Assessing the Quality of a Water Right
| Jurisdiction | Kansas,United States |
| Citation | Vol. 70 No. 5 Pg. 26-36 |
| Pages | 26-36 |
| Publication year | 2001 |
70 J. Kan. Bar Assn. 5, 26-36 (2001). Assessing the Quality of a Water Right
70 J. Kan. Bar Ass'n, May 2001, 26-36 (2001)
I. Introduction
Lawyers representing buyers of water rights must study both the quality of the title of the water right and the quality of the water right itself. In a 1997 article,[1] I outlined some title and related considerations in water rights purchases. I suggested then that a separate article should consider "the quality of the water right aside from title and the other matters casually mentioned but not discussed in this article."[2] If an individual, corporate, or public client wishes to purchase water rights, either with land or separate from the land, or wants an analysis of its own water rights, the lawyer needs to know where to obtain and how to decipher the information, what kind of legal analysis is helpful, and how to present the information and analysis to the client. This article covers these matters, but not water quality per se or matters such as fraud in describing the water rights in a sale.[3] Yet, due to the sheer size and number of the Kansas statutes and regulations governing water law, and to the myriad differences in situations lawyers encounter, all this article can do is to lay out some basic principles, procedures, and ideas on how to approach a new problem.
II. Some Preliminary Matters
A. Summary of Kansas Water Law
For water rights, Kansas is a so-called prior appropriation state.[4] Under the Water Appropriation Act of 1945 (Act),[5] a potential water user must obtain a permit before diverting water, with exceptions for domestic and several other limited uses.[6] Much of the state is now over-appropriated, which means that in those locations one may no longer obtain a new water right by filing an application with the Division of Water Resources of the Kansas Department of Agriculture (DWR) because of DWR and groundwater management district (GMD)[7] regulations.[8] In other areas, however, such as along most stretches of the Kansas River in northeast Kansas, obtaining a new permit is still possible.
While water itself is personal property, a water right is a real property interest,[9] a so-called usufructurary right, a right to use water from a specific source for a specific use. Being real property interests, water rights can be bought and sold,[10] separate from the appurtenant land or with the appurtenant land.
B. Water versus water rights
Either water or water rights may be the subject of sales transactions, and the lawyers helping to craft the deals should distinguish between the two in negotiation and in documentation.[11] Even a buyer of just water and not water rights should be concerned about the quality of the water right held by the seller of the water. A prudent lawyer for such a buyer should investigate the quality of the water right held by the seller and have the water seller "prove up" the status of the right.
C. Need for water rights analysis
Water rights may need analysis outside the arena of a sale. Industrial, municipal, irrigation, water power, stockwater, recreational, and even domestic water users should routinely insure that their water rights are in good standing and have no problems. Sometimes the first indication of a problem comes in a letter from DWR informing the user of a possible abandonment[12] or a violation of some regulation or some condition or limitation of the water right. Or the problem surfaces first on the death of the owner when the beneficiaries or devisees begin to face problems of co-ownership.[13] Prudent water users will periodically study the quality of their water rights to insure they are in good shape, just as prudent landowners occasionally review compliance with zoning and building codes and walk over their land to check the buildings and boundaries.
D. High transaction costs and no title insurance
Transaction costs including legal fees for water rights transfers can be high, sometimes higher than those for straight real estate transfers of comparable value.[14] In transfers of water rights, title insurance companies do not issue policies that cover water rights per se.[15] Thus, the buyer must require an abstract of title, which, indeed, causes still higher transaction costs. My own work has borne out the fact that even small water rights transfers can contain complexities that bump up costs. A seller of water rights from an irrigated quarter section, for example, may have earlier sold off a 5-acre tract to someone wanting to build a rural home, but the seller may have inadvertently failed to mention water rights in the deed. That tract owner may now own a proportionate share of the irrigation water right without knowing it. Another complexity is that the water right may be subject to abandonment.[16] Other problems may exist that dictate the hiring of a hydrologist or other water professional. It is wise to warn clients from the beginning that the legal and other transaction costs of a water rights analysis, whether as part of a sale or apart from a sale, may be high and that it is difficult to predict how high until the water rights files and the abstract of title are studied.
E. When a water right becomes a real property interest
Section 701 (g) of the Act states that water rights include both vested rights[17] and appropriation rights and that a water right is a "real property right." As such, water rights for many purposes are treated like land.[18] A tangential, but important, preliminary question sometimes arises: When in the process of maturation of a water right does the permit turn into a water right and into a real property interest?
The issue could be relevant in a number of contexts.[19] For example, assume that a landowner has obtained a permit to appropriate water, has not yet constructed the diversion works, and is still within the time period the permit allows to construct the diversion works - typically sometime prior to Dec. 31 of the calendar year following the year in which DWR issues the permit. The question arises whether the permit holder has a water right, a real property interest, or anything of value.
DWR's general position is that a permit does not become a water right, and therefore does not become a real property interest, until perfection - i.e., until the holder diverts water under the authority of the permit.[20] DWR's position has merit for some situations. Moreover, it comports with historical water appropriation law, especially the law prior to the creation of the administrative permit system, when water rights were developed by diverting water and not by first obtaining a permit.[21]
DWR's position in that context, however, does not cover the question for all situations. A mere permit even before perfection gives the holder something of value. If A has obtained a permit to appropriate water and prior to perfecting the water right A sells to B the land on which the water is to be used, B may proceed with constructing the diversion works and with perfecting the water right, thus enabling B to preserve the priority date established by A. DWR recognizes B's right to do so.[22] Or, if neighbor B attempts to obtain a permit in the vicinity, the existence of A's earlier permit, although not yet matured into a water right by perfection, may cause DWR to deny B's application, either because B's proposed use will result in too much water being taken[23] or will violate well spacing requirements.[24] If B really wants or needs a permit, B could contract with A for A to give up A's permit. If A's permit were the last possible permit granted in the vicinity because of safe yield rules, the permit would have some value - perhaps less value than a water right, but some value. It would likely be subject to condemnation, just as a fully perfected water right would be. Having it is better than not having it. Thus, whether the unperfected water right is technically a real property interest or not, it is something of value in sales, condemnation, and other contexts.
III. Obtaining the water rights information
A. In General
A client may engage a lawyer from the inception of the project, or the client may bring a signed contract that binds it as a buyer of a water right. If the former, the lawyer has a better chance of crafting the contract to insure that the client is buying what it really wants and needs - a water right versus water, for example, or all the water rights appurtenant to a quarter section of land versus one specific water right among several appurtenant water rights. In any case, the lawyer's first chore is to find out exactly what rights the client is purchasing, then to gather pertinent information about those water rights, next to learn and apply the law to the situation, and lastly to draw conclusions and make recommendations.
Information in general about water rights can be found in several places - in DWR files in the DWR home office in Topeka or in one of the field offices in Stafford, Garden City, Stockton, or Topeka (now located in the same building as the DWR main office), depending on the location of the water rights; in GMD offices;[25] or, in the case of domestic water rights, on the land itself.[26]
B. DWR and GMD information
Lawyers close enough geographically to visit the DWR field office personally may examine the water rights files before requesting copies. Most of the time, however, one does this by mail or fax using a DWR Request for Open Records[27] Access Form obtainable from the field office. A call beforehand will aid personnel there in learning what is desired. They can tell the lawyer what it will cost and whether payment must be made before or after...
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