Navigating Real Estate Purchases: Essential Due Diligence for Water Rights
By: Kirsten M. Kurath
Looking to buy a farm or ranch property, or even a large spread out of town? We can help you with the purchase and sale contract, but just as importantly, we can assist you with the necessary due diligence for the water rights that may be associated with the property.
Many people do not realize until late in the purchase process that title companies will not provide title insurance for water rights like they do for the land. Likewise, it is almost impossible to get a title opinion from an attorney without spending thousands and thousands of dollars on the necessary research. Even then, it is unlikely you will ever get a definitive title opinion that can really guarantee you will have absolute fee title in a certain water right at a certain rate or volume. And any properly advised seller will not convey water rights with any warranty of title.
The reasons for this have to do with Colorado water law. There is no registry of ownership for water rights. Furthermore, water rights can be conveyed without even identifying the water rights in the deed conveying the property because Colorado law allows conveyance of water rights by the catch-all deed language “and all appurtenances”, if the grantor intended to convey the water rights with the land. Also, water rights can be conveyed separately from the land, creating an entirely new chain of title.
Another thing to keep in mind is that the amount of the water right is not just based on its original decree, but it is also based on its historical use. This is particularly critical if you want to change the use or place of use of the water right. You need to be sure that no portion of the water right has been abandoned, and that any conditional water right has been maintained through proper diligence applications with the water court. In some circumstances, even if a water right has a very senior priority, this does not necessarily mean you will be able to divert water for the entire irrigation season. And if the water right is more junior, you will want to be sure that any necessary augmentation plan is in place and understand what maintaining that plan will cost you in the future.
While there may be no complete guarantee when you purchase water rights, you should investigate as much as possible. At McDonough Law Group, we can help you with the due diligence you should complete before deciding to close on the property. This may include researching the record title to the extent possible, reviewing the original decree and any subsequent decrees, reviewing the records on file with the Department of Water Resources, talking with the local water commissioner, reviewing augmentation plans and contracts, reviewing well permits, talking with the ditch company, if applicable, and addressing other issues that may arise in the investigation.
Contact me at (970) 776-3311 if you have questions about water rights relating to your real estate purchase.