By Steve Shropshire, AttorneyThis article originally appeared in the April 3, 2019 edition of the Cascade Business News.
In Oregon, the value of rural property often depends on a reliable supply of water. Prospective purchasers are wise to keep this in mind when considering a rural land purchase. A water rights due diligence evaluation is critical to ensure a successful transaction.
Top of FormWater is scarce in the West, making it a valuable resource. Oregon’s water laws recognize that scarcity, using the “first in time, first in right” prior appropriation system to allocate water. In Oregon, all water above and below ground belongs to the State. The right to use that water is confirmed through the issuance of water rights by the Oregon Water Resources Department (OWRD).
Some rural Oregon lands receive their water supply from irrigation districts. Districts have unique water rights, charges, and rules and regulations governing water use. A prospective purchaser of such land should evaluate the extent of district water supply, the rules, and other district requirements and charges.
Landowners of property located outside irrigation districts must obtain individual water rights. This is easier said than done because the vast majority of Oregon’s watersheds, including the Deschutes basin, are over-appropriated—meaning that there are no new water rights available.
A water rights due diligence evaluation for individual water rights considers both the status of existing rights and options for acquiring new rights. Some of the key issues that should be investigated are discussed below.
1. Physical Constraints
Water must be available when needed. Physical constraints on availability are, therefore, important to evaluate. These can include seasonal fluctuations in water levels, drought susceptibility, over-appropriation, ground water mining (when extraction exceeds recharge), the availability of storage supplies, and water quality problems.
2. Legal Constraints
Although water may be physically available, it may not be legally available. Legal constraints on water use can include the terms of the water right (priority date, rate and volume limits, place of use, point of diversion, and season of use), contractual terms, water conservation or management regulations, instream flow requirements, and land use restrictions.
3. Historic Use Concerns–Forfeiture
Oregon law requires that a water right holder use the right to its full extent at least once every five years. The failure to do so subjects a water right to either full or partial forfeiture by operation of law. Therefore, it is critical to conduct a historic use analysis to verify such nonuse periods have not occurred.
4. Unmet Permit Conditions
When OWRD grants a water right application, it issues a permit. The permit contains the essential attributes of the water right, together with terms and conditions for use. The water must be used in compliance with the conditions of the permit within a five-year period. If the terms and conditions are not met within that time frame, OWRD may diminish the water right or cancel it altogether.
5. Water Right Transfers
A water right permit or certificate establishes the location of the point of diversion/appropriation, the location of the place of use, and the character of use. Changing any of those attributes requires OWRD approval of a transfer application. Such approvals may contain terms and conditions that must be met to finalize the transfer.
6. Groundwater Limitations Due to Hydraulic Connection
In many parts of the state, OWRD has determined that groundwater is connected to and contributes to surface flows in surface streams. This is the case in the Deschutes basin. As a result, even if a landowner has a productive well, OWRD will not issue a groundwater right without mitigation for the pumping impacts on surface water. Mitigation comes in the form of flow enhancement in the impacted surface stream, either via the retirement or transfer of a senior water right or through an instream lease.
7. Well Sharing Agreements
It is not uncommon to find a single well serving two properties. Well sharing agreements are used to clarify the joint use of the well. At a minimum, a well sharing agreement should address the following topics: easement rights for access to the well and delivery system; equipment ownership; allocation of cost and responsibility for maintenance, repair, and replacement of the well and pump; water allocation during periods of shortage; liability allocation; and insurance.
Water rights issues are complex. However, by developing a basic understanding of these issues, landowners and prospective purchasers can identify issues of concern and successfully manage a water rights due diligence process.
Steve Shropshire is a member of the Jordan Ramis PC Dirt Law® team, focusing his practice on water rights, real estate, and land use matters. Steve can be reached at (541) 647-2979 or by e-mail at firstname.lastname@example.org.