If you wish to become an informed Seller or Buyer of Montana Water Rights or real estate that includes Water Rights, it is imperative that you understand the basic concepts, laws and processes that determine if a particular “Water Right” is valid and suitable for its intended use(s). We’ll touch briefly on some of them below.
State of Montana Owns the Water
The first of these is the concept of “Owning Water” as opposed to having just “the Right to Use Water”. While it may seem counterintuitive at first blush, the State of Montana believes it owns all the water in the state, while the holders of Water Rights merely possess the “right to use” some of that water subject to a variety of conditions and limitations. Here’s the crucial language in Article IX of the Montana Constitution:
“All surface, underground, flood, and atmospheric waters within the boundaries of the state are the property of the state for the use of its people and are subject to appropriation for beneficial uses as provided for by law.”
Therefore, the mere fact that water arises on, or passes over, a parcel of land doesn’t mean the Owner has an automatic right to use it. You must have a valid and viable “Water Right” recognized by the State Department of Natural Resources (DNRC). You may obtain it as either a new or an existing water right, but either way, you have to have one specifically tailored to your intended use(s).
Doctrine of Prior Appropriation – first in time, first in right
Montana observes what is known as the “Doctrine of Prior Appropriation.” This doctrine says that those who first put a specific amount of water to beneficial use in a specific place gets to continue using it “first” when water is scarce. And that “first right” can be passed on to subsequent holders of that right. This “first in time, first in right” priority dating system ensures that water users whose water right was first put to use (call these the “senior users”) can legally demand that their water needs from a stream or aquifer be completely fulfilled before the interests of more recent (“junior”) users. Some senior Water Rights in Montana go back to the 1860’s. In dry years when water is too scarce to satisfy all Water Rights, senior users with older “Priority Dates” get water – and junior users may not. This lawful enforcement of a Senior Water Right under the “Doctrine of Prior Appropriation” is known as the Montana “Call Doctrine”. So the basic lesson is that not all Water Rights are created equal.
A key consideration in valuing Water Rights under the “Doctrine of Prior Appropriation” is that water must be put to a “beneficial use”. When this system evolved in the arid West over a century ago, “beneficial use” was largely defined as the act of diverting waters from a stream or river. Water left instream was widely considered to be wasted. A well-managed stream was a dry stream. The “idea” of water left instream to serve a beneficial use didn’t begin to surface in Montana law until the late 1960’s. Today, in specific circumstances, it is possible to obtain, purchase or lease a legal Water Right for such things as the benefit of fisheries, wildlife, water quality or the “mitigation” of possible adverse effects on the other water users.
But then, as now, the essential element in protecting and preserving a Water Right was, and is, to apply it to a permissible beneficial use in a specified place and time. In the case of irrigation, for instance, that means actually irrigating something other than a ditch bottom. Likewise, having 40 acres and pouring enough water on it to irrigate 400 acres doesn’t establish a beneficial use of the excess water. The beneficial use is limited by the reasonable need of the particular use. The “reasonably needed quantity” can sometimes be extremely difficult to calculate and even harder to substantiate, but it remains a key element in determining a Water Right’s “true value” and all around suitability for its intended use.
Use It or Lose It
Next is the “use it or lose it” factor. Valid and viable Water Rights that are appurtenant to the land have been recognized as a form of a “real property right.” But it’s not exactly like a piece of land or a home – you have to use it. If you don’t use it, you can lose it. This concept of “use it or lose it” doesn’t mean it has to be used every day or every year. A really junior right may only find available water every few years, and then only for a small part of the year, but it’s still a valid water right; just not a very reliable or valuable one. Disuse, coupled with some outward sign of intent to no longer use the water, can lead to a finding of abandonment of a water right and it may simply be lost forever. In such event it will simply revert back to the state. Keep this factor in mind as you consider the Water Rights, or property, you are representing for sale or looking to buy.
Documentation of a Perfected Water Right
Likewise, just putting water to use by itself, does not establish a viable, lawful and enforceable water right either. A water right has to be “perfected” by actually putting it to a beneficial use and being able to document that use by filing a correct and complete “Notice of Completion.” In the 19th and early 20th century, it was possible to just file a notice of a water right in the county clerk’s office. Miners were particularly fond of doing this. In many cases, no ditches were dug or water diverted and no actual provable “beneficial use” ever occurred! The validity and therefore the value (if any) of those Water Rights are highly suspect for any modern day use. Today there are far more complex DNRC procedures and mandatory requirements to be complied with.
Water Rights are Transferable
Perhaps the most widely misunderstood aspect of Montana Water Rights is the fact that Water Rights are transferable, and therefore they can be bought and sold. Occasionally you may hear the outdated refrain that “Water always has to run with the land” as though it were an indisputable mandate. In actual fact, the statement is only partly true. If you own a piece of real estate, and it has Water Rights currently appurtenant to it, and you sell that real estate but don’t mention the Water Rights in the conveyance documents, the Water Rights may transfer and run with the real estate (to the extent they were valid to begin with). However, additional steps and documents are required to get it into the Buyer’s name on the DNRC and DOR records.
Some want to believe that this means the water right can never be “severed from the land” or “reserved from the sale”. That isn’t true, and hasn’t been true since at least 1895. Water Rights can be severed from one place and transferred to new places of use totally unrelated to the original real estate, and just as surely they can be retained by the Seller, segregated among parcels, leased and even bought and sold in separate transactions. But there are processes to be observed. You may need help.
Water Rights Can Be Changed
Any desire to change the purpose, place of use, time of use, type of use, or place of diversion of a Water Right must first obtain approval from the Montana Department of Natural Resources and Conservation (DNRC). And the burdens are on you and your Water Specialist to prove that you won’t adversely affect the Water Rights of anyone else, as well as proving that there won’t be any expansion of use above the historic use. DNRC has an extensive procedure for obtaining that approval. This Change Process can be extremely rigorous.
A Water Rights Report Benefits All Parties
Historic use of a water right – not what an “abstract”, or even what a “court decree” says – is key to establishing the enforceable extent of a Water Right. So, when you decide to Sell or Buy all or part of a Water Right, or property with a Water Right, one basic factor in verifying its value is the degree of documented actual historic use. There are a variety of ways to accomplish this, but it takes a degree of experience, time and effort to perform such “due-diligence”. Any Water Right for sale, with or without property, should be offered complete with all the best available documentation, just as land being offered should come with a documented “Title Report” for proof of land ownership.
A professionally prepared, researched and documented “Water Report” is the best form of Due Diligence available to both Sellers and Buyers. Over the years we have developed a step-by-step plan for researching the validity, the viability and the value of Water Rights appurtenant to a specific property. These “Due Diligence Water Reports” are best done by a trained and experienced Specialist. With over two decades of experience in the Water Rights arena, perhaps we can provide the assistance you need. Please feel free to contact us for a complimentary copy of our “Informed Water Buyers Guide”, a copy of our “Water Rights Consumer Protection Recommendations” and our “Understanding the Water Rights Due-Diligence Report” for Water Sellers, Buyers and their agents – we’ll be glad to provide them to you for free with no obligation.