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
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