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Handling the Application, Lease, Transfer, and Sale of Water Rights

June 30, 2014
By Susan E. Miller

Applying for Water Rights – from Basic to Complex

In order to obtain a water right one must apply for a water permit from the New Mexico Office of the State Engineer. A water permit is an inchoate right and is the necessary first step in obtaining a water right. Hanson v. Turney, 2004-NMCA-069, 136 N.M. 1, 3, 94 P.3d 1, 3. A water permit is the authority to pursue a water right. Id. It is a conditional, but unfulfilled, promise on behalf of the State to allow a permittee to one day apply the State’s water in a particular place and to a specific beneficial use under conditions where the rights of other appropriators will not be impaired. Without a water permit, an individual does not have a water right.

New Mexico Office of the State Engineer (OSE) permit application forms are on the OSE website (www.ose.state.nm.us).  Go to search on the home page and choose applications and forms.  You will get a list of links to any form that can be filed with the OSE including declarations, transfer permits, extensions of time, domestic well applications, exploratory well applications, applications for new appropriations, change of ownership, proof of application of water to beneficial use, etc., along with the amount of the application fee. See List of OSE Application Forms, attached as Appendix A.

If you have a surface water right that has been put to beneficial use prior to 1907, you should file a declaration with the OSE. See Declaration Form, attached as Appendix B.

You should also file a declaration of a groundwater right for groundwater that was put to beneficial use prior to the OSE declaring the basin. See Declaration of Ownership of Water Rights (Groundwater Rights), attached as Appendix B.  For example, if you are in the Rio Grande Basin, this basin was declared by the OSE in 1956.  If you have a well that has been pumping groundwater since before 1956, you should file a declaration for that right.  Other groundwater basins in New Mexico have different declaration dates.  All groundwater basins in New Mexico were declared on or before September 23, 2005.  This means that any wells drilled after the declaration of the basin fall under the jurisdiction of the OSE.  Wells drilled in a basin before it was declared do not.  It is no longer permissible to sink a well anywhere in the state without first obtaining a permit from the OSE.  You must have an exploratory well permit to drill a well and a separate permit to pump water from that well.

The OSE does not regulate declared wells.  It will accept a declaration for filing, but will not have jurisdiction to make you meter or curtail pumping.  When a declaration is accepted for filing, the declarant will receive a letter from the OSE indicating that acceptance for filing does not guarantee the validity of the water right.  This means that if there is a subsequent adjudication or administrative proceeding involving that well, the declarant could be found to have less water rights in the well than originally declared.  If the declarant decides to transfer rights into or out of that declared well or even deepen the well, the declarant will need to apply for a transfer permit through the OSE and those water rights then become permitted rights.

The declaration form requires information regarding the location of the well.  The OSE staff can use GPS to establish locations of wells for you.  The declarant should attach proof of application of water to beneficial use prior to the declaration of the basin in the form of affidavits, aerial photographs, crop reports, etc. and well logs if available. §19.27.1.8 NMAC.  A well log is a document filled out by a licensed well driller when drilling a well showing the date the well was drilled, the depth and the different geological layers drill through.  The declarant must be able to show there are not significant gaps of nonuse, otherwise a determination of abandonment or forfeiture can be made later when the rights are adjudicated or involved in an administrative proceeding.

Most OSE forms, including Declaration forms and supporting documents, must be prepared in triplicate and must be accompanied by the proper filing fee. See §19.25.5.8 NMAC.  The OSE will not accept a declaration for filing if it has evidence at the time of filing that conflicts with the declaration or has evidence that water has not been put to beneficial use as declared. See February 20, 2007 Memorandum from Jim Sizemore, OSE Water Rights Division Director.

If you want to amend a declaration form, be aware that there are internal OSE polices that affect amendments to declarations.  For example, the OSE will accept an amended declaration for filing only if it supplements the evidence substantiating the claim in the original declaration or corrects any clerical errors in the original declaration.  An amended declaration that significantly changes the place of use or changes the purpose of use, priority date, or amount of water stated in the original declaration may be accepted for filing only if it is accompanied by substantial and specific documentation supporting the amendment. See February 20, 2007, memorandum from Jim Sizemore, OSE Water Rights Division Director.

Separate from whether a basin is declared or not, basins can also be deemed open or closed to new appropriations by the OSE.  If a basin is open, one can apply for “unappropriated water”.  See Application for Permit to Appropriate, attached as Appendix C.  When the OSE recognizes that all the water in a basin has been appropriated and there is not enough water to satisfy additional demands for water, it will close the basin and such applications for new appropriations cannot be filed.

When a basin remains open to new appropriations, it seems to imply there is enough water to satisfy all existing rights and that there is extra for new users.  This is not necessarily true.  There are groundwater basins in New Mexico that have not been officially closed and for which the OSE still accepts applications for new appropriations, even though these basins are over appropriated.

With regard to surface water basins, when an application for new appropriation has been filed, the OSE will make a determination whether there is unappropriated water available for the benefit of the applicant.  If there is water available and the proposed appropriation is not contrary to the conservation of water in the state or detrimental to the public welfare of the state, then the state engineer shall endorse his approval of the application.  See NMSA 1978 § 72-5-6.

With regard to an application for new appropriation of groundwater, under § 72-12-3 (A), an applicant must provide the following:

See also Appendix C.  If the well will be located on privately owned land and the applicant is not the owner of the land, the application must be accompanied by an acknowledged statement by the owner of the land that the applicant is granted access across the owner’s land to the drilling site and has permission to occupy such portion of the owner’s land necessary to drill and operate the well. NMSA 1978 § 72-12-3(B).  An easement is preferred, although the OSE will accept affidavits or even signed letters from the land owner.

When filing any groundwater application, the description of the well location must be to the nearest forty (40) acre subdivision (or quarter section), unless otherwise prescribed by the state engineer. Applications which are defective as to form or fail to comply with the rules and regulations will be returned to the applicant with a statement of the changes required. If the changes are made and the application refiled with the state engineer within thirty (30) days after the applicant has been notified of the changes required, the application shall be processed with a priority date the same as the original filing date. When a corrected application is filed after the time allowed, it shall be treated in all respects as an original application received on the date of its refiling. §19.27.1.11 NMAC.

The date of filing establishes the original priority date of any application to appropriate, subject to the acceptance of the application and the issuance of a permit by the state engineer and the timely application of water to beneficial use. §19.27.1.9 NMAC.

When looking to drill a well and appropriate new groundwater, if there is a hydrological connection between the ground water and surface water in a particular basin, a requirement of the permit will be that one has to purchase surface water rights in an amount sufficient to offset the effects of pumping on the stream system.

Public Notice Requirement – Upon receipt of an acceptable application the state engineer will prepare and issue a notice for publication and send it to the applicant with instructions that it be published weekly for three consecutive weeks in a newspaper of general circulation within the county in which the well is to be drilled.  NMSA 1978, §75-5-4 (surface water); §72-12-3(D)(groundwater); §19.27.1.12 NMAC.  The notice will provide the places of appropriation and use, the amount of water, the purpose for which it is to be used and the name and address of the applicant.  The notice must state that the application has been filed and that objections may be filed within ten days after the last publication of the notice.  Id.   The applicant pays for the cost of the publication and must see that the newspaper’s affidavit of publication is filed with the OSE within sixty (60) days from date of issuance of the notice for publication. §19.27.1.12.

If the application is for a new appropriation, failure to file affidavit of publication within the time allowed will cause postponement of the priority date of the application to the date of receipt of such proof in proper form. Id.  In the case of any other type of application, failure to file proofs within the time allowed shall cause the application to be cancelled. Id.  The issuance of a notice for publication does not in any way indicate favorable action on the application by the state engineer.

Protests – Protestors will have standing to object if:

or

      And

§ 72-12-3(D).

The Water Code at §§ 72-12-1.1, 1.2, and 1.3 exempts applications for water for certain purposes from the requirement for publication of notice. There is a specific application for this type of water right. See 72-12-1 Application, attached as Appendix D.  These wells are limited to three acre feet per year. §19.27.1.22 NMAC.  Such wells can be further limited by city or county ordinance. 

72-12-1.1 Domestic Well – irrigation of not to exceed one acre of noncommercial trees, lawn or garden or for household or other domestic use

72-12-1.2 Livestock Well

72-12-1.3 Temporary Use for prospecting, mining or construction of public works, highways and roads or drilling operations designed to discover or develop the natural mineral resources of the state.  These permits can only be for a period not to exceed one year.  Unlike a livestock or domestic well, the OSE may deny this type of permit if it determines that the granting of the application will permanently impair other existing water rights.

Domestic Well Regulations – On August 15, 2006, the OSE adopted new regulations governing domestic wells.  These regulations did not affect existing domestic wells, livestock or temporary wells.  They only affect new domestic wells.  Under the new regulations, domestic use of water is limited to 1 acre feet per year (afy) per household. §19.27.5.9(D)(1) NMAC.  A domestic well used for more than one household is limited to 3 afy total and 1 afy per household. §19.27.5.9(D)(2).  Further limitations to the amount diverted may be imposed, by the courts, by municipal or county ordinances, or by the State Engineer. §19.27.5.9 NMAC.   Diversions from domestic wells in domestic well management areas generally cannot exceed 0.25 afy, and the State Engineer can impose even smaller limits or require that a consumptive use water right be transferred to the domestic well before diversions begin. §19.27.5.1 NMAC.  The 0.25 afy limitation may be increased in the case of multiple household use or if a larger consumptive use water right is transferred to the domestic well. §19.27.5.14(C)(2), (D) and (E) NMAC.

Another method of acquiring water rights is to transfer existing rights into your well or surface point of diversion.  A transfer of water rights is a reallocation of an existing right.  It does not refer to a change in ownership.  A transfer of water rights refers to a change in the

Place of use (show forms and discuss location on website)

Purpose of use and/or

Point of diversion (surface to ground, ground to ground).

Inherent within a water right “is the right to change the place of diversion, storage, or use of the water if the rights of other water users will not be injured thereby.” Clodfelter v. Reynolds, 68 N.M. 61, 66, 358 P.2d 626, 630 (1961) (quoting Linsdey v. McClure, 136 F.2d 65, 69 (10th Cir. 1943). Transfers are the answer to an increasing demand for a finite supply of water.  Not all water rights can be transferred.  Specifically, the OSE does not permit transfers of water rights between administrative blocks in a closed basin, across interstate stream gauges or from one basin to another.

 Arguably, by requiring a proof of beneficial use for an already vested water right, and not allowing a subsequent transfer until beneficial use is proved at the current location, there is a conflict with the New Mexico Constitution in that it makes the administrative process, rather than actual beneficial use, the basis for establishing and defining a water right.  The New Mexico Constitution establishes beneficial use as the basis, the measure and the limit of the right to use water.  Art. XVI, § 3, § 72-12-2.  Once a water right is put to beneficial use, it has been vested.  A vested water right is property, and may be transferred to a new place of use, or for a new purpose of use, if so desired by the water right owner. Clodfelter v. Reynolds, 68 N.M. 61, 66, 358 P.2d 626, 631 (1961).  While it is true that a water right is a usufructuary property right, and that the continuity of a water right is dependent on beneficial use, there are only two ways in New Mexico that a water right can be terminated – forfeiture and abandonment.  Absent a finding of either forfeiture or abandonment, the water right is still a good transferrable water right.

In addition, the water code provides that “all water used in this state for irrigation purposes…may be transferred for other purposes, without losing priority of right theretofore established, if such changes can be made without detriment to existing rights.”  NMSA 1978, § 72-5-23; see also Montgomery v. Lomos Altos, Inc. 2007-NMSC-002, ¶ 5, 144 N.M. 21, 150 P.3d  971 (stating transfers of surface and groundwater rights do not result in a loss of priority).  When the priority of a water right survives the transfer, the history of the water right survives the transfer.  A transfer therefore does not create a clean slate whereby the water right owner must start over and show beneficial use of the water right.

The form on the OSE website is called Application for Permit to Change an Existing Water Right (Non 72-12-1). See Appendix E.

As set forth above, once the application is filed, the public notice requirements must be satisfied in order to give other water rights owners and interested parties the opportunity to protest.

A transfer application will be denied if the OSE determines that the granting of the application will impair other water rights, will be contrary to the conservation of water in the state or detrimental to the public welfare of the state.

Impairment – The OSE will deny a transfer of water rights if it will impair the other existing water rights.  The burden of proof to show nonimpairment is on the applicant. McBee v. Reynolds, 74 N.M. 783, 399 P.2d 110 (1965); City of Roswell v. Berry, 80 N.M. 110, 452 P.2d 179 (1969); It is easiest to move water rights a short distance downstream.  Such a transfer is less likely to negatively affect or impair surrounding users at the move to location.  Transfers of greater distances will generally have a greater impact on surrounding water users at the move-to location.  Transfers are also more difficult from an impairment perspective if the move-to location is closer to the river, closer to the water rights of others, or upstream from the move-from location.  The impairment analysis often necessitates the hiring of expert witnesses such as hydrologists to examine the hydrological effects of the transfer on surrounding water rights owners.

Conservation of Water and Public Welfare – The OSE may refuse to consider or approve any application or notice of intention to make application or to order the publication of notice of any application if, in his opinion, approval would be contrary to the conservation of water within the state or detrimental to the public welfare of the state. §72-5-7; §72-12-3(E).  The burden of showing that the granting of the application will not be contrary to the conservation of water in the state or detrimental to the public welfare of the state is also on the applicant.  When the applicant brings forth a prima case on impairment, conservation and public welfare, a protestant or the OSE may then bring forth evidence to dispute the applicant’s arguments.

Extensions of time are also discussed in the forfeiture provisions of both the surface and groundwater statutes.  NMSA 1978, § 72-5-28 and 72-12-8 allow the state engineer to grant an extension of time “in which to apply to beneficial use the water for which a permit to appropriate has been issued or a water rights has vested, was appropriated or has been adjudicated” upon a “proper showing of reasonable cause for delay or for nonuse or upon the state engineer finding that it is in the public interest.”  Periods of non-use are not applied towards the four-year period required for forfeiture if the state engineer has granted an extension of time in which to apply the water to beneficial use. See   NMSA 1978, §§ 72-12-8(E), 72-5-28(D); §19.26.2.20(A)(2) NMAC. An extension of time is considered by the water code to be a “lawful exemption from the requirement of beneficial use.”  NMSA 1978, §§ 72-12-8(E), 72-5-28(D).

Applications for extensions of time can be filed retroactively for a one to three year period.  §19.27.1.38 NMCA.  Such applications have been routinely granted in the past.  We may see stricter enforcement in the future.   For example, the OSE has adopted the position that it will deny all requests for extensions of time for adjudicated rights that have not yet been put to beneficial use in the Upper Pecos Basin.  The alleged reason is that it has been more than 30 years since the adjudication and any water rights that have not been put to beneficial use will be deemed abandoned by the OSE.   NMSA 1978, section 72-12-8 (B) provides that extensions of time to put adjudicated rights to beneficial use are discretionary for the State Engineer.

Under the state engineer’s surface water regulations, after applying water to beneficial use pursuant to a permit, on or before the due date set by the permit, the permittee shall file a PBU with the state engineer.  The beneficial use of water must be in accordance with the permit conditions of approval.  The PBU must be signed by a licensed surveyor that can attest to the exact place of use and the applicant must also submit a plat of the survey along with the PBU. §19.26.2.13(B)(3); See also, Proof of Application of Water to Beneficial Use – Surface Water and Final Inspection and Report of Beneficial Use of Underground Water, attached as Appendix F.  

Once a PBU has been filed, the water right is limited to the amount of water that has been put to beneficial use, and the permittee may not further develop the water right. See§19.26.2.13(B) NMAC.  After notice to the permittee, the state engineer or his designee may perform a field inspection of the permittee’s application of water to beneficial use.  Upon application of water to beneficial use in accordance with the permit conditions of approval, the state engineer is required to issue a license to appropriate water, which defines the extent and conditions of use. §19.26.2.13(D).  A license to appropriate will recognize a water right only to the extent water has been applied to beneficial use under the conditions of the permit. Id. It will not recognize any diversion of water that exceeds the permit conditions of approval.  A license may be revoked for failure to comply with the terms of the license. Id.

The groundwater regulations also specify that “[t]he requirements for a license for change of place or purpose of use are the same as for a new appropriation,” §19.27.1.33 NMAC, and [w]hen all the required documents have been filed, the license to appropriate water for the new place or purpose of use shall be issued.” §19.27.2.34 NMAC.  The OSE will not issue a license where only a change of location of well (replacement well) or supplemental well is involved. Id.

Although the state engineer’s groundwater regulations require PBUs for change of place or purpose of use permits, such a requirement is not required by the water code.  The only provision in the water code that discusses final inspections, PBUs and/or licenses is limited to permits for new appropriations.  See NMSA 1978, §72-5-13.  This is because the permittee has only an inchoate right until the water is put to beneficial use. See Hanson v. Turney, 2004-NMCA-069, 136 N.M. 1, 3, 94 P.3d 1, 3.   Arguably, for a transfer permit, the same rationale does not apply, as only vested water rights can be transferred, and therefore the transfer permit does not merely give the permittee an inchoate right, but is rather allowing the permittee to use the vested water right at a different place and/or for a different use.   Therefore, there is an arguments that because a finding of forfeiture or abandonment is necessary to terminate a vested water right, a water right owner’s failure to file a PBU or obtain a license for the new place and/or purpose of use does not result in loss of the water right.

NMSA 1978, §72-5-25 provides that one can apply for an emergency change in point of diversion, storage or use of water without notice and opportunity for protest if :

The same procedure can also be used for changing point of diversion for a groundwater well.  There is no special form for this.  Use the transfer application form and retitle it Emergency Application and attach the affidavit.  Emergency approval given by the OSE will only last until the permanent application for transfer is granted or not granted. NMSA 1978, § 72-5-25(C).

An alternative to appropriating water rights or purchasing them and transferring them to your property is leasing.  Water rights owners may choose to lease their water rights if they are unable to put them to beneficial use themselves for any reason and in order to avoid a determination of abandonment of those rights.  It is a way to assure continuous beneficial use of water rights.  Leasing water rights is generally much cheaper than buying water rights.  Water rights leases are governed by the Water-Use Leasing Act (NMSA 1978 §§ 72-6-1 through 72-6-7).

While leasing may help a water rights owner avoid a determination of abandonment, a lease in and of itself, does not toll any forfeiture of water rights for nonuse, and the owner shall not, by reason of the lease, escape the forfeiture for nonuse prescribed by law. §72-6-3.  Therefore, if the OSE gives notice to both the water rights owner and the lessee that the water rights will be forfeited for nonuse, the owner and/or lessee has four years to put the water to beneficial use or the water right will be determined forfeited.

Neither the initial lease term nor any renewal term may exceed ten years.  NMSA 1978, §72-6-3.

The Lessee must file an application requesting approval for the use and location of use to which the water will be put. §72-6-4.  Notice must be published and opportunity to protest is given. §72-6-6.  The applicant must show that his proposed use and location of use is a beneficial use and will not impair any existing right to a greater degree than such right is, or would be impaired, by the continued use and location of use by the owner. Id.

Any owner who believes his water rights will be adversely affected by the granting of the application, may file a protest.  Such protest shall be specific as to how the granting of the application will adversely affect his water rights.  The Water-Use Lease Act does not contemplate protest on the basis of conservation or public welfare.

Proposed House Bill 402 in 2011 proposed that where a water rights owner has moved rights to a move-to location but has been unable to put them to beneficial use at that location and where it is infeasible to put the water to beneficial use for reasons outside the water rights owner’s control, the permittee may lease all or a portion of the water rights authorized by the permit for ten years and that shall satisfy the beneficial use requirement.  This legislation did not pass.  Pursuant to its policy above, the OSE will not allow leasing of water rights that have not been put to beneficial use on the lessor’s property.

Modifications can be made to water rights to change points of diversion, purpose or place of use without affecting priority dates.  A transfer of a water right is one type of modification to a water right.  Other examples of modifications are applications for supplemental wells or replacement wells, applications for co-mingling or combining of water rights and applications for return flow credits.

Supplemental Wells – The same OSE form is used for a supplemental well as for other types of transfers. See Application for Permit to Change an Existing Water Rights (Non 72-12-1), attached as Appendix E.  Supplemental wells do not increase the amount of the permitted or declared diversion, but only change where the water is pumped from.  Water rights owners will often drill supplemental wells if their other well or wells are not pumping sufficient quantities of water to allow them to use their full permitted or declared right.  A supplemental well must be drilled into the same and only the same underground stream, channel, artesian basin, reservoir or lake as the well or wells being supplemented. NMSA 1978, §72-12-24.  A supplemental well can also be used to supplement a surface water right. §19.26.2.11(C) NMAC.

As with any change in point of diversion, place or purpose of use of a water right, a supplemental well must be noticed to the public and opportunity for protest given, even though the water right owner is not proposing to pump any more water than he or she has been pumping. §§72-12-7. The impairment analysis is generally fairly simple.  If the supplemental well is in close proximity to the water rights owners other wells and is not sufficiently closer to wells of other ownership, the water rights owner will likely be able to show that the granting of the supplemental well application will not impair other water rights.  Impairment issues can arise where the supplemental well is too close to a well of other ownership.

A groundwater right owner can apply for a temporary emergency supplemental well permit if he or she can show that an emergency situation exists in which the delay caused by publication and hearing would result in crop loss or other serious economic loss; and the state engineer, after a preliminary investigation, finds that the supplemental well does not impair existing water rights, and grants him a permit authorizing the drilling and use of the supplemental well prior to publication and hearing. §72-12-24(A and B); §19.27.1.27 NMAC.  If the preliminary investigation by the state engineer causes him to reasonably believe that the drilling and use of a supplemental well may impair existing rights, then no permit shall be issued until after publication and hearing. §72-12-24(B).

Replacement Wells – A well owner can drill a replacement well within 100 feet of the original well without notice and publication if the well is drilled into the same and only the same underground stream, channel, artesian basin, reservoir or lake as the original well; if the appropriation is of the same amount of water allowed by his water right in the original well; and if an emergency situation exists in which the delay caused by application, publication and hearing would result in crop loss or other serious economic loss.  The water right owner must file an application, or notify the state engineer office of these facts and the location of the proposed replacement well by registered letter, prior to drilling; provided that he shall file application for a permit within thirty days after drilling begins. NMSA 1978, §72-12-22(A).  There is no opportunity to protest such a well before the OSE, but other well owners can file an action in a district court. §72-12-22(B). If the replacement well is further than 100 feet away from the original well, however, there is a requirement for publication and an opportunity for protest if the State engineer’s preliminary investigation causes him to reasonably believe that the drilling and use of the replacement well may impair other existing rights. NMSA 1978, §72-12-23.

Applications can also be filed to co-mingle and/or combine existing rights.  Commingling of water rights allow the water user to combine the places of use while not changing the diversion limits from each authorized point of diversion.  Water rights are typically commingled to allow blending and mixing of water or to provide more efficient irrigation practices.  This is done by municipalities, irrigators or utilities with multiple wells. Combining water rights takes water rights with different points of diversion and allows them to be diverted from the points of diversion of the other water rights they are being combined with.  In some basins, the applicant is required to set a pumping limit for each point of diversion.

Other examples of water rights modifications are applications to enlarge the place of use and applications to stack water rights.

Application for Return Flow Credit – Surface water return flow is that percentage of the total diversion of surface water that has been applied to beneficial use pursuant to a water right or permit and returned to the same surface water stream from which it was appropriated. §19.26.2.12 NMAC.  Return flow credits do not allow an increase in the authorized consumptive use amount, impairment of existing water rights, and cannot be contrary to the conservation of water within the state, or be detrimental to the public welfare of the state. Id.  A permit from the state engineer is required to receive return flow credit.  The application must be accompanied by a return flow plan. The permittee has the final burden of demonstrating return flow. The state engineer may approve an application for return flow if the permitted, licensed, or adjudicated consumptive use amount is not increased, the return flow does not violate any applicable standards, regulations, or permits promulgated pursuant to the New Mexico Water Quality Act, or the federal Clean Water Act, and the requirements of §19.26.2.12 NMAC have been satisfied. Id.

An exchange is an agreement between parties where water can be diverted or stored at one point, in exchange for an equivalent amount of water being released or bypassed at another point on a river system.  In an exchange, the diversion or storage of water and the release or bypass of water from another point must occur simultaneously to prevent injury to other water users.  Exchanges must be approved by the State Engineer’s Office, who will ensure that the exchange functions properly.  Water rights exchanges are common in Colorado, however, there are not many examples of water rights exchanges in New Mexico.  One example where the New Mexico State Engineer has authorized an exchange is with Animas/La Plata Contract Water.  In 1992, the San Juan Water Commission/ City of Bloomfield were granted a permit to divert 3000 afy from the San Juan River.  The water diverted by the City is required to be offset by simultaneous Animas-LaPlata Contract surface water releases into the San Juan River or by other means satisfactory to the State Engineer.  A condition of that permit states that

Diversion of Animas-LaPlata Project contract water from the San Juan River is permitted by exchange only to the extent that the diversion will not cause impairment of, or reduction in, the amount of San Juan River water available to valid existing rights or to any Navajo Reservoir contract water being delivered via the San Juan River.  Implementation of the exchanges of water required under these permits shall be pursuant to the direction of the State Engineer.

See Permit to Divert Animas – La Plata Contract Water, attached as Appendix G.

There are no statutes or regulations that address exchanges.  The OSE should make a preliminary determination of non-impairment before permitting such an exchange.

Water rights in New Mexico have long been considered real property rights.  New Mexico Products Co. v. New Mexico Power Co., 42 N.M. 311, 321, 77 P.2d 634, 641.  Walker v. United States, 2007-NMSC-38 at ¶ 39, 142 N.M. 45, 162 P.3d 882.  Water Rights, however, unlike other real property rights, are “usufructuary,” meaning they may be lost if they are not beneficially used.  As stated by the New Mexico Supreme Court “one cannot sit on water rights to the exclusion of any other claimant without putting them to beneficial use.” Walker, 2007-NMSC-038, ¶ 22 (quoting Ira G. Clark, Water in New Mexico: A History of Its Management and Use 39 (1987) (“Since the criterion was application of water to beneficial use, this was not a property right which could be acquired in perpetuity; it had to be exercised to be kept alive.”). The Supreme Court describes water rights in New Mexico as “belonging to the public; as subject to public servitudes; as incapable of full ownership; as subject to constraints that it be used nonwastefully, reasonably, beneficially, etc.”  Walker, 2007-NMSC-038, ¶ 27 (quoting KRM, Inc. v. Caviness, 1996-NMCA-103, ¶ 5, 122 N.M. 389, 925 P.2d 9).  If not used, it is lost through forfeiture or abandonment and reverts back to the public domain.

In New Mexico, ownership of water rights is transferred by deed – just as land is.  Irrigation water rights are considered appurtenant to the land that is their designated place of use.  This means that if the land is deeded to another party, the ownership of the irrigation rights is transferred along with the land, even if the deed is silent with regard to water rights.  If the owner of irrigation rights wants to sell the land but keep the water rights, he or she must expressly retain the water rights in the deed and in the purchase agreement as well.

Non-irrigation water rights are not appurtenant to the surface estate and may not be conveyed with the land if the deed is silent.  For someone who is buying a house with a domestic well, the buyer should make sure the deed expressly states that the wells and water rights are included in the transfer of ownership.  Express language conveying the land “together with all water rights” should be used.

When buying or selling a water right, it is important to conduct due diligence and confirm the validity of the water right.  Often times the buyer will hire a water rights specialist to determine the priority date of the water rights and determine the validity of the water right by making sure the water rights have not been abandoned or forfeited in the past, and that the rights will otherwise withstand the scrutiny of the state engineer.

Another important step in buying a water right is to conduct a title search.  Do not assume that the water rights specialist that is determining the validity of the water right is checking title as well.  Usually they do not.  A water right can be valid in the eyes of the state engineer even if the seller does not have legal title to the water.

There are different conveyancing instruments that can be used to convey ownership.  There are Warranty Deeds, Special Warranty Deeds and Quitclaim deeds.  Generally a seller prefers to issue a quitclaim deed, which transfers on the title that the seller has and makes no guarantees.  A Special warranty deed guarantees title as of the time the seller acquired ownership of the water rights.  A Warranty deed guarantees that the buyer is receiving valid title to the water rights.

Changes of Ownership – The New Mexico Water Code provides that a “new owner” of a water right must file a change of ownership form with the New Mexico Office of the State Engineer (“OSE”), along with a copy of the recorded instrument of conveyance.  NMSA 1978, § 72-1-2.1 (1996). Specifically the statute, titled “Water rights; change in ownership; filing and recording; constructive notice” provides:

In the event of any changes of ownership of a water right, whether by sale, gift or any other type of conveyance, affecting the title to a water right that has been permitted or licensed by the state engineer, has been declared with the state engineer or has been adjudicated and is evidenced by a subfile order, partial final decree, final decree or any other court order, the new owner of the water right shall file a change of ownership form with the state engineer. The form shall include all information conforming with water rights of record filed with the state engineer and shall be accompanied by a copy of a warranty deed or other instrument of conveyance. The new owner shall record a copy of the change of ownership form filed with the state engineer with the clerk of the county in which the water right will be located. The filing shall be public notice of the existence and contents of the instruments so recorded from the time of recording with the county clerk.

NMSA 1978 § 72-1-1.2 (as amended through 1996).

The State Engineer has also promulgated rules regarding changes of ownership within its surface water regulations.  See §19.26.2.17 NMAC.  There is no comparable regulation in the groundwater regulations, but surface and groundwater are generally administered pursuant to the same rules, there is no parallel rule in the OSE rules governing groundwater.  See City of Albuquerque v. Reynolds, 71 N.M. 428, 437-38, 379 P.2d 73, 79-80 (1962) (applying surface water statutes to groundwater).  The rules also require that the new owner attach to the change of ownership form a copy of a warranty deed or other instrument of conveyance that has been duly recorded with the clerk of the county in which the declaration, permit, license, or adjudicated water right is located.  The warranty deed or other instrument of conveyance shall show the ownership of the declaration, permit, license, or adjudicated water right in the name of the new owner.  The state engineer will not accept for filing a change of ownership form that is not accompanied by a recorded instrument of conveyance. §19.26.2.17(C). Notably, the regulation requires that the attached instrument of conveyance have already been recorded with the county clerk and explicitly states that the form will not be accepted for filing unless this recorded instrument of conveyance is attached.

The regulations, however, go on to state that “[r]eal estate installment sales contracts or memoranda of such contracts, mortgages, instruments conveying security interests, or other documents that do not on their face unconditionally convey present title to the declaration, permit, license, or adjudicated water right are not acceptable instruments of conveyance for the purposes of this section.”  §19.26.2.17(C)(2). The acceptable instruments of the conveyance listed by the state engineer “include, but are not limited to, warranty deeds, special warranty deeds, quitclaim deeds, personal representative’s deeds, special master’s deeds, and tax deeds” and other instruments unconditionally convey present title to the declaration, permit, license, or adjudicated water right.” §19.26.2.17(C)(1).

Negotiation of water rights prices requires knowledge of purchase prices of water rights in the surrounding area and within the same basin.  Water rights prices vary tremendously from region to region in New Mexico.  Sometimes a water rights broker may have information on recent water rights purchases in a particular area.  Generally water rights are worth whatever someone will pay for them.  Factors that can affect the price of a water right include the location of the water right, validity, the extent to which the water has been historically put to beneficial use, whether or not the water right is adjudicated, permitted or declared, the permitted or declared purpose of use, the physical supply available in the area, and market conditions.  Water rights prices dropped dramatically in some areas when the recession hit New Mexico.

The buyer of a water right should always insist on making the purchase agreements contingent upon OSE approval of the transfer of the water rights.

Augmentation plans are court-approved plans allowing diversion of water from a convenient location in exchange for providing an equivalent amount of water to a river or stream at another point that satisfies senior water rights. Augmentation plans allow for the use of water without causing injury to other downstream water users.  New Mexico does not have augmentation plans, however, injury to downstream users is addressed through various mechanisms such as offsets required with new appropriations and the transfer process discussed above, which requires the State Engineer to review each application for impairment, conversation of water in the state and detriment to the public welfare of the state.

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