General Practice, Solo & Small Firm Division

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Practice Area Newsletter

American Bar Association - Defending Liberty, Pursuing Justice

June 2008

Vol. 4, No.3

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Real Estate

 

Featured Author

 Jamie M. Morin practices law in Washington State with Mentor Law Group, PLLC. Despite the national perception of the Evergreen State experiencing more rain than sun, water in Washington is every bit of what makes Washington unique and why people live here. Jamie works with clients to buy, sell, adjudicate, transfer, divert, protect, and retire water rights in all possible permutations. Jamie is on the executie committee for the Washington Section of the American Water Resources Association and former chair of the Water Resources Committee of the Association of Washington Business. A native of Spokane, Ms. Morin received her J.D. from the University of Montana, and is admitted to practice in Washington and Idaho. Jamie can be reached at .

Whose Water Is It? It’s Crucial Out West

Water, water everywhere? Nope. Not out West, anyway. So what can clients do about that?

The availability of water is an aspect of almost every purchase agreement in the West, whether the buying and selling of real property or the buying and selling of a business interest. Take, for instance, the client that falls in love with a piece of property to start a vineyard. He or she may be disturbed to find that despite the river running through it, the property has no entitlement to take and use the water.

In such a situation, the business lawyer must be aware of the special constraints on identifying, defining, and valuing property and any right to use water that may (or may not) come with the property. However, advising the client on the time, costs, and risks involved if the property does not have adequate water does not have to be a deal killer either. As development in the West continues, finding new and innovative ways to locate, use, and protect our water resources is becoming more common and more necessary.

A water right in the West is the right to take a quantity of water either from a surface water body such as a lake or river, or from the ground, and to use that water for a beneficial purpose. Once used for a beneficial purpose, a water right becomes vested to the property on which the water is used. Once vested, the use can continue on the property in perpetuity, regardless of ownership, provided the use remains unchanged and continues without abatement. This is known as the prior appropriations doctrine.

The prior appropriations doctrine of the West differs quite significantly from the riparian doctrine followed in the East. Under the riparian doctrine, the right to use water is enjoyed incident to land-ownership; the right to its use arises from the ownership of the source and cannot be severed from the land title. In the prior appropriations scheme, water can be moved from its watercourse to the place of use. The water right becomes appurtenant to this place of use irrespective of whether the source itself is on the property. Once appurtenant, the water right becomes a property right and one of the “bundle of sticks” of property ownership and is presumed to convey with changes in ownership but may also be severed and conveyed separately.

The second difference is the concept of “use it or lose it.” Under the prior appropriations scheme, a water right exists in perpetuity provided the use continues unabated as it was originally established.

Every water right has its own unique characteristics of source, place of use, point of withdrawal or diversion, purpose of use, quantity of use in annual and instantaneous limits, and season of use. Each of these attributes must be maintained and becomes a limitation to changing the water right in the future. To fail to use water for a statutory period of time, or to use the water in a different way without prior authorization, can effect a forfeiture.

Finally, in a pure riparian system, a water user has the right to divert and consume water provided it does not diminish the water flow unreasonably. If supplies are limited, all users share proportionately in the pain. In contrast, the prior appropriations scheme abides by the principle known as “first in time is first in right.” Water users do not share shortages: junior water users are curtailed or cut off entirely when there is not enough water to meet the authorized uses.

What happens if your client in the West wants to buy property that will require water but the property is without water rights? Historically, water rights in the West were developed by providing notice to others by nailing a notice to a tree and filing a notice with the local land office and using the water.

As competition for water increased, this method of establishing water rights became cumbersome. As conflicts over water became common, all western states adopted some form of a permission system requiring new water users to apply to the state.

Under an application process, the applicant files an application identifying the proposed attributes: place of use, purpose of use, season of use, source, and quantity. The state provides notice to others and conducts a review to see if water is available for a new use—that the water is not being taken by anyone else or needed for in-stream uses—and grants a water right. Initially, the water right is in the form of a permit or license until the applicant puts the water to beneficial use, after which the water right vests to the property.

In most areas of the West, obtaining new water rights for lands where water has not been used before can be challenging. The West is already characterized as arid. Naturally occurring, fresh water supplies are hard to come by in most areas. Add the demands of agriculture for irrigation, industry for jobs, residences for people, and free-flowing streams for fish and the availability of water becomes ever tighter.

However, that does not mean a project without water is a client without a project. Strategies for obtaining new water supplies without creating new water rights exist.

Finding “new” water supplies is a case of taking what was old and making it new again. Think retro. Think recycling. Where new water rights are not being created—most frequently because of already declining availability to others including increasingly unmet in-stream needs for fisheries, recreation, or aesthetics—it is necessary to find existing water rights that are no longer required for their historic uses. Those existing water rights can be changed in their essential attributes to allow for the new use of water.

Water rights in the West are a real property interest, which can be severed from the land title and moved to become appurtenant to a different property. Water rights are increasingly fungible through the creation of markets for buying and selling water rights. Clients without water rights can often buy and transfer water rights from another location to allow use on the property.

When advising a client on a project that will require changing a water right, or acquiring and changing additional water rights, it is important to assess the time, costs, and uncertainty in changing water rights. The first step is conducting a needs assessment. How much water will the changed use require? How will that water be provided—from a local purveyor or from the water rights either already at the property or which will be obtained and transferred?

The next step is to determine if there will be any limitations on changing certain water rights. Typically, the state water resources agency must review any proposed change to the attributes of a water right. That review usually requires verifying the validity of the water right, but is also very concerned with whether other water rights or in–stream values will be injured because of the changed use.

The state review process varies throughout the West. The one constant is that the process is often lengthy, costly, and complicated. Changing water rights is one of the more complex environmental permitting arenas because of the importance of past actions by the water right holder and the interplay and effect that future actions will have on neighboring properties.

Increasingly, buying, and moving a water right has geographic limitations that prevent this option from being a useful response. This is often the case where development is happening upstream from historic water-use patterns in the area, or where the available “trading stock” of underused historic water rights is limited. In response to the constraints on the traditional water right transfer, many regions are moving to a growing recognition of water banking as a larger scale approach to water supply solutions.

Water banking as a defined practice is varies, but most generally, it is the retirement of a water right in one area in order to entitle another to use water in another area. Some of the constraints of a traditional water right change remain—the new water use cannot use more than the retired water use, and the neighboring water rights cannot be injured. In water banking, the source restrictions are often more flexible, as is the institutional response. For instance, the new use need not come from the same narrowly defined source as the old but can come from elsewhere in the basin.

Not every project needs a new water supply. Not every dream is going to be able to find the water necessary. Nevertheless, with knowledge and creativity, projects without the necessary water supply can find that supply and flourish. The business lawyer involved in water dependent transactions has a dual purpose—nurture the dreams of the entrepreneur while helping the entrepreneur identify how to make it a reality.

Jamie M. Morin practices with Mentor Law Group, PLLC, in Seattle. Her email address is .

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