Water Rights 101 and Due Diligence - The Legal Side of ... · Moffatt Thomas Barrett Rock & Fields,...

Moffatt Thomas Barrett Rock & Fields, Chtd.

Andrew J. WalderaFebruary 19, 2014


WATER RIGHTS 101AND DUE DILIGENCE — THE

LEGAL SIDE OF AGRICULTURE


• The waters of the State of Idaho are a publicresource and the State of Idaho owns the water,not the individual water users.

Ownership of Water

02/19/2014 2


• Water right holders merely own the right to use acertain amount of water for the purposes and underthe conditions set forth in the permit, license, ordecree.

Ownership of Water (cont.)

02/19/2014 3


• The State of Idaho, more particularly the IDWR,administers the waters of the state according to theprior appropriation doctrine, which operates uponthe basic premise of “first in time is first in right.”

Prior Appropriation Doctrine

02/19/2014 4


• Appropriation of water is its physical diversion fromits source and its application to a beneficial use.

Appropriated water isappurtenant to theground upon which it isapplied.

Appropriation of Water

02/19/2014 5


• In general, only water in its natural state can beappropriated. This includes water flowing in anatural channel or stream, springs flowing at thesurface, and ground water to the extent that thesewaters have not been fully appropriated already.Water flowing in non-natural channels (such ascanals, laterals, or ditches) ordinarily cannot beappropriated, as it has already been appropriated byanother.

Appropriation of Water (cont.)

02/19/2014 6


– Irrigation– Domestic uses– Stockwatering– Municipal supply– Commercial uses– Industrial uses– Cooling– Fish propagation

(aquaculture)

Beneficial Use

02/19/2014 7

• Beneficial uses recognized in the State of Idahoinclude:

– Recreation– Fire protection– Power generation– Mining– Ground water

recharge– Fish & Wildlife– Heating


• Name and address of owner• Source of water – ground water or surface water –

name of stream• Quantity – cubic feet per second; gallons per day;

acre-feet• Priority date – determinative of the right to use

water relative to all other water rights

Elements of a Water Right

02/19/2014 8


• Point of diversion – legal description of where wateris diverted from its source

• Place of use – specifies property upon which thewater may be applied

• Purpose or nature of use – the beneficial use• Season of use – dependent upon purpose of use

Elements of a Water Right (cont.)

02/19/2014 9


• Traditionally, all that was required was the diversionof water from its source and its application to arecognized beneficial use.

• 1963 – Legislation enacted requiring that thoseseeking to appropriate ground water must apply andobtain a permit and subsequent license from IDWR.

• 1971 – Amended legislation requiring sameapplication and administrative process for theappropriation of surface water.

Obtaining Water Rights

02/19/2014 10


• Not recognized in Idaho for over a century.• Riparian rights are rights that permit owners of land

to make “reasonable use” of ground water beneathone’s land, or surface water flowing on, through, oralong one’s land.

• Riparian rights are incidental to land ownership andcannot be lost. Rights developed under the priorappropriation doctrine are incidental to beneficialuse and can be lost or “forfeited.”

Riparian Rights

02/19/2014 11


• Form furnished by IDWR• Public process (publication)• Opportunity for protest• Administrative hearing (if necessary)• Permit granted either in whole or in part

(conditioned if necessary)• Proof of beneficial use (another form furnished by

IDWR)• Field examination• Issuance of license• Application criteria – Idaho Code Section 42-203A(5)

Application for Permit

02/19/2014 12


• Once secured from IDWR, or adjudicated by theSRBA Court, transfers (changes made to theelements of a water right) and changes in ownershiprequire that proper application and/ordocumentation be submitted to and approved byIDWR.

Changes in Water Rights

02/19/2014 13


• Injury of existing rights• Enlargement• Beneficial Use• Conservation of water resources• Local public interest

Transfers can be approved in whole or in part(based upon appropriate conditions), or can bedenied in their entirety.

Application is public process.

Transfer Evaluation CriteriaIdaho Code Section 42-222

02/19/2014 14


• Decreed• Licensed• Beneficial use-based• Permit

The overlay of the Snake River BasinAdjudication (“SRBA”) — Claims vs. Partial Decrees

Types of Water Rights/Claims

02/19/2014 15


• Idaho Code Sections 42-222 and 42-223• Water rights are forfeited and water reverts back to

the state if the water is not applied to beneficial usefor a period of five continuous years

• Extension applications – reasonable cause• Resumption of beneficial use• Irrigation delivery entities (irrigation districts and

canal companies) generally exempt from forfeiturethough they must still have sufficient acreage withintheir boundaries for the application of water

Forfeiture

02/19/2014 16


• Residents within irrigation district or canal companyboundaries do not “own” the water rightsappurtenant to the ground

• Rights are held in trust for benefit of the landownerswithin the boundaries

• Individuals may have their “own” supplementalground water rights separate and apart from thosedelivered by an irrigation entity

Ownership of Rights Revisited

02/19/2014 17


• Lots of moving parts = lots of pitfalls• Conduct a full water rights inventory for the subject

parcel• Due diligence review and inventory applies equally if

“subject parcel” is only a water right itself

Due Diligence

02/19/2014 18


• Proposed transaction include any and all appurtenantwater rights?

• Partial or full severance/withholding of water rights?• Sources of water on the property (surface or ground)?

• Purely private delivery or irrigation entity or both?– Infrastructure implications (maintenance obligations)

• “Private” water rights properly structured/documented?

• Delivery points involve express or prescriptiveeasements?

• Notice of buried irrigation conduit?

Dirt-Based Transactions

02/19/2014 19


• General rule – water rights are appurtenant to theground to which, or where, they are applied

• Water rights are severable, however, either in wholeor in part

• Because water is so valuable and marketable,sellers/owners are getting much more savvy and aresevering water rights at least in part

Intent of the Transaction

02/19/2014 20


• Buyer beware – specific contract language ends alldoubt

• Insist on expressly calling out and defining the waterrights and the requisite infrastructure . . . “alltenements, hereditaments, and appurtenances” isnot good enough in my opinion

• If you have done your homework why not employ it?

Intent of the Transaction (cont.)

02/19/2014 21


• Ground or surface• Infrastructure• “Private” or irrigation entity delivery• 42-1201, 1202, 1203, 1204 (duties and obligations)• Any intermediaries such as a lateral ditch water

users association?• Applicable assessments (irrigation entity and/or

association)• Tax deed implications for delinquent assessments

Sources of Water and Extent of Rights

02/19/2014 22


• Idaho Code Section 42-1201 (1899)• Idaho Code Section 42-1202 (1899)• Idaho Code Section 42-1203 (1899)• Idaho Code Section 42-1204 (1881)

Irrigation Entity/InfrastructureOwner Duties/Responsibilities

02/19/2014 23


• Those who “own or control” irrigation facilities mustmaintain sufficient flow of water through thesystem during the irrigation season to meet theneeds of those entitled to receive the watertherefrom.

Idaho Code Section 42-1201

02/19/2014 24


• Those who “own or control” irrigation facilities mustmaintain the same and keep them in “good repair”for the delivery of water to those entitled to thedelivery.


02/19/2014 25


• Owners of irrigation facilities must “carefully keepand maintain” any embankments constituting thefacilities in “good repair” so as to minimize and/orprevent the wasting (leaking) of water. Ownersmay only turn a proper amount of water into thefacility so as not to overwhelm its capacity, therebyresulting in the waste of spilled water breaching thelevels of the embankments.


02/19/2014 26


• The “owners or constructors” of irrigation facilities,and their successors in interest, must “carefully keepand maintain the same” in “good repair” so as notto damage or in any way injure the property ofothers.

• Grants right-of-way for purposes of cleaning,maintaining, and repairing the irrigation facility—including the right to deposit debris or spoils on thebanks of the facility.


02/19/2014 27


• Irrigation facilities may involve either expresseasements and rights-of-way or prescriptiveeasements and rights-of-way

• Idaho Code Section 42-1102– irrigation easements and rights-of-way are

“essential”– surface facilities provide notice of underlying

easement and right-of-way– cannot interfere; see also, Idaho Code Sections

42-1207, 1208, and 1209– not defined, just reasonable and necessary

• Buried facilities need express easements, or atthe least Notices of Buried Irrigation Conduit –recorded with the county in its real propertyrecords

Easements and Infrastructure

02/19/2014 28


• Private water rights properly structured/documented?– Chain of title up to date (Notice of Change in

Water Right Ownership)?– Subject to water supply bank lease?– Status (application for permit, permit, license,

decree, claim in SRBA vs. partial decree)

Dirt-Based and Water-Based Transactions

02/19/2014 29


– Properly claimed and defended through theSRBA?

– Assigned or severed and sold previously?– Subject to any leasehold interests?– Subject to pending transfer?– Subject to the security interest of another?

Dirt-Based and Water-Based Transactions(cont.)

02/19/2014 30


• IDWR website (www.idwr.idaho.gov)• SRBA website (www.srba.state.id.us)• County Recorder’s Office

The IDWR and SRBA websites are excellentsources of information that are searchable bymultiple means such as water right number,property location, claimant/entity name. Manydocuments are scanned and available.

Sources of Information

02/19/2014 31


Once the dust from the transaction settles:• Notice of Change in Water Right Ownership• Lending Security – Notice of Security Interest

New Ownership and Financing Consideration

02/19/2014 32


• Form provided by IDWR• Form must be provided to IDWR within 120 days of

the new ownership – do not run the risk of theDepartment or others taking action regarding yourwater right without your knowledge

• Notice attaches property conveyance instruments asproof of transaction

Notice of Change in Ownership

02/19/2014 33


• Form provided by IDWR• Those giving proper notice will be notified of any

proposed action regarding the covered water right• Notice must attach/include documentary evidence

of the applicable security interest, including theexpiration date or other date defining the end of thetime period during which notice of IDWR action isdesired

Notice of Security Interest

02/19/2014 34


• Notice of security interest provides a greater level ofprotection than simply relying upon water rightreferences in the real property transactiondocuments such as the mortgage – and it is veryeasy to do.

Notice of Security Interest (cont.)

02/19/2014 35


• Shares or stock certificates of canal, ditch orirrigation companies are personal property.Consequently, they are not deemed appurtenant toreal property and are not controlled by the Notice ofSecurity Interest form filing with IDWR.

Shares or Stock Certificates

02/19/2014 36


• Traditional language used in these documents: “allappurtenances” or “all appurtenant water rights”does not include conveyance of shares or stockcertificates. They should be specifically identified aspersonal property which is part of the sale/purchase.A Bill of Sale or assignment document is typicallyused.

Deeds and Real Estate Agreements

02/19/2014 37


• Encumbrance of the personal property consisting ofshares or stock certificates must be completed byfiling a UCC 1 financing statement with the IdahoSecretary of State. It is advisable to provide a copyto the canal, ditch, or irrigation company.

Security Interest

02/19/2014 38


Andrew J. WalderaMoffatt Thomas Barrett Rock &

Fields, Chtd.101 S. Capitol Blvd., 10th Floor

P.O. Box 829Boise, ID 83701

[email protected](208) 345-2000(800) 422-2889

For more information or questions,please contact:

3902/19/2014

Water Rights 101 and Due Diligence - The Legal Side of ... · Moffatt Thomas Barrett Rock & Fields,...

Documents

Transcript of Water Rights 101 and Due Diligence - The Legal Side of ... · Moffatt Thomas Barrett Rock & Fields,...