A NEW TOOL TO AVOID WATER RIGHTS LITIGATION

By: David B. Hartvigsen

Three years in the making and available for use as of July 1, 2011, water right deed riders can help solve several big problem areas in water right transactions. The problem is that most people don't know that they exist, how to use them, or most importantly, why to use them. There is not room in this newsletter to go in to all of the details, but a general summary should get you pointed in the right direction. For starters, the forms themselves can be found on the Utah Division of Water Rights website at www.waterrights.utah.gov/wrinfo/forms under ownership applications. They are listed as the "Land Deed Addendum" and the "Water Deed Addendum."

What is a deed rider or a deed addendum? It is simply a document that is attached to a deed. It becomes part of the deed and is recorded with it. Under the new law, when a County Recorder records a document with a water rights deed rider attached, the Recorder sends a copy of the deed rider to the State Engineer's office. The State Engineer's office will review the form and the referenced water rights and, if the grantor/seller's name matches the name of the water right owner on the State Engineer's database and no further clarification of ownership or the water right is needed, then the State Engineer's office will update ownership of the water right(s) on their records without requiring a Report of Conveyance ("ROC"). If the names do not match or additional clarification is needed, the State Engineer will send a letter to the grantee/buyer (because the deed rider gives the State Engineer's office the buyer's address - which they wouldn't have had otherwise) informing the buyer of what is needed to complete the title update process.

If the deed rider is sufficient to replace the ROC, it will save the buyer a lot of money by avoiding the cost of having an ROC prepared (hundreds or thousands of dollars) and the $40 ROC filing fee. It can also help avoid the possible loss of the water right because of missed deadlines. If a buyer forgets to file an ROC or does not file one in a timely manner, notices of critical deadlines pertaining to the water rights will be sent to the seller instead of the buyer and sellers are notoriously good at ignoring such notices.

Another key function of the deed riders is to help get both the seller and the buyer on the same page with respect to water rights, e.g., agreeing on how much of which use under which water right is being transferred. It also helps them to focus on the issue of appurtenancy of water rights, which passes title of an appurtenant water right to the buyer when the deed is "silent as to water rights" (i.e., no mention of water rights is made in the deed). This law often leads to unintended consequences for both the seller and the buyer.

The loss of a water right in any of these scenarios can lead to conflict and litigation with the other party, professionals involved in the transaction, and sometimes, even the State Engineer. But such conflicts could have easily been avoided by the appropriate use a deed rider.