Wednesday, June 1, 2011

Rules to Remember When Purchasing Water Rights

Below is an article that I recently wrote for Western AgCredit's FenceLines magazine. A PDF copy of the full magazine can be seen by clicking here.

As an attorney whose practice focuses primarily on Utah water law, I often receive phone calls and questions about water rights. The most common questions I receive are about title to water rights: How is a water right properly conveyed? How do I know if the water right I am buying is valid? Is there paperwork I need to fill out with the Utah Division of Water Rights? The purpose of this article is to provide five general rules to remember when purchasing a water right (or land that includes a water right) in Utah.

1. Research Title to the Water Right
Before purchasing a water right, you should research the true ownership of the water right. In other words, does the seller really have title to the water right that they are trying to sell you? A printout from the Division of Water Rights’ database or a copy of the deed the seller received from a prior owner are not sufficient to establish ownership. Title research must be done in the records at the county recorder’s office and at the Division of Water Rights. If proper title research is not done, you run the risk of paying the seller for something that he/she does not own.

2. Consider Purchasing Water Right Title Insurance
When purchasing land, people almost always buy title insurance. However, people don’t generally think of buying title insurance for water rights. Water right title insurance is now available in Utah, and may be an option to consider if you are spending a lot of money to purchase water rights and/or want some assurance regarding the title to the water rights.

3. Research the Status of the Water Right
You should research the water right’s status and history. In other words, is the water right a valid, recognized water right that will allow you to use it in the manner represented to you? There are a lot of potential issues that a water right may have that can only be discovered by a thorough review of the documentation, maps, decrees, etc. on file with the Division of Water Rights.

4. Have the Water Right Conveyed by DeedThe proper way to convey a water right is by deed. As a buyer, you should request that the deed be a warranty deed rather than a quit-claim deed. If you are purchasing land and the water right, both can be conveyed in the same deed, but the deed should clearly state the water right that is being transferred. I prefer to use language such as: “Together with Water Right No. 33-1452, as identified of record with the Utah Division of Water Rights, including all change applications and other applications pertaining thereto.” You may also use the Water Rights Deed Addendum form, which is available on the Division of Water Rights’ website. The deed must be recorded with the County Recorder’s Office in the county where the water is diverted and the county where the water is used (which are generally the same).

5. File a Report of ConveyanceAfter the deed has been conveyed, you need to update the title with the Utah Division of Water Rights by filing a Report of Conveyance. The Division maintains a database of all water rights and associated information, which includes the name(s) of the owner(s) of each water right. Any notices or correspondence that affect a water right will be sent to the owner of record on the Division’s database. The Division does not, however, actively monitor any transfers of water rights; rather, the Division relies on each water right owner to file a Report of Conveyance to notify the Division when ownership transfers.

Water rights are a valuable asset and a vital resource in most farming operations. Unfortunately, however, people purchasing water rights oftentimes do not spend the time necessary to research and evaluate the water rights prior to the purchase. Following the five steps outlined in this article can go a long way in ensuring that you get what you pay for in your next water rights

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