ARIZONA ~ WATER AND YOUR REAL ESTATE TRANSACTION


ARIZONA ~ WATER AND YOUR REAL ESTATE TRANSACTION

Ground Water |   Surface Water | the Adjudication Process

Understanding the Many Roles of this Important Aspect in Real Estate Transactions

It all starts with the land… When the land was originally patented from the US Government, it had all the “Bundle of Rights” that went with it.   More here —Land Patent.

Without water, the land is basically not very useful. More here–The Land Is Perfect but there is No Water.

The Real Estate Transaction~ getting title insurance does not insure your water rights! The ownership of water rights is decided through the water courts. More here.

Surface Water Arizona is a prior use law state and putting the water to beneficial use is the key.

Ground Water follows the Reasonable Use Doctrine

Arizona State Water Rights Basics~

Arizona, like most other Western states, follows the prior appropriation system for surface water 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  denied, 39 Ariz. 367, 7 P.2d 254 (1932).  The Southwest Cotton court defined appropriable water to include the “underflow, sub flow or undercurrent … of a surface stream.”  The “sub flow” 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 sub flow 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 non-appropriable 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 non-appropriable 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 must 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 “sub flow” 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. 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.  More here–State Water Rights Basics.

Water Right Ownership and Title Examination~ 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~ All types of surface water rights should be conveyed by deed, not a bill of sale. Notice of the conveyance should be filed with DWR using the DWR’s forms, except for decreed rights.  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. 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.

The third type of surface water right is a stock pond right. DWR evidences these rights with a Registration of Stock pond filed with DWR and, on rare occasions, with a Certificate of Stock pond Right.  The fourth type of surface water right is a decreed right. These rights have been adjudicated and confirmed by a court. 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 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. The AMAs include the Phoenix AMA, the Pinal AMA, the Tucson AMA, the Prescott AMA, and the Santa Cruz AMA. Elsewhere in the state, areas have been designated as irrigation non-expansion areas, In these areas, groundwater use is not as heavily regulated as in the AMAs, but new irrigated acreage cannot be developed.

Within the AMAs~ all the types of water rights should be conveyed by deed and the Notice of Conveyance must be filed with the DWR 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. 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. 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 II 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, 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.  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. 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.

Water Rights Due Diligence~ If you are not on municipal water be sure and check out your property whether you have a well or not.  Check with the professionals to find out if there is adequate water in the area, a good well driller educated in the area you are purchasing in is a great source of information to you.  The Arizona Department of Water has lots of informative information about the area and records of wells that perhaps are close to where you will be purchasing.  Know what quality of water is in the area, if a well exists on the property you are purchasing be sure to get a water test for drinking purposes and what systems are recommended to add to your water to make it safe and potable.  A well driller can tell you the GPM, depth and condition of the well.  They can do testing for you.  Records of your well should be on file with the ADWR with a file number – these records can be downloaded for your reference.  A well will need to be transferred at the time of sale to the buyer and there should also be a transfer of the Statement of Claimant which gave notice to the court during the Adjudication process ongoing that the well was transferred to the new buyer.  This form must be signed by the seller to the buyer.  If there is no record of filing then a late filing needs to be filled out and filed with the ADWR.  Their forms are easily accessible on their website. Arizona Department of Water

Surface Water Rights also should be on file with the Arizona Department of Water and need to be transferred as well.

If you are purchasing property with surface water rights or a property that has grandfathered water rights to be transferred be sure a consult with a good water attorney to make sure your Due Diligence check list has been done when it comes to the water rights.  A couple of excellent firms below:

Schroeder Law Offices “We do Everything Water”

Excellent Water Attorney Carlos D. Ronstadt

 

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