for
predicting the future when it can duplicate what happened in the
past. Observed water levels, measured over time by the USGS
and other agencies, provide data to compare with model results and
help determine how well the model works.
MODFLOW also has a river package that can be added to show the
effects on rivers and streams of groundwater pumping or surface
diversions. This is very useful to determine what effects
groundwater pumping will have on the generally over-appropriated
streams of the West. Other river models also are
available. For example, the U.S. Bureau of Reclamation also has a
surface flow model, used in the Rio Grande, called the Upper Rio
Grande Water Operations Model (URGWOM).[106]
One privately licensed program is RiverWare, which is currently
used in the San Juan Basin in Colorado and New Mexico in the
recovery program for endangered fish. As with all models,
the accuracy and dependability of the river models depends on the
input data. For example, some program require daily flow
records, but daily flows are not available very far back in time,
if at all. So the modelers take monthly flow data and
estimate the daily flows from that for use in the model. Of
course, that kind of estimate instead of hard data makes the
results less reliable. Similarly, if diversions for
irrigation have never been metered, the model will not be able to
precisely model those events.
The cost of developing a model can be significant. It can
range from a few hundred dollars for superposition model for a
small area, to half a million or more for an elevation model for
an entire underground basin. Lawyers who intend to use
models should be sure they and the client understand the costs and
how they can go up.
Due Diligence
Checklists
Arizona
Due Diligence Checklist
1. Needs Assessment
A. How much water is needed for project? (Does the client
really know?)
i. Statute or regulation may determine amount needed or
allowed
ii. E.g., statute requires certification of assured water
supply for 100 years for subdivisions in Active Management Areas
B. What quality standards, if any, would apply?
2. Title Examination
A. Department of Water Resources (DWR) will run a query by
legal description and by name
B. Report from title company issued in connection with sale
of land
i. Check exceptions for restrictions on water use or other
odd items
ii. Check property deeds for inclusion of water rights, and
to make sure water rights not separately conveyed to a third
party or otherwise encumbered. If water rights separately
deeded, make sure chain of title is clear.
3. Validity of Water Rights
A. Issues of concern:
i. Are filings and certificates proper for the type of water
right?
(1) Surface rights
(a) Pre-1919 water rights B statement of claim
(b) Post-1919 water rights B Certificate of Water
Right
(c) Stockpond right B Registration of
Stockpond Right
(d) Decreed rights B Court decree
(2) Groundwater rights
(a) Irrigation grandfathered rights B Certificate
(b) Type I non-irrigation grandfathered rights B Certificate
(c) Type 2 non-irrigation grandfathered rights B Certificate
(d) Permitted rights
(i) General industrial use
(ii) Dewatering
(iii) Mineral extraction and metallurgical processing
(iv) Poor quality groundwater
(v) Temporary electrical energy generation
(vi) Temporary dewatering
(vii) Drainage water withdrawal
(viii) Hydrologic testing
(e) Exempt well B Registration with DWR
(f) Other well registrations and permits
ii. Are claims properly filed in adjudications?
iii. Were rights unused for any 5-year period (forfeiture)?
iv. Did user intend to abandon water rights through non-use?
B. Field inspections
i. Assess water features
ii. Documentation provided by seller
C. DWR files for information re water rights (e.g., drillers
report, assignments of ownership)
D. Sources of information to investigate validity:
i. Maps of claims made by owners from DWR
ii. Irrigation district records
iii. Hydrographic survey report from DWR if available
iv. Salt River Project records
v. Aerial photos showing irrigation
(1) State agencies, if available
(2) Private, commercial sources of photos; e.g., Rupp Aerial
Photos
vi. Affidavits B unusual, but may be
prudent
(1) Existing affidavits?
(2) Interview old-timers and current landowners and draft
affidavits:
(a) Describe the property specifically, referring to maps if
possible
(b) Make sure they=re
specific in describing the uses of the water (e.g., crops grown)
and in why the affiant knows these facts
vii. Adjudication records
(1) DWR investigated and reported on claim?
(2) Objections filed on claim?
4. Security of priority
A. Issue: Is the water right threatened by some outside
agency or circumstance so that it might not be available for use
in the future?
B. Possible concerns:
i. If adjudicated, what is the priority date, and how likely
is the water right to be subject to a priority call?
ii. Federal reserved rights B Indian reservations,
other federal reservations
iii. Endangered Species Act limits on water use
iv. Interstate compact obligations
v. Do water quality standards mandate flow requirements that
may restrict diversion of surface water?
vi. Any existing disputes with other users?
vii. Is the water groundwater or surface water?
5. Can the water be used for the intended place and purpose?
A. What restrictions apply to the water right?
i. Management plan restrictions for rights in AMA?
ii. What type of water right is it?
B. Can place of use be transferred?
i. File application with DWR
ii. Will application be protested by irrigation district?
iii. Will application be approved under the criteria of no
adverse effects on other vested water rights?
C. Can purpose of use be changed?
i. Need to file application with DWR?
6. Is the water wet?
A. Hydrologic assessment
i. Suitability for use in current place
ii. Suitability for transfer
iii. Water quality issues
B. Historic shortages?
C. Computer models of the area show water is available in
the long term?
7. Draft due diligence report
A. Findings
B. Recommendations to cure
objections to the validity of the water rights
California
Due Diligence Checklist
1. Needs Assessment
A. How much water is
needed for project?
B. Are there
limitations imposed by the State’s rule of reasonable and
beneficial use, such as SWRCB decisions or orders holding that
the water duty sought here is inherently unreasonable?
2. Identifying the
Water Right
A. Investigations at
the State Water Resources Control Board (SWRCB)
i. Run the name of the selling entity (and its subsidiaries
and predecessors-in-interest) through the SWRCB’s list of
holders of appropriative water rights.
ii. Run the name of the selling entity (and its subsidiaries
and predecessors-in-interest) through the SWRCB’s list of
riparian holders that have filed riparian diversion statements.
iii. Examine the maps
at the SWRCB to determine whether the SWRCB has a record of a
diversions at or near the property in question, that could lead
to finding a water right.
B. Other
investigations
i. Review description
of water rights in contract documents
ii. Examine the property for evidence of actual river
diversions or pipelines leading from river diversions.
iii. Examine the property for evidence of current or abandoned
groundwater wells.
iv. Examine the records of the seller for documents
confirming taxes or assessments paid to a mutual water company,
an irrigation district, or some other kind of water district.
v. Examine the records of the seller for documents directly
reflecting the existence of a water right (e.g., contract
evidencing purchase of a real property-based right, an actual
permit to appropriate water, or a contract-based water right).
vi. Examine filings in the relevant county courthouse for
evidence of pre-1914 appropriative rights or post-1914 licensed
rights.
vii. Hire title a research firm with experience performing
water rights investigations to construct a water chain of title
and review the chain to develop a riparian title opinion.
3. Confirm Validity of Water Right
A. Appropriative rights
i. Pre-1914 rights
(1) Have there been historical diversions to support the full
amount of the claimed right?
(2) Has the pre-1914 right ever been severed from the
property through sale?
(3) If the place of use or purpose of use or season of use
for the pre-1914 rights is restrictive, will the law allow a
useful change to be made?
(4) Has the right been abandoned or forfeited?
ii. Post-1914 rights
(1) Are the place of use, purpose of use, season of use, and
quantity from the permit or license adequate for the needs of
the project? If changes are needed, are they likely to be
approved?
(2) Has the SWRCB inserted into the permit or license
conditions which make the availability of water less than
certain?
(3) How senior is the right on the water system (ie, how
often will water actually be diverted under the permit or
license)?
(4) Has the right been
abandoned or forfeited?
B. Riparian right
i. Has the stream system been adjudicated such that riparian
rights not specifically recorded are extinguished?
ii. Is the water to be used within the watershed of the
stream? (Note: diversion outside of the watershed requires an
appropriative right.)
iii. Is there ample water in the stream, or are correlative
cutbacks likely?
iv. What is the date of patent of the property for purpose of
determining priority as between the riparian right and
appropriative rights on the stream?
C. Percolating groundwater rights
i. Overlying rights
(1) Is the basin adjudicated? If so, are there any
limitations on the use of or quantity of use of the water?
(2) Is there sufficient groundwater to meet the project’s
needs
ii. Appropriative rights
(1) Is the basin adjudicated? If so, have the appropriative
rights been proven up as prescriptive rights?
(2) If the basin has not been adjudicated, is it in overdraft
such that it may soon be adjudicated? If so, has historical use
established a prescriptive right?
4. Determine security of priority
A. Issue: Is the water right threatened by some outside
agency or circumstance so that it might not be available for use
in the future?
B. Possible concerns:
i. If surface rights, what is the priority date, and how
likely is the water right to be subject to a priority call?
ii. Federal reserved rights: Indian reservations, other
federal reservations
iii. Endangered Species Act limits on water use
iv. Interstate compact obligations
v. Do water quality standards mandate flow requirements that
may restrict diversion of surface water? Have TMDL’s been set
for the waterway?
5. Can the water be used for the intended place and purpose?
A. What restrictions apply to the water right?
i. Riparian rights cannot be transferred because they are
part and parcel with the underlying property.
ii. Is the season of diversion for the right adequate for the
proposed use?
B. Does the place of use or purpose of use need to be
changed?
i. Test: Will it cause injury to a legal user of water?
ii. If post-1914 appropriative right, file an application
with the SWRCB.
iii. Will application be protested by anyone?
6. Is the water wet?
A. Hydrologic assessment
i. Suitability for use in current place
ii. Suitability for transfer
iii. Water quality issues
B. Have there been historic shortages?
C. Computer models of the area show water is available in
the long term?
7. Draft due diligence report.
A. Document what sort of research was performed.
B. Summarize findings.
C. Make recommendations to cure objections to the validity
of the water rights.
D. Provide necessary
information to let purchaser make informed business decision.
8. Assist in drafting of
conveyance documents to assure legal transfer of existing rights.
Colorado
due diligence Checklist
1. IDENTIFY WATER
RIGHTS TO BE PURCHASED
- review description of water
rights in contract documents
- obtain copies of all decrees
- obtain copies of any well
permits
- obtain copies of any stock
certificates, allotment contracts, etc.
- identify rights on water
tabulation
- review maps for any water
features
- identify any other water rights
used on property
- interview local water
commissioner and current water user
- if reservoir involved, obtain
dam safety inspection records
2. EXAMINE TITLE TO
SUBJECT RIGHTS
- review with client desired
extent of title examination
- obtain title commitment on land
upon which rights historically used
- obtain copy of deed into seller
- see if abstract on water rights
or land available and review
- conduct stand-up examination of
grantor/grantee records
- develop chain of record title
to water rights
- if share certificates involved, examine stock transfer records
and any restrictions on transfer
- if allotment contracts involved, examine company records and
any restrictions on transfer
- if any fixtures or personal
property involved, search UCC records
3. DETERMINE CURRENT
VALIDITY
- review water rights tabulation
for current listing
- obtain latest abandonment list
and check for subject rights
- if conditional rights, insure
all past diligence decrees obtained
- discuss status of rights with
local water commissioner
- if dam, check for any storage
restriction orders in State files
- if well permit involved, determine if statement of beneficial
use, well drilling and pump installation reports timely filed
- if structure is located in part on other lands, determine
status of any rights of way required
- for shares in mutual companies,
confirm payment of stock assessments
- for contract rights, confirm
current payments and no default
4. DETERMINE HISTORIC
USE OF RIGHT
- engage water engineer
- obtain and review diversion
records
- have engineer analyze relative
priority and local call records
- have engineer analyze in
priority historic diversions
- have engineer obtain and review
aerial photographs of historic use
- have water engineer calculate
historic consumptive use and historic return flows
- have engineer analyze physical
supply reliability
5. DETERMINE POSSIBLE
RESTRAINTS ON CHANGE
- determine future water
requirements of client
- determine existence of CWCB
instream flow rights
- determine any restrictions in
ditch company bylaws
- have engineer analyze possible
constraints and likely terms and conditions
- review need for dry up covenant
- determine possible impact of federal reserved rights if within
or upstream of federal reservations
6. PREPARE
CONVEYANCING DOCUMENTS
- prepare recordable deed
- obtain warranties on title and
historic use
- obtain affidavit of historic
use if change contemplated
- obtain dry up covenant if
necessary
- obtain stock transfer order for
share certificates
- if conditional water right,
file notice of change of ownership with Water Court
- if well, file change of
ownership form with State Engineer
- record deed
7. ADDITIONAL
CONSIDERATIONS IF SOME RIGHTS RESERVED
- clearly identify rights to be
conveyed and those to be reserved
- determine how to allocate water
in times of shortage
- prepare agreement for joint use
and maintenance of ditch
- consider creation of mutual
ditch company
- if well, prepare well sharing
agreement
- reserve or grant rights of way
for ditches or other offsite facilities
Nevada
Due Diligence Checklist
1. Needs Assessment
A. How much water is
needed for project? Total volume, time of use, rate of use?
B. Is water service available from a local purveyor, or will
water rights be required? Will water rights be conveyed with the
property? Are such rights sufficient?
C. Will it be necessary to obtain water rights to dedicate
to a local water purveyor in order to obtain service
commitments?
D. What quality standards, if any, would apply?
2. Title Examination
A. Obtain copies of certificates, permits, applications, or
decrees
B. Check abstract of title maintained at State Engineer=s
office
C. Obtain title report for real property
D. Check grantee and grantor indices at County Recorder=s
office ( if point of diversion and place of use in different
counties, check both counties). Check back to original decree
or application
E. Check property deeds for inclusion of water rights, and
to make sure water rights not separately conveyed to a third
party or otherwise encumbered. If water rights separately
deeded, make sure chain of title is clear.
3. Validity of Water
Rights
A. Applications (Permits): Are permits in good standing and
not subject to cancellation - proofs of completion or beneficial
use not overdue, necessary extensions of time granted? Can
additional extensions be obtained for proving of works, for
proving full beneficial use of the right?
B. Vested Groundwater rights. Were rights unused for any
5-year period beginning after April 15, 1967 (forfeiture)? Did
user intend to abandon water rights through non-use
(abandonment)?
C. Vested Surface water rights (acquired post March 22,
1913).Were rights unused for any 5-year period (forfeiture)?
Did user intend to abandon water rights through non-use
(abandonment)? Note: see discussion in text re application of
new NRS 533.060(3) precluding abandonment in some cases, and NRS
533.060(2) precluding forfeiture of surface rights.
D. Sources of information to investigate validity:
i. Maps of claims made by owners
ii. Irrigation district records
iii. Hydrographic survey report
iv. Aerial photos showing irrigation
v. Affidavits
vi. Adjudication records
4. Security of priority
A. Issue: Is the water right threatened by some outside
agency or circumstance so that it might not be available for use
in the future?
B. Possible concerns:
i. Federal reserved rights B Indian reservations,
other federal reservations
ii. Endangered Species Act limits on water use
iii. Interstate compact obligations
iv. Do water quality standards mandate flow requirements that
may restrict diversion of surface water?
v. Any existing disputes with other users?
5. Can the water be used for the intended place and purpose?
A. What restrictions apply to the water right? Check
restrictions on consumptive vs. Non-consumptive use.
B. If change of point of diversion, manner or place of use
required, will this be permitted? Are protests likely? Need to
file application with State Engineer. Informal discussion with
State Engineer=s
office may assist in gauging sensitivity of changes - rarely
possible to get application approved within usual transactional
due diligence periods. If change of point of diversion
required, will it be technically and legally feasible to
construct new diversion - may need easements, additional
permits. If water to be conveyed through existing ditch system,
are ditch rights available?
6. Is the water wet?
A. Hydrologic assessment
i. Suitability for use in current place
ii. Suitability for transfer
iii. Water quality issues
B. Historic shortages?
i. Computer models of the area show water is available in
the long term?
7. Draft due diligence report
A. Findings
B. Recommendations to cure
objections to the validity of the water rights
New
Mexico Due Diligence Checklist
1. Needs Assessment
A. How much water is needed for project? (Does the client
really know?)
i. City or County
rules determine amount?
ii. Rules require
certification of longevity of water supply? (e.g., county
subdivision rules may require 40-, 70-, or 100-year supply)
iii. What quality standards, if any, would apply?
2. Title Examination
A. State Engineer files (Changes of Ownership)
B. Grantor-grantee title report from a title company
i. Check property deeds for inclusion of water rights, and
to make sure water rights not separately conveyed to a third
party. If water rights separately deeded (more recent
conveyances), make sure chain of title is clear.
ii. Length of time to check:
(1) Surface water right: from 1907, if possible. If not
possible, at least 30 years back.
(2) Groundwater right: from date of drilling well, if
possible
3. Validity of Water Rights
A. Issues of concern:
i. Before 1965, were rights unused for any 4-year period
(forfeiture)?
ii. Anytime, and especially after 1965, did user intend to
abandon water rights through non-use?
B. Field inspections
i. Assess water features
ii. Documentation provided by seller
C. State Engineer files for any memos or letters re water
rights
D. Sources of information to investigate historic use:
i. Maps of historic use (e.g., 1917-18 map in Middle Rio
Grande)
ii. Irrigation district records (e.g., Middle Rio Grande
Conservancy District map and plane table survey from 1926)
iii. Hydrographic survey (available in selected portions of
state only)
iv. Aerial photos showing irrigation
(1) State Engineer=s
office
(2) Soil Conservation Service
(3) Earth Data Analysis Center, http://edac.unm.edu/
(4) Private, commercial sources of photos
v. Affidavits
(1) Existing affidavits?
(2) Interview old-timers and current landowners and draft
affidavits:
--Describe the property
specifically (e.g., tract number from irrigation district map,
or tract in subfile)
--Make sure they’re specific in
describing the uses of the water (e.g., crops grown) and in why
the affiant knows these facts
4. Security of priority
A. Issue: Is the water right threatened by some outside
agency or circumstance so that it might not be available for use
in the future?
B. Possible concerns:
i. If adjudicated, what is the priority date, and how likely
is the water right to be subject to a priority call?
ii. Federal reserved rights B Indian reservations, other
federal reservations
iii. Pueblo water rights
iv. Endangered Species Act limits on water use
v. Interstate compact
obligations
vi. Do
water quality standards mandate flow requirements that may
restrict diversion of surface water?
vii. Any existing disputes with other users?
5. Can the water be used for the intended place and purpose?
A. Any administrative criteria apply? (e.g., Mimbres,
Estancia, Middle Rio Grande Basins)
B. Can place of use be transferred?
i. Will application be protested?
ii. Will application be approved under the criteria of no
impairment, conservation and public welfare?
C. Can purpose of use be changed?
i. Will application be protested?
ii. Will change affect public welfare, conservation or
impairment considerations?
6. Is the water wet?
A. Hydrologic assessment
i. Suitability for use in current place
ii. Suitability for transfer
iii. Water quality issues
B. Historic shortages? (e.g., Tesuque Creek has only 80%
flow)
C. Computer models of the area show water is available in
the long term?
7. Draft due diligence report
A. Findings
B. Recommendations to cure objections to the validity of the
water rights
Oregon
Due Diligence Checklist
1. Needs Assessment
A. How much water is needed for
project? Total volume, time of use,
rate of use?
B. What are the land use requirements
of land planning agency?
C. Is water
service available from a local purveyor, or will water rights be required? Will
water rights be conveyed with the property? Are such rights sufficient?
D. Will it
be necessary to obtain water rights to dedicate to a local water purveyor in
order to obtain service commitments?
E. What
quality standards, if any, would apply?
2. Title
Examination
A. Check
plat card maintained on OWRD website
B. Obtain
copies of certificates, permits, applications, or decrees and related files from
Salem office
C. Obtain
title report for real property
D. Check
grantee and grantor indices at County Recorder’s office (if point of diversion
and place of use in different counties, check both counties). Check back to original decree or application
E. Check
property deeds for inclusion of water rights by statement concerning
“appurtenances,” and to make sure water rights are not separately conveyed
to a third party or otherwise encumbered.
3. Validity
of Water Rights
A. Permits: Is water use developed on acres described or is amendment
required? Are permits in good standing and not subject to cancellation - proofs
of completion or beneficial use not overdue, necessary extensions of time
granted? Can additional extensions be obtained for proving of works, for proving
full beneficial use of the right? Are permitted rights of use properly assigned?
B. Certificates or Adjudicated Rights:
Were rights unused for any 5-year period during the last twenty years
(forfeiture)? Did user intend to
abandon water rights through non-use (abandonment)? Are there any existing
affidavits concerning use?
C. Groundwater: Review OAR’s to determine if water rights located within a
study, limited, or critical groundwater area. Review well logs to determine
level of withdrawal related to adjacent wells to consider possible interference.
D. Storage: is there a contract or easement for use from the storage
facility? Review contract for possible breaches or limitations to use of supply.
E. Sources
of information to investigate validity:
i.
Maps of
claims made by owners
ii.
Irrigation
district records
iii.
Hydrographic
survey report
iv.
Aerial
photos showing irrigation
v.
Affidavits
vi.
Adjudication
records
4. Security
of priority
A. Issue: Is
the water right threatened by some outside agency or circumstance so that it
might not be available for use in the future?
B. Possible
concerns:
i.
Federal
reserved rights B Indian reservations, federal wildlife reserves,
other federal reservations
ii.
Endangered
Species Act limits on water use
iii.
Land use
changes – restrictions on allocation, use, source
iv.
Wetlands
requirements
v.
Interstate
compact obligations
vi.
Do water
quality standards mandate flow requirements that may restrict diversion of
surface water?
vii.
Any
existing disputes with other users – easements, ditches, protests?
5. Can the
water be used for the intended place and purpose?
A. What
conditions apply to the water right? Season
of use? Rate? Measurement? Screening? Have conditions been met?
B. If change
of point of diversion, manner or place of use required, will this be permitted?
Are protests likely? Need to file application. Informal discussion with OWRD may assist in gauging sensitivity of
changes - rarely possible to get application approved within usual transactional
due diligence periods. If change of point of diversion required, will it be
technically and legally feasible to construct new diversion - may need
easements, additional permits. If water to be conveyed through existing ditch
system, are easements available?
6. Is the
water wet?
A. Watermaster
Interview
i.
Existence
of minimum stream flows or other instream requirements senior to water right?
ii.
History
of “calls” on the surface source
iii.
Groundwater
allocation schedules
B. Hydrologic
assessment
i.
Suitability
for use in current place
ii.
Suitability
for transfer
iii.
Water
quality issues
C. Historic
shortages?
i.
Computer
models of the area show water is available in the long term?
7. Draft due
diligence report
A. Findings
B. Recommendations
to cure objections to the validity of the water rights
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