Home » Articles » Water Rights Considerations for Buyers and Sellers of Colorado Real Estate

Water Rights Considerations for Buyers and Sellers of Colorado Real Estate

In Colorado, most water rights are treated as real property (real estate, just like a plot of ground).  Therefore, it’s important for Buyers and Sellers of Colorado real estate (and their brokers) to understand exactly what is being conveyed and what is the appropriate document for conveyance (usually a deed or an assignment).  This article is a brief primer on some things that Buyers and Sellers should consider for a transaction involving water rights.

First, both buyer and seller will need to know exactly what the seller has to offer.  For sellers, this will avoid allegations of misrepresentation or failure to disclose after closing.  For buyers, this will ensure they understand how much water they’ll be able to use on their property, where on their property, and for what.  The three main types of water rights usually associated with residential and agricultural real estate are: (1) groundwater (well) rights; (2) shares of stock in ditch or reservoir irrigation companies; and (3) rights that have been approved by the State Water Courts (“decreed” water rights).

The Colorado Real Estate Commission-approved form Contract to Buy-Sell (the “Contract”) includes a section for the description of water rights to be included, whether decreed/deeded rights, shares in mutual ditch or reservoir companies, or groundwater rights (wells).  A seller who doesn’t know how to describe their water rights should consult with an attorney.  A buyer who doesn’t understand what the seller has listed in the Contract for water rights should consult with an attorney.  The Colorado Division of Water Resources, a/k/a the “State Engineer’s Office,” is also a valuable resource for anyone interested in the water rights associated with a particular property.  They have a good search tool on their website that includes a map function.

Once the parties understand the water rights the seller intends to convey, they should determine the proper legal instrument for conveying the rights.  For a well, Colorado law requires that a buyer submit a “Change in Owner” at or shortly after closing.  For shares in a mutual irrigation company (often referred to as “ditch rights” or “water stock” or “ditch shares”), the parties usually use a stock assignment.  For decreed water rights, it is appropriate to either describe them in the deed conveying the land or draft a separate deed just for the water rights, which should be recorded along with the deed for the land.  A buyer’s real estate broker should recommend to a buyer that the buyer hire an attorney to review the water rights and draft the conveyance documents.  A seller may insist that their attorney draft the conveyance documents, and in that case, the buyer should have an attorney review them.

In summary, water rights in Colorado are complicated and often have restrictions on quantity of water and where and what the water can be used for (inside the home, outdoor lawn and garden irrigation, livestock watering, etc.).  As with many things in life, an ounce of prevention is worth a pound of cure because problems with a property’s water rights often cannot be fixed after closing.  A buyer of any property with water rights should consult with an attorney to fully understand how much water they’ll have and what they can use it for.   For questions about this article please contact me.

 

 

Call Now Button